The financial crisis of had major implications for the foreign exchange market. We review events and implications for exchange rates, volatility, returns to currency investing, and transaction costs. This "blow-by-blow" narrative is intended to be a resource for researchers seeking a comprehensive review of the "what, why and when" of the financial crisis in terms of foreign exchange market dynamics. An implementable financial stress index FSI is created and then used to illustrate the dramatic nature of the current crisis compared to earlier crises.
We also examine how the global FSI might have been used to condition the exposure to the carry trade long high interest rate currencies, short low interest rate currencies and we show that such an index has potential value in protecting a portfolio against loss during periods of stress, although this result is subject to the important caveats of controlling for transaction costs and timely recognition of the change in regime.
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Log in now much improved! The Crisis in the Foreign Exchange Market. Michael Melvin Mark P. Related research [Other version s available]. References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.: Access and download statistics. When requesting a correction, please mention this item's handle: Klaus Wohlrabe If you have authored this item and are not yet registered with RePEc, we encourage you to do it here.
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