This paper examines foreign exchange trading at the dealer level. The dealer we track averages $100,000 in profits per day on volume of $1 billion per day (or one basis point). The half-life of the dealer's position is only ten minutes, providing strong support for inventory models. A...

This article describes how financial disruptions affect investment in a general equilibrium economy. I show that in a world with differentiated lenders, the most efficient will become financial intermediaries; their preeminence will nonetheless be limited by frictions with depositors. Because of...