Understanding the Forward Premium Puzzle

Author	: Craig Burnside
Publisher	:
Total Pages	: 44
Release	: 2007
ISBN-10	: IND:30000163944808
ISBN-13	:
Rating	: 4/5 ( Downloads)

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Book Synopsis Understanding the Forward Premium Puzzle by : Craig Burnside

Download or read book Understanding the Forward Premium Puzzle written by Craig Burnside and published by . This book was released on 2007 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: High-interest-rate currencies tend to appreciate relative to low-interest-rate currencies. We argue that adverse-selection problems between participants in foreign exchange markets can account for this 'forward premium puzzle.' The key feature of our model is that the adverse selection problem facing market makers is worse when, based on public information, a currency is expected to appreciate.

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