ABSTRACT
Monetary theory concerned with the influence, broadly viewed, of money in the economic system. The prices and incomes policy pursued by the Labour government in the mid 1960s provided a strong fillip to this development, but undoubtedly US owned multinational enterprises took a leading part. Multinational enterprises also have privileged access to the international long-term capital market. The international mobility of capital is not, of course, perfectly elastic with respect to interest rate differentials. Multinational enterprises also have privileged access to the international long-term capital market. Operators in the market may therefore have to cover themselves for the exchange risk by selling in the forward exchange market, at a discount, the currency they have bought on interest arbitrage grounds. Interest rate differentials can persist therefore, depending on the cost of forward cover. Interest rate differentials can persist therefore, depending on the cost of forward cover.
