We jointly re-specify the relative purchasing power parity (RPPP) and uncovered interest rate parity (UIP) conditions as the (log) ratio of stochastic discount factors by inverting the market price of risk formula. Our empirical model provides new insights, which show that violations to UIP and...

This study examines international dual stocks' exposure to two types of exchange rate effects/risks. One is an arbitrage effect and a deviation from the Law of One Price (LOOP). This is a simultaneous effect, is influenced by factors relating to the structure of the market and results in a stock...

A sovereign that is issuing debt denominated in foreign currency is exposed to a mismatch between the value of its assets that can be used to serve the debt, denominated in local currency, and the value of its liability. During economic crisis, when the probability of default by the sovereign...

The paper shows how-in a Merton-type model with bankruptcy-the currency composition of debt changes the risk profile of a company raising a given amount of financing, and thus affects the cost of debt. Foreign currency borrowing is cheaper when the exchange rate is positively correlated with the...