In this paper we illustrate and explain the relationship between interest rates (or forward rates) and discount factors. We present the forward-discount factor relationship, which is popular and widely used in financial markets for yield curve construction, and derive the exact formulae using a...

A Cross Currency Swap (CCS) is a financial instrument that allows investors to exchange a set of cashflow liabilities for an equivalent set in another currency, often USD. Investors trade CCS to secure cheaper funding, hedge FX exposures, manage liquidity risk and of course for speculative...

This paper examines the efficiency of the forward yen/dollar market using micro survey data. Conventional tests of unbiasedness do not correspond directly to the zero-profit condition. Instead, we use the survey data to calculate potential profits of individual forecasters based on a natural...

The relative strength of the U.S. dollar does not explain the cross-section of expected returns. We find, however, that signed sensitivity of individual firms' returns to moves in dollar strength matters for asset pricing. A portfolio that goes long high-dollar-sensitivity stocks and short...

This paper presents evidence that the foreign exchange appreciation is predictable by the currency variance risk premium at a medium 6-month horizon and by the stock variance risk premium at a short 1-month horizon. Although currency variance risk premiums are highly correlated with each other...

We use transaction-level data on foreign exchange (FX) forward contracts for the period 2014 through 2016 in conjunction with supervisory balance sheet information to study the drivers of banks’ dollar hedging costs. Comparing contracts of the same maturity that are initiated during the...

We provide new empirical evidence that world currency and U.S. stock variance risk premiums have nonredundant and significant predictive power for the appreciation rates of twenty-two currencies with respect to the U.S. dollar, especially at the four-month and one-month horizons, respectively....

Separate literatures study violations of uncovered interest parity using regression-based and portfolio-based methods. We propose a decomposition of these violations into a cross-currency, a between-time-and-currency, and a cross-time component that allows us to analytically relate...