ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

A+| A| A-

Risk Premium in Foreign Exchange Market

This paper investigates the nature of risk in the context of the Indian foreign exchange market in terms of deviations from the uncovered interest parity condition during 1997-2006. Two tests have been used to measure these deviations. The first is the statistical measure of risk premium defined as interest differentials between two countries (here India and the us) adjusted for expected depreciation of the exchange rate. A positive value of such a measure essentially means that higher interest rate differentials reflect a systematic risk, exchange rate risk being a part of it. The other is regression analysis using monthly data. The mean of the average of risk premium is found to be positive and statistically significant for government bonds across all maturities. However, in the regression analysis, there is evidence of risk premium only for government bonds with a 10-year maturity period. Overall, the results confirm the presence of a systematic risk associated with investments in India compared to those in the us.

SPECIAL ARTICLEjune 14, 2008 EPW Economic & Political Weekly66Risk Premium in Foreign Exchange MarketSubhalakshmi SircarWhile much has been written about risk in the foreign exchange market, it is mainly from the perspective of industrialised countries among which there are no persistent risk premia associated with a particular set of countries compared to another. When portfolio choice involves assets denominated in different currencies of both developed and devel-oping countries, identities of countries do matter. From the point of view of international investors, the decision to invest in third world countries is more risky because of the quality of the habitat itself, apart from the threat of expected depreciation of currencies.1 The theory of risk premium in the foreign exchange market still remains a highly controversial area of international macroeconomics and finance. Risk in the existing literature on international finance is measured as the deviation from any interest arbitrage condition, covered interest rate parity (CIP) condition, uncovered interest rate parity (UIP) condition or real interest rate parity (RIP) condition. In empirical literature, the ex post deviations from the UIP condition and explanations for risk in developing countries have received much less attention than in industrialised countries. In a liberalised financial regime, the interest rates in developing countries have to be higher than those in industrialised countries, which reflect a risk premium on holding the currencies of these countries. This is required to attract capital flows and maintain investors’ confidence. However, one can argue that in a world with high capital mobility and uncertainties in exchange rate movements, higher interest rates in developing countries vis-à-vis industrialised countries per se do not necessarily indicate the presence of any risk premium. Since we are considering the spot market for foreign exchange, the relevant measure for any kind of risk would be the nominal interest rate differentials adjusted for expected exchange rate depreciation. A positive value of such a measure essentially means that higher interest rate differen-tials reflect a systematic risk, exchange rate risk being a part of it. Currency risk arises due to exchange rate fluctuations because the expected future spot rate is never a definite rate but a range of possible rates with different probabilities. The definition of risk includes several variables, which enter the expectation functions of wealth holders and are not even quantifiable. Their expecta-tions regarding the net advantage of investing in a third world country pertain to a host of other factors, which are more impor-tant than the mere threat of currency depreciation or possibility of future capital controls. Most of the empirical studies on UIP and risk use data on a variety of currencies for industrialised countries (such as the dollar, deutschmark, Swiss franc, British pound, etc) and different time periods for the floating exchange rate era. There exist very I am indebted to Prabhat Patnaik and Pronab Sen for their valuable comments. Helpful suggestions from Sovan Talukdar, Probal Ghosh and Anna John are gratefully acknowledged. The views expressed in this paper are those of the author and do not necessarily reflect the views of the organisation to which she belongs.Subhalakshmi Sircar (subhalakshmi@mdi.ac.in) is at the Management Development Institute, Gurgaon.This paper investigates the nature of risk in the context of the Indian foreign exchange market in terms of deviations from the uncovered interest parity condition during 1997-2006. Two tests have been used to measure these deviations. The first is the statistical measure of risk premium defined as interest differentials between two countries (here India and the US) adjusted for expected depreciation of the exchange rate. A positive value of such a measure essentially means that higher interest rate differentials reflect a systematic risk, exchange rate risk being a part of it. The other is regression analysis using monthly data. The mean of the average of risk premium is found to be positive and statistically significant for government bonds across all maturities. However, in the regression analysis, there is evidence of risk premium only for government bonds with a 10-year maturity period. Overall, the results confirm the presence of a systematic risk associated with investments in India compared to those in theUS.
