Money Market Arbitrage and Commercial Banks' Base Rate Adjustments in the United Kingdom

Christopher Green

Bulletin of Economic Research, 1987, vol. 39, issue 4, 273-96

Abstract: This paper sen in the United Kingdom when large companies are able to borrow fro m a commercial bank and relend the money in the market at a higher ra te. Such arbitrage is commonly called "round-tripping." Round-tripp ing is investigated in a simple theoretical way, and then a simulatio n approach is used to estimate the amount of funds involved in round- tripping in the 1970s. These estimates tend to support the view that round-tripping was probably rather modest in amount in relation to th e values of the main monetary aggregates. Copyright 1987 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Date: 1987
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