Currency Mispricing and Dealer Balance Sheets

88 Pages Posted: 12 Feb 2019 Last revised: 14 Apr 2020

See all articles by Gino Cenedese

Gino Cenedese

Fulcrum Asset Management

Pasquale Della Corte

Imperial College Business School; Centre for Economic Policy Research (CEPR)

Tianyu Wang

Tsinghua University

Multiple version iconThere are 2 versions of this paper

Date Written: April 13, 2020


We find dealer-level evidence that recent regulation on the leverage ratio requirement causes deviations from covered interest parity. Our analysis uses a unique dataset of contract-level currency derivatives with disclosed counterparty identities and a plausibly exogenous variation arising with the introduction of the UK leverage ratio framework. We find that affected dealers, after the regulatory change, charge a premium to clients that synthetically borrow dollars through the foreign exchange market relative to unaffected dealers, even after controlling for changes in clients' demand. Also, some clients increase their trading activity with unaffected dealers with whom they already had a pre-existing relationship.

Keywords: Exchange rates, dollar basis covered interest parity condition, arbitrage opportunities

JEL Classification: F31, G12, G15

Suggested Citation

Cenedese, Gino and Della Corte, Pasquale and Wang, Tianyu, Currency Mispricing and Dealer Balance Sheets (April 13, 2020). Available at SSRN: or

Gino Cenedese

Fulcrum Asset Management ( email )

66 Seymour Street
London, W1H 5BT
United Kingdom

Pasquale Della Corte (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London, SW7 2AZ
United Kingdom
+44(0)20 759 49331 (Phone)


Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

Tianyu Wang

Tsinghua University ( email )

Beijing, 100084

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