SPECIAL ARTICLEEconomic & Political Weekly EPW june 14, 200867few studies that analyse risk in terms of assets in developing countries [Tanner 1998; Flood and Rose 2002; Sharma and Mitra 2006]. The objective of this paper is to examine the risk premium in the Indian foreign exchange market in terms of deviation from the UIP condition. The paper is divided into three sections. Section 1 discusses the definition of risk as given in the existing literature on international finance and presents a brief note on the empirical studies on UIP. Section 2 gives a description of the data and methodology of the empirical exercise and a discussion of the results. Section 3 presents concluding remarks.As mentioned above, there are very few studies, which examine the notion of risk premium in the foreign exchange market in the context of developing countries. To our knowledge, there is no study on India, which directly deals with the issue of risk in the foreign exchange market in terms of deviations from UIP.2 This paper uses a statistical measure of risk as well as regression analysis to estimate the deviation from UIP with interest rates and provides a reinterpretation of the probable causes of such risk in India’s foreign exchange market.1 Risk and UIP Condition: Theoretical IssuesAs mentioned earlier, risk in theoretical literature on interna-tional finance is measured in terms of deviations from any of the three interest arbitrage conditions.TheCIP denotes the condition by which the investors would enter into a forward contract to hedge against the currency or exchange risk arising due to expected changes in exchange rates. TheCIP is represented asit-i*t=ft-st (1)where it is the nominal interest rate on the domestic asset and* denotes a similar rate on the foreign asset, st is the logarithm of the price of foreign currency in terms of domestic currency; and ft is the logarithm of the forward rate, measured as the domestic currency price of foreign currency to be delivered at time t+1.The deviations from the CIP condition have been explained in terms of “transaction costs”,3 “political risk”4 or data imperfec-tions.5 Therefore, deviations from CIP can occur for any country. Moreover, CIP assumes away any currency risk through the forward contract. Since however not all forex transactions are such “covered” transactions,UIP is of considerable relevance and this brings into focus the question of risk premium. The UIP condition sets a relationship between the nominal interest rate differential and expected rate of currency deprecia-tion. In algebraic terms, the UIP condition is written as it-i*t= Etst+1 – st (2)where it is the nominal interest rate on the domestic asset and* denotes a similar rate on the foreign asset, st is the logarithm of the price of foreign currency in terms of domestic currency, and Et is the expectational operator conditional on available informa-tion at time t. Any deviation from the UIP condition pertains to currency risk. According to the UIP, the interest differential provides an estimate of the future change in exchange rates. If wealth holders are risk neutral and expectations are rational, then the interest rate differential should give an unbiased estimate of the future exchange rate change. If investors are risk averse, then the inter-est differential should be equal to the expected depreciation of the home currency plus the risk premiumρt, i e, it-i*t=Etst+1-st+ρt (3)Etst+1-st is the expected depreciation of the home currency.The RIP condition denotes that real interest rates (nominal interest rates adjusted for expected inflation) are equalised across countries.RIP is written asEtr1t= Etr2t (4)Here r1t and r2t denote the real interest rates on assets of country 1 and 2. The RIP condition is the most stringent of all three interest parity conditions. In addition to the UIP, it requires the “ex ante relative purchasing parity”6 condition. The RIP can be written in a different form Etr1t-Etr2t= [i1t-i2t-EtΔst+1]-[EtΔp1t-(EtΔp2t+ EtΔst+1)] (5)Here EtΔp1t is the expected change in price of country 1 and EtΔp2t is the expected change in price of country 2; EtΔst+1 is the expected depreciation of exchange rate of country 1. The first term on the right hand side is theUIP condition and the second term denotes expected deviation from purchasing power parity (PPP).Ex post real interest differentials can be