Title

Decision rules for an investor in forward exchange markets

Abstract

This paper obtains decision rules for a risk-averse, expected-utility-maximizing investor in forward exchange markets who may simultaneously combine covered arbitrage, spot and forward speculation. The introduction of margin requirements makes rates of return on all alternatives directly comparable, and causes initial wealth to constrain investment in all alternative. It is shown that combinations involving more than two alternatives need not be considered, and that a comparison of (expected) rates of return alone is sufficient to choose between the relevant combinations. The inadequacy of the 'functional' approach for analyzing individual decision-making is demonstrated.

Department(s)

Economics

Document Type

Article

DOI

10.1016/0022-1996(79)90022-9

Publication Date

1979

Recommended Citation

Dalal, Ardeshir J. "Decision rules for an investor in forward exchange markets." Journal of International Economics 9, no. 4 (1979): 539-558.

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