Schmukler, Sergio L.Servén, Luis2013-07-012013-07-012002-03https://hdl.handle.net/10986/14317The authors investigate the patterns and determinants of the currency risk premium in two currency boards-Argentina and Hong Kong. Despite the presumed rigidity of currency boards, 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. Currency premia differ across markets. The forward discount typically exceeds the currency premium derived from interbank rates, particularly during times of crisis. The large magnitude of these cross-market differences can be the consequence of unexploited arbitrage opportunities, market segmentation, or other risks embedded in typical measures of currency risk. The premium and its term structure depend on domestic and global factors related to devaluation expectations and risk perceptions.en-USCC BY 3.0 IGOARBITRAGEARGENTINE PESOASSETSBANK DEPOSITSBANK FOR INTERNATIONAL SETTLEMENTSBENCHMARKBONDSBORROWING COSTSBRAZILIAN REALCANADIAN DOLLARCAPITAL ACCOUNTCAPITAL CONTROLSCAPITAL MARKETSCENTRAL BANKCOMMON CURRENCYCONVERTIBILITYCOST OF CAPITALCURRENCYCURRENCY ASSETSCURRENCY BOARDCURRENCY BOARDSCURRENCY CRISESCURRENCY PEGSCURRENCY PREMIUMCURRENCY RISKDEBTDEFAULT RISKDEVALUATIONDOMESTIC INTEREST RATESECONOMIC ACTIVITYECONOMIC DIMENSIONECONOMIC PERFORMANCEECONOMIC SITUATIONEMERGING COUNTRIESEMERGING ECONOMIESEMERGING MARKETSEUROEUROPEAN MONETARY SYSTEMEXCHANGE OPTIONSEXCHANGE RATEEXCHANGE RATE CHANGESEXCHANGE RATE DETERMINATIONEXCHANGE RATE REGIMEEXCHANGE RATE REGIMESEXCHANGE RATE RISKEXCHANGE RISKEXPENDITURESFEDERAL RESERVE BANK OF NEW YORKFINANCIAL CRISESFINANCIAL DATAFINANCIAL STABILITYFINANCIAL SYSTEMFLOATING EXCHANGE RATESFORECASTSFOREIGN CURRENCYFOREIGN EXCHANGEFOREIGN EXCHANGE MARKETFOREIGN EXCHANGE MARKETSFOREIGN EXCHANGE SETTLEMENT RISKFOREIGN EXCHANGE SWAPSFOREIGN EXCHANGE TRANSACTIONSFORWARD EXCHANGEGOVERNMENT BONDSHONG KONG DOLLARSHONG KONG MONETARY AUTHORITYILLIQUIDITYINDONESIAN RUPIAHINDUSTRIAL ECONOMIESINFLATIONINFLATION PERFORMANCEINTEREST RATEINTEREST RATESINTERNATIONAL BANKSINTERNATIONAL FINANCEJAPANESE YENKOREAN WONLIQUIDITYLOCAL CURRENCYLONG TERMMACROECONOMICSMARKET VALUEMATURITIESMONEY MARKETOUTPUTOUTPUT GROWTHOUTPUT VOLATILITYPEGSPERUVIAN SOLPESOSPOLICY MAKERSPOLICY RESEARCHPRIVATE SECTORREAL INTERESTRISK AVERSERISK AVERSIONRISK PREMIARISK PREMIUMRUSSIAN RUBLESCENARIOSSECURITIESSOLVENCYSPOT EXCHANGE RATESTAXATIONTHAI BAHTTRANSACTION COSTSTRANSACTIONS COSTSVOLATILITY CURRENCY BOARDSMARKET SEGMENTATIONFINANCIAL CRISESARBITRAGEFORWARD EXCHANGE RATESINTERNATIONAL FINANCEEXCHANGE RATE REGIMESMONEY MARKET FUNDSWorld Bank10.1596/1813-9450-2815