written asr1t-r2t=ρt-θt-εpt (6)where ρt is the risk premium or deviation from UIP as defined above; θt is the deviation from PPP andεpt is the forecast errors in predicting inflation.Deviations from RIP can occur either due to deviation from UIP, deviation from ex-ante PPP or forecast errors in predicting inflation.If errors are random and the ex ante PPP holds, then the devia-tion from RIP would reflect the existence of a systematic risk through the deviation from UIP. From the preceding discussion, it is clear that deviations from UIP can arise from the existence of some sort of risk premium in the foreign exchange market or forecast errors in predicting the change in the future exchange rate, whereas deviations from RIP can occur due to risk premium in the foreign exchange market, deviations from ex-ante PPP or forecast errors in predicting inflation.In the absence of a direct measure of expectations, the UIP condition is jointly assessed with the assumption that expecta-tions are formed rationally. This means that the expected future spot rate is taken to be an unbiased predictor of the actual future spot rate. That is, st+1=Etst+1+ut+1. The assumption of rational expectations posits a world where rational and utility maximi-sing economic agents passively forecast events determined by an “ergodic and stochastic process” [Harvey 1998-99]. This characterisation gives rise to two distinct features, namely, “unbiasedness” and “informational efficiency”. The former occurs because agents are rational and therefore, do not make any systematic error. Informational efficiency requires that agents use all relevant information available to them. In the existing literature, it is usually the practice to substitute theCIP condition to incorporate riskless arbitrage. Given CIP, this means that the forward premium is equal to the expected depre-ciation of the currency, only if the wealth holders are riskneutral.
1 2 3 4 5 6 7 1998 1999 2000 2001 2002 2003 2004 2005 2006 1 year maturity 2-year maturity 3 year maturity
1 2 3 4 5 6 7 8 1998 1999 2000 2001 2002 2003 2004 2005 2006 5 year maturity 7 year maturity 10-year maturity
0 0.01 0.02 0.03 0.04 0.05 0.06 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 1 year maturity 2-year maturity 3 year maturity
0 0.01 0.02 0.03 0.04 0.05 0.06 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 5 year maturity 7 year maturity 10-year maturity
SPECIAL ARTICLEEconomic & Political Weekly EPW june 14, 200871used pair-wise correlation between yields on government bonds as well as the yearwise trends in nominal interest differentials to understand the behaviour of interest rates in these countries.2.1 Structure of Interest Rates in India and US The correlation between yields on government bonds between India and US is found to be very high for all maturities as given in Table 1 (p 68). Next, we analyse the trends in interest differentials between India and the US over the time period of 1998 to 2006. It is clear from Table 2 (p 68) that the yields on government bonds in India have been higher compared to those in the US for the entire time period of 1998 to 2006. Looking at the yearwise trend in interest differentials across all maturities, it may be seen that the gap between interest rates in India and the US declined steadily over the time period under consideration. Moreover, there has been a marked change in the pattern of interest differentials during 2001 to 2004 as can be seen from Figures 1a and 1b (p 68). Till 2000, the interest differential was highest for government bonds with a longer maturity period. This trend was reversed in 2001 and continued till 2004 when the inter-est differential for government bonds with shorter maturities was higher. Again since 2005, for government securities of 7- and 10-year maturity periods, the interest differentials started rising and were above the interest differentials for shorter maturities.2.2 Measure of Risk PremiumThe results for the average of risk premium for each year from 1997 to 2006 are given in Table 3 (p 69). It is evident from Table 3 that the measure of risk premium is positive for government securities with different maturity periods. It should also be noted, however, that the risk premia across all maturities are surprisingly low, ranging from 2 to 6 basis points only. Moreover, if we look at the trend of risk premium over