Numeraire

[kdmfe]

In Steven Shreve’s bk 2 Chapter 9: Change of Numeraire Section 9.2 Numeraire

A sentence states ‘Currency pays a dividend because it can be invested in the money market.

Can anyone please explain the meaning of the above sentence?

 

[diegosanaz]

If you are an USD investor you wouldn't hold USD cash, you would invest it in t-bills or a money market to earn some interest in your cash. Similarly, if you are an USD investor and buy MXN, you wouldn't buy just MXN cash, you would invest it in mexican interest rate (cete) so you have interest in MXN. You can think of that as a dividend.

 

[kdmfe]

Phenomenal

I am reading Stochastic calculus along with a Phd MAthematics student on my own in my house.

I know this is not a simple subject . So every small help from anyone in the forum ( I will count it as) is a blessing.

Many thanks once again