The Risk Premium and the Liquidity Premium in Foreign Exchange Markets
AbstractThe forward exchange rate may include a liquidity premium as well as a risk premium. The nature of these premiums is investigated in a general equilibrium model. The more obvious point the paper makes is that the forward rate will be affected by the liquidity of financial assets. The subtle point the paper makes is that the liquidity premium of the forward rate is also influenced by the liquidity of goods. Copyright 1992 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Bibliographic InfoArticle provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.
Volume (Year): 33 (1992)
Issue (Month): 4 (November)
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Other versions of this item:
- Charles Engel, 1990. "The risk premium and the liquidity premium in foreign exchange markets," Research Working Paper 90-07, Federal Reserve Bank of Kansas City.
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- Prakash Apte & Piet Sercu & Raman Uppal, 1996. "The Equilibrium Approach to Exchange Rates: Theory and Tests," NBER Working Papers 5748, National Bureau of Economic Research, Inc.
- Kevin X.D. Huang & Thaneepanichskul Suchada, 2003. "Sources of Exchange Rate Fluctuations: The Cases of Mexico and Thailand in the Aftermaths of their Recent Currency Crises," Annals of Economics and Finance, Society for AEF, vol. 4(2), pages 375-400, November.
- Schmukler, Sergio L. & Serven, Luis, 2002. "Pricing currency risk under currency boards," Journal of Development Economics, Elsevier, vol. 69(2), pages 367-391, December.
- Schmukler, Sergio L. & Serven, Luis, 2002.
"Pricing currency risk : facts and puzzles from currency boards,"
Policy Research Working Paper Series
2815, The World Bank.
- Sergio L. Schmukler & Luis Serven, 2002. "Pricing Currency Risk: Facts and Puzzles from Currency Boards," NBER Working Papers 9047, National Bureau of Economic Research, Inc.
- Charles Engel, 1996.
"The Forward Discount Anomaly and the Risk Premium: A Survey of Recent Evidence,"
NBER Working Papers
5312, National Bureau of Economic Research, Inc.
- Engel, Charles, 1996. "The forward discount anomaly and the risk premium: A survey of recent evidence," Journal of Empirical Finance, Elsevier, vol. 3(2), pages 123-192, June.
- Juan-Ángel Jiménez-Martín & Rafael Flores de Frutos, 2004. "The Fit of Dynamic Equilibrium Models of Exchange Rate," Documentos del Instituto Complutense de AnÃ¡lisis EconÃ³mico 0411, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales.
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