the last 10 years, the average has fallen for all securities with varying maturity periods, as may be seen in Figures 2a and 2b. A further point needs to be noted from the figures – that until 2000, the risk premium increases with the maturity period, which is what should be expected from a normal yield curve. For example, the yearly average of risk premium for 1998 is 0.06 for the government securities of a 10-year maturity period compared to 0.05 for the same with a 1-year maturity period. This trend has been reversed from 2001 with the average of the risk premium being higher in case of government bonds with a maturity of one, two and three years. Clearly,therehas been a significant shift in the perception regarding the nature of risk in India. During the time period of 1997 to 2006, the years 1999 and 2005 are significant because the estimated risk premium is the same with 0.05 and 0.02, respectively for all government bonds with different maturity periods, which is also unexpected. We have also done the t-test to ascertain whether the average of risk premium is significant. For this, we have taken the average of risk premium over the entire time period rather than the average for each particular year. The reason is that we get a larger number of obser-vations, which is useful for the t-test. The results of the t-test along with the mean, median, skewness and kurtosis are presented in Table 4 (p 69).The overall mean of the estimated risk premium remains more or less the same at 0.03 across all maturity periods, except for government bonds with a 10-year maturity period that have a risk premium of 0.04. This average is significant at the 1 per cent level. One of the basic assumptions in the statistical test is that the sampling distribution of the sample mean follows a normal distri-bution with mean μ0 and variance σ2/n. We have calculated the different moments of the sampling distribution of the sample mean for risk premium in order to understand the nature of the distribu-tion. The higher moments like skewness and kurtosis provide very important information regarding the working of the foreign exchange market and attitude of investorstowards risk.For a normal distribution, the skewness, which measures symmetry is 0 and the kurtosis, which measures peakedness is 3. It may be noted that the distri-bution of the sample mean (of the measure of risk premium) is negatively skewed for government bonds of shorter maturity. Even kurtosis is quite high for bonds with 1-and 2-year maturity periods. This implies that the investors are overexpecting and the chances that the actual outcome would be lower than the expected are very high. The distribution of the sample mean of risk premium for government securities with higher maturity, namely, 5, 7 and 10 years is quite close to normal. Table 8: Results for Augmented Dickey Fuller Test D Fuller statistic1-year maturity -10.24***2-year maturity -10.21***3-year maturity -10.20***5-year maturity -10.19***7-year maturity -10.11***10-year maturity -10.10****** indicates significant at the 1 per cent level.Table 7: Regression Results for UIPIndependent Variable Change in Exchange RateDependent Variables Coefficients t-value S E RMSE Adjusted R2 Durbin’s Alt Test F-value No of obs Chi2 L1 change in exchange rate 0.35 3.87*** 0.09 Interest differential (one-year maturity) -0.04 -0.51 0.08 0.01 0.10 0.24 164.41*** 113 Constant 0.000.920.00L1 change in exchange rate 0.35 3.78*** 0.09 Interest differential (two-year maturity) 0.00 0.00 0.08 0.01 0.10 1.76 153.49*** 113 Constant 0.000.440.00 L1 change in exchange rate 0.34 3.68*** 0.09 Interest differential (three-year maturity) 0.03 0.34 0.07 0.01 0.10 0.45 172.15*** 113 Constant 0.000.160.00 L1 change in exchange rate 0.32 3.43*** 0.09 Interest differential (five-year maturity) 0.08 1.26 0.06 0.01 0.11 0.70 230.41*** 113 Constant 0.00-0.540.00 L1 change in exchange rate 0.31 3.26*** 0.09 Interest differential (seven-year maturity) 0.09 1.37 0.06 0.01 0.12 1.14 195.71*** 113 Constant 0.00-0.710.00 L1 change in exchange rate 0.30 3.12*** 0.09 Interest differential (10-year maturity) 0.10 1.65** 0.06 0.01 0.12 1.27 244.8*** 113 Constant 0.00-0.890.00 All variables are in logarithms. *** Indicates significance at the 1 per cent level and ** indicates significance at the 5 per cent level. Durbin’s alternative test has been used for first lag.
