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The World's New Fear Gauge Is Ringing Alarm Bells in the Era of Trump
Once upon a time, the cost to hedge currency risk in global trade and finance was relatively cheap. How things change. In the pre-crisis heyday, when the cost to procure dollars staged an uptick — implied interest rates in the currency market exceeding corresponding rates in the cash markets by a notable margin — banks would subsequently arbitrage away the difference, and move the gap close to zero. Once viewed as a law of finance known as the covered interest rate parity condition, this market dynamic unraveled during the global financial crisis and then again during the euro-area sovereign debt debacle, amid a ... (full story)
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