Foreign Exchange and Money Markets in the Context of the Exchange Rate Target Zone

Viktors Ajevskis (), Armands Pogulis and Gunars Berzins
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Gunars Berzins: Bank of Latvia

No 2004/01, Working Papers from Latvijas Banka

Abstract: The paper has assessed market participants' confidence in the national currency of Latvia in the period between January 2001 and April 2003 using as the basis the position of the lats interest rates within the interest rate corridor. For the purpose of the study, the method of Lars E. O. Svensson was modified taking into account quoted interest rates and exchange rates as well as using the simple interest rate calculation. For the term of up to 1 year, arbitrage opportunities in Latvia's foreign exchange and money markets, likely to arise from the absence of money market participants' confidence in the existing foreign exchange corridor, have not been observed. The assessment of Latvia's money market participants does not signal any realignment possibility for the foreign exchange regime within the coming year.

Keywords: exchange rate target zone; credibility; market interest rate; arbitrage opportunities (search for similar items in EconPapers)
JEL-codes: D84 E43 E58 F31 G15 (search for similar items in EconPapers)
Date: 2004-08-17
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ltv:wpaper:200401

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