SPECIAL ARTICLEjune 14, 2008 EPW Economic & Political Weekly72We also look at the correlation between the average of risk premium for government bonds of 1, 2,3,5,7 and 10-year maturity periods. The simple pair-wise correlation results are listed in Table 5 (p 70) along with their level of significance. It may be observed that there is significant correlation between the averages of risk premium for government bonds of different maturity periods. All the coefficients are significant at the 1 per cent level.We have checked for the pair-wise equality of the sample mean ofriskpremium.Theresultsaregiven in Table 6 (p 70). The null hypothesis is that the difference in the sample means of the risk premium is zero. In other words, the sample means of risk the premium on government bonds are equal. The alternative hypothesis is that they are not equal. The sample mean of risk premium is significantly different for government bonds with (5, 7), (5, 10) and (7, 10) year maturity periods. For government bonds of shorter maturity periods, the null hypothesis can be rejected only for the 1-year maturity period with respect to government bonds of 5-year maturity. 2.3 RegressionAnalysisWe have used the single equation regression analysis to test for the existence of risk premium taking the interest differential as the explanatory variable. In the existing works on empirical testing of UIP, researchers have used the forward premium ft-st as an explanatory variable instead of the interest differentials based on the assumption that CIP holds for majority of the developed countries. We have taken the interest rate differential between India and US as an explanatory variable because the primary focus of this paper is to examine whether there exists a risk premium in the foreign exchange market from the point of view of any international investor. Here, the focus is not on the efficiency of the forward market, which has been the primary concern of research on the UIP. However, a regression equation is used, which is slightly different from that used in the empirical testing of the UIP hypothesis. A lag of the change in the exchange rate is included as an additional explanatory variable in order to take care of the problem of autocorrelation. Therefore, the regres-sion equation (10) can be written as yt = α + γ yt-1 + βxt + ut (13)Here yt = st+1-st , xt = it-i*t.ut is the error term with the usual assumptions. The results are presented in Table 7 (p 71).We have also run the augmented Dickey-Fuller test to check for the stationarity of the residuals of individual regressions. The results of the tests are given in Table 8 (p 71).In the usual regression analysis, the null hypothesis isα = 0 andβ =0. However, our null hypothesis is different as we would check for the restrictions α = 0 and β =1. Therefore, we have used an F-test to examine this hypothesis.
SPECIAL ARTICLEEconomic & Political Weekly EPW june 14, 200873Notes1 This alternative theory on risk for developing countries owes to the discussion by Patnaik (2003).2 Sharma and Mitra (2006) have examined the validity ofUIP in the context of India but they have not made an attempt to relate this to risk premium in the foreign exchange market.3 Branson (1969), Frenkel and Levich (1977) and Taylor (1987) have explained deviations from CIP in terms of transaction costs. Transactions costs include brokerage fees, which are required to induce investors to transfer funds between two countries. 4 Aliber (1973) defines political risk to be associated with investments issued in different legal juris-dictions and arises because of the perceived threat of future capital controls. 5 Taylor (1989) argues that a true deviation from CIP represents a potential profitable opportunity to a trader at a given point of time. Therefore, any empirical work on covered interest parity should involve data, which is contemporaneously sampled.6 The “ex ante relative purchasing power parity” means that the expected rate of nominal depreci-ation equals the difference between the expected rates of inflation between the two countries. In other words, the expected rate of real deprecia-tion of the home currency should be zero. 7 The CIP is usually supported by empirical investi-gations, which consist of interviews with market makers and studies on recorded data on exchange and interest rates. However, it is generally accepted that the data should correspond to claims, which are identical in all respects (such as default and political risk) except their currency of denomination and interest rates. The recorded data should be taken at the samepoints in time. 8 The widely used and quoted papers which have contributed to this line of research are Fama (1984), Hansen and Hodrick (1980), Bilson (1981), Dooley and Isard (1983), Boyer and Adams (1988), Cumby (1988) and Dutton (1993). 