A New Representation for the Foreign Currency Risk Premium

Bernardino Adao () and Maria de Fátima Silva

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: We provide new representations for the risk premium and expected exchange rate change. According to our representations they are a function of the term premium. In particular, we obtain that investors require higher interest rates on currencies expected to fall if the term premium is expected to stay constant. Moreover, our representation are such that the risk premium is very volatile and negatively correlated with the expected depreciation rate.

JEL-codes: F30 F31 G11 G12 (search for similar items in EconPapers)
Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:ptu:wpaper:w200103

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