LONG-TERM COVERED INTEREST PARITY - EVIDENCE FROM CURRENCY SWAPS

This paper constructs long-term arbitrage conditions using a now well- developed mechanism for hedging long-term currency positions, the curr ency swap. Using the arbitrage conditions, bond yields denominated in different currencies are compared across the onshore markets of Canada , Japan, Germany, Switzerland, the United Kingdom, and the United Stat es, and within the Euromarket. The evidence indicates that long-term f inancial capital is as mobile across these markets as is short-term ca pital. This appears to be the case both within the Euromarket and acro ss political jurisdictions.