More Evidence on the Dollar Risk Premium in the Foreign Exchange Market
Title | More Evidence on the Dollar Risk Premium in the Foreign Exchange Market PDF eBook |
Author | Dennis Bams |
Publisher | |
Pages | 42 |
Release | 2003 |
Genre | Dollar, American |
ISBN |
Foreign Exchange Risk Premium
Title | Foreign Exchange Risk Premium PDF eBook |
Author | Mr.Lorenzo Giorgianni |
Publisher | International Monetary Fund |
Pages | 40 |
Release | 1997-04-01 |
Genre | Business & Economics |
ISBN | 1451845790 |
This paper challenges the conventional view that foreign exchange risk premiums are small, not volatile, and unrelated to macroeconomic variables. For the Italian lira (1987-94), unconditional risk premiums—constructed using survey data to measure exchange rate expectations—are found to be sizable (relative to the dimension of the forward premium), highly volatile (relative to the variability of the forward bias), and predictable. Estimation of structural models of the risk premium suggests that anticipated fiscal contractions in Italy and lower uncertainty about the future path of fiscal policy are associated with a lower risk premium on lira-denominated assets.
Foreign Exchange Intervention Rules for Central Banks: A Risk-based Framework
Title | Foreign Exchange Intervention Rules for Central Banks: A Risk-based Framework PDF eBook |
Author | Romain Lafarguette |
Publisher | International Monetary Fund |
Pages | 33 |
Release | 2021-02-12 |
Genre | Business & Economics |
ISBN | 1513569406 |
This paper presents a rule for foreign exchange interventions (FXI), designed to preserve financial stability in floating exchange rate arrangements. The FXI rule addresses a market failure: the absence of hedging solution for tail exchange rate risk in the market (i.e. high volatility). Market impairment or overshoot of exchange rate between two equilibria could generate high volatility and threaten financial stability due to unhedged exposure to exchange rate risk in the economy. The rule uses the concept of Value at Risk (VaR) to define FXI triggers. While it provides to the market a hedge against tail risk, the rule allows the exchange rate to smoothly adjust to new equilibria. In addition, the rule is budget neutral over the medium term, encourages a prudent risk management in the market, and is more resilient to speculative attacks than other rules, such as fixed-volatility rules. The empirical methodology is backtested on Banco Mexico’s FXIs data between 2008 and 2016.
Intervention and the Foreign Exchange Risk Premium
Title | Intervention and the Foreign Exchange Risk Premium PDF eBook |
Author | Owen F. Humpage |
Publisher | |
Pages | 40 |
Release | 1990 |
Genre | Banks and banking, Central |
ISBN |
The Foreign Exchange Risk Premium
Title | The Foreign Exchange Risk Premium PDF eBook |
Author | Lars Hörngren |
Publisher | |
Pages | 64 |
Release | 1986 |
Genre | Foreign exchange |
ISBN | 9789172582187 |
Foreign Exchange Rate Exposure and Risk Premium in International Investments
Title | Foreign Exchange Rate Exposure and Risk Premium in International Investments PDF eBook |
Author | Sung C. Bae |
Publisher | |
Pages | |
Release | 2007 |
Genre | |
ISBN |
We examine how exchange rate changes affect the security returns and how economic and translation exposure components of exchange rate risk are priced across countries. Employing ADRs of four countries, we document four main findings. First, exchange rate changes are negatively related to underlying share returns of ADRs, but positively to ADR returns observed in the U.S. markets. Second, ADR returns are more closely related to local market returns than U.S. market returns, indicating that the local market environment plays a bigger role in determining ADR returns. Third, U.S. and local investors require different risk premiums for exchange rate risk present in ADR investments. Fourth, both the source (economic or translation exposure) and magnitude (high or low) of the exchange risk premium vary across countries. We obtain robust empirical findings for both country ADR portfolios and individual ADRs.
Some New Evidence of a Risk Premium in the Determination of the U.S. Dollar Vis-a-vis the Currencies of the Other G-5 Members
Title | Some New Evidence of a Risk Premium in the Determination of the U.S. Dollar Vis-a-vis the Currencies of the Other G-5 Members PDF eBook |
Author | Terence C. Mills |
Publisher | |
Pages | 14 |
Release | 1993 |
Genre | Economics |
ISBN |