Pricing Currency Risk under Currency Boards
Currency risk is one of the two components of the total interest rate differential. Hard pegs, such as currency boards, are meant to reduce or even eliminate currency risk, thus, reducing domestic interest rates. This paper investigates the patterns and determinants of the currency risk premium in t...
| Main Authors: | , |
|---|---|
| Format: | Journal Article |
| Language: | en_US |
| Published: |
Elsevier
2013
|
| Subjects: | |
| Online Access: | http://hdl.handle.net/10986/16312 |
| id |
okr-10986-16312 |
|---|---|
| recordtype |
oai_dc |
| spelling |
okr-10986-163122021-04-23T14:03:28Z Pricing Currency Risk under Currency Boards Schmukler, Sergio L. Servén, Luis currency risk currency premium forward discount currency board term structure covered interest parity karket segmentation financial crises Currency risk is one of the two components of the total interest rate differential. Hard pegs, such as currency boards, are meant to reduce or even eliminate currency risk, thus, reducing domestic interest rates. This paper investigates the patterns and determinants of the currency risk premium in two currency boards—Argentina and Hong Kong. Despite the presumed rigidity of currency boards, the currency premium is almost always positive and at times very large. Its term structure is usually upward sloping, but flattens out or even becomes inverted at times of turbulence. The premium and its term structure depend on domestic and global factors related to devaluation expectations and risk perceptions. 2013-11-25T16:00:29Z 2013-11-25T16:00:29Z 2002-12-01 Journal Article Journal of Development Economics 0304‐3878 http://hdl.handle.net/10986/16312 en_US http://creativecommons.org/licenses/by-nc-nd/3.0/igo CC BY-NC-ND 3.0 IGO http://creativecommons.org/licenses/by-nc-nd/3.0/igo/ World Bank Elsevier Journal Article ARGENTINA China, Hong Kong SAR |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
en_US |
| topic |
currency risk currency premium forward discount currency board term structure covered interest parity karket segmentation financial crises |
| spellingShingle |
currency risk currency premium forward discount currency board term structure covered interest parity karket segmentation financial crises Schmukler, Sergio L. Servén, Luis Pricing Currency Risk under Currency Boards |
| geographic_facet |
ARGENTINA China, Hong Kong SAR |
| relation |
http://creativecommons.org/licenses/by-nc-nd/3.0/igo |
| description |
Currency risk is one of the two components of the total interest rate differential. Hard pegs, such as currency boards, are meant to reduce or even eliminate currency risk, thus, reducing domestic interest rates. This paper investigates the patterns and determinants of the currency risk premium in two currency boards—Argentina and Hong Kong. Despite the presumed rigidity of currency boards, the currency premium is almost always positive and at times very large. Its term structure is usually upward sloping, but flattens out or even becomes inverted at times of turbulence. The premium and its term structure depend on domestic and global factors related to devaluation expectations and risk perceptions. |
| format |
Journal Article |
| author |
Schmukler, Sergio L. Servén, Luis |
| author_facet |
Schmukler, Sergio L. Servén, Luis |
| author_sort |
Schmukler, Sergio L. |
| title |
Pricing Currency Risk under Currency Boards |
| title_short |
Pricing Currency Risk under Currency Boards |
| title_full |
Pricing Currency Risk under Currency Boards |
| title_fullStr |
Pricing Currency Risk under Currency Boards |
| title_full_unstemmed |
Pricing Currency Risk under Currency Boards |
| title_sort |
pricing currency risk under currency boards |
| publisher |
Elsevier |
| publishDate |
2013 |
| url |
http://hdl.handle.net/10986/16312 |
| _version_ |
1764432808501051392 |