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Error-Learning in the Eurodollar Market

Published online by Cambridge University Press:  19 October 2009

M. Chapman Findlay III  and
Elko J. Kleinschmidt
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Extract

During the last 15 years, the Eurodollar deposit market has grown from perhaps $1 billion to a level now estimated to exceed $200 billion. This growth has prompted numerous arguments and investigations as to its cause [cf. 14, 22, 27], factors influencing it [cf. 24, 28, 29, 32], its import for U.S. banking and monetary policy [cf. 2, 38], its role in international financial market integration [cf. 1, 9, 39], and its impact on the internationalization of U.S. monetary policy [cf. 18, 23]. Over this same period of time, an increasing empirical interest has developed in the term structure of interest rates. Yet most empirical studies of the Eurodollar market [cf. 2, 28, 29, 32] have employed the 90-day Eurodollar CD rate as though it were “the rate of interest” in this market. This tendency has resulted more from the empirical ease of computing covered interest differentials in conjunction with the three–month forward exchange rate than from theoretical considerations [cf. 32, p. 7].

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 10 , Issue 3 , September 1975 , pp. 429 - 446
Copyright
Copyright © School of Business Administration, University of Washington 1975

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