Intra-Day Arbitrage Opportunities in Foreign Exchange and Eurocurrency Markets




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    • S. Ghon Rhee is a Professor of Finance and Rosita P. Chang is an Associate Professor of Finance at the College of Business Administration, The University of Rhode Island. We are grateful to Mr. Raimund G. Sargent, former Senior Vice President at Fleet National Bank for the intra-day quotations used in this study and to Natalie Zodda and Bethany Holt for their research assistance. An earlier version of this paper was presented at the 1988 European Economic Association Meeting in Bologna, Italy, and the University of Michigan Finance Workshop. We extend our thanks to Jorge Calderon-Rossell, Laura Kodre, Alan Severn, and Akio Yasuhara for their comments. We are especially obliged to Richard M. Levich, the referee, and René M. Stulz for many helpful suggestions which improved this paper considerably.


We have two primary objectives in this study. First, we examine the frequency of attaining simultaneous equilibrium on spot and forward foreign exchange markets and on domestic and foreign securities markets. Second, we measure the profitability of covered interest arbitrage and one-way arbitrage. Our empirical analysis has been conducted using real-time quotations. The empirical results indicate that: (a) the markets are efficient in the sense that profit opportunities from traditional covered interest arbitrage are rarely available; and (b) the frequency of attaining simultaneous market equilibrium is surprisingly low, thus opening the door for one-way arbitrage.