Highlighting some of the issues with multicurrency numéraires

Kunkler, M. ORCID: https://orcid.org/0000-0001-8367-4331 (2024) Highlighting some of the issues with multicurrency numéraires. Finance Research Letters, 69 (Part B). 106212. ISSN 1544-6131 doi: 10.1016/j.frl.2024.106212

Abstract/Summary

Multicurrency numéraires are weighted baskets of currencies, in which the weights are positive and sum to one. Some popular multicurrency numéraires are: trade-weighted, the IMF's Special Drawing Right (SDR), equally-weighted, risk-weighted, and GDP-weighted. But which multicurrency numéraire should be used to model systems of currencies? This paper highlights some of the issues that arise when using multicurrency numéraires by utilising two conditions, namely, a consistency condition and a no-arbitrage condition. It is shown that both the consistency condition and the no-arbitrage condition are satisfied by common equally-weighted multicurrency numéraires. As a consequence, it is recommended that common equally-weighted multicurrency numéraires be used to model systems of currencies.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/118910
Identification Number/DOI	10.1016/j.frl.2024.106212
Refereed	Yes
Divisions	Arts, Humanities and Social Science > School of Politics, Economics and International Relations > Economics
Publisher	Elsevier
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