A New Representation for the Foreign Currency Risk Premium

We provide new representations for the risk premium and expected exchange rate change. According to our representations they are a function of the term premium. In particular, we obtain that investors require higher interest rates on currencies expected to fall if the term premium is expected to stay constant. Moreover, our representation are such that the risk premium is very volatile and negatively correlated with the expected depreciation rate.

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Year of publication:	2001
Authors:	Adão, Bernardino ; Silva, Maria de Fátima
Institutions:	Banco de Portugal

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Series:	Working Papers.
Type of publication:	Book / Working Paper
Language:	English
Classification:	F30 - International Finance. General ; F31 - Foreign Exchange ; G11 - Portfolio Choice ; G12 - Asset Pricing
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10008524144