Interest Rate Spreads and Exchange Rate Variability

Torben M Andersen and Jan Rose Sorensen

The Manchester School of Economic & Social Studies, 1994, vol. 62, issue 2, 151-66

Abstract: Interest rate spreads in excess of those predicted by the uncovered interest rate parity condition are commonly observed. The pricing of exchange rate risk must be analyzed in order to understand international interest rate differentials. Moreover, it may also be important in order to evaluate how the establishment of a European Monetary Union affects real rates of interest. The authors show that risk premia depend on a country's consumption pattern, attitudes towards risk, competitive position, size, and debt position. Copyright 1994 by Blackwell Publishers Ltd and The Victoria University of Manchester

Date: 1994
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Persistent link: https://EconPapers.repec.org/RePEc:bla:manch2:v:62:y:1994:i:2:p:151-66

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