The paper discusses exchange rate overshooting in connection with foreign exchange intervention.

The literature overwhelmingly belives that over (under) valued real exchange rate is associated with high (low) financial premiums under exchange rate. We wish to opppose this view.

This paper extends the model of the exchange rate developed by Obstfeld and Rogoff (1995; 1996) to cnsider the speculative dynamics resulting from the interaction between chartists and fundamentalists put forward by De Grauwe, Dewachter, and Embrechts (1993).

The paper examines the hypothesis that the nominal exchange rate follows a logistic equation within the framework of the equilibrium exchange rate model.

This paper employs a stochastic option-pricing models to investigate when should an emerging market engage in financial liberalisation in a framework inwhich policymakers choose an optimal exchange rate target aimed at minimising price volatility and the risk of a debt crisis.