9 The regression equation isΔst+1–xt-1 = β0+(β1-1)xt-1+ut. The null hypothesis isβ0=0 andβ1=0.ReferencesAliber, R Z (1973): ‘The Interest Rate Parity Theorem: A Reinterpretation’,Journal of Political Economy, Vol 81, No 6, pp 1451-59.Bilson, J F O (1981): ‘The “Speculative Efficiency” Hypothesis’, Journal of Business, Vol 54, No 3, pp 435-51.Boyer, R S and F Charles Adams (1988) ‘Forward Premia and Risk Premia in a Simple Model of Exchange Rate Determination’,Journal of Money, Credit and Banking, Vol 20, No 4, pp 633-44.Branson, W H (1969): ‘The Minimum Covered Interest Differential Needed for International Arbitrage Activity’, Journal of Political Economy, Vol 77, No 6, pp 1028-35. Cumby, R E (1988): ‘Is It Risk? Explaining Deviations from Uncovered Interest Parity,’Journal of Monetary Economics, Vol 22, No 6, pp 279-99.Dooley, M P and P Isard (1983): ‘The Portfolio-bal-ance Model of Exchange Rates and Some Struc-tural Estimates of the Risk Premium’, Inter-national Monetary Fund Staff Papers, Vol 30, pp 683-702.Dutton, J (1993): ‘Real and Monetary Shocks and Risk Premia in Forward Markets for Foreign Exchange’, Journal of Money, Credit and Banking, Vol 25, No4, pp 731-54.Fama, E F (1984): ‘Forward and Spot Exchange Rates’, Journal of Monetary Economics, Vol 14, pp 319-38.Flood, R P and A K Rose (2002): ‘Uncovered Interest Parity in Crisis’,International Monetary Fund Staff Papers, Vol 49, No 2, pp 252-66.Frenkel, J A and R M Levich (1977): ‘Transaction Costs and Interest Arbitrage: Tranquil versus Turbulent Periods’, Journal of Political Economy, Vol 85, pp 1209-26.Froot, K A and R H Thaler (1990): ‘Anomalies: Foreign Exchange’,Journal of Economic Perspectives, Vol 4, No 3, pp 179-92.Hansen, Lars Peter and Robert J Hordrick (1980): ‘Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis’, Journal of Political Economy, Vol 88, No 51, pp 829-53.Harvey, J T (1998-99): ‘The Nature of Expectations in the Foreign Exchange Market: A Test of Compet-ing Theories’,Journal of Post Keynesian Econom-ics, Vol 21, No 2, pp 181-200.Patnaik, Prabhat (2003): ‘Financial Liberalisation and Credit Policy’ inRetreat to Unfreedom: Essays on the Emerging World Order, Tulika Books, New Delhi, India.Sharma, Anil Kumar and A Mitra (2006): ‘What Drives Forward Premia in Indian Forex Market?’,Reserve Bank of India Occasional Papers, Vol 27, Nos 1 and 2, pp 119-39.Tanner, Evan (1998): ‘Deviations from Uncovered Interest Parity: A Global Guide to Where the Action Is’, IMF Working Paper, WP/98/117.Taylor, Mark P (1987) ‘Covered Interest Parity: A High Frequency High Quality Data Study’, Economica, Vol 54, pp 429-38.– (1989) ‘Covered Interest Arbitrage and Market Turbulence’,Economic Journal, Vol 99, pp 376-91.From the results of the regression analysis (Table 7), some observations can be made. First, the coefficients of α are not significantly different from zero. The estimated coefficients of β are positive for all government bonds except for the one with a one-year maturity period. However, only for the government bond with a 10-year maturity period, the coefficient β is signifi-cant at the 5 per cent level with a value of 0.10. This gives the evidence of risk premium. The F-test has been used to check whether β = 1. In all the cases, the null hypothesis that β = 1 is strongly rejected. The F-values are significant at the 1 per cent level. The estimated βs are less than one in all the cases. This implies that international investors would require a premium in terms of a higher rate of return in order to invest in India.Since the regression equation includes the lagged value of the dependent variable, the usual Durbin-Watson test for autocorre-lation cannot be used. Instead the alternative test by Durbin has been used. In all the cases, the null hypothesis that there is no autocorrelation cannot be rejected.The Dickey Fuller test statistic shows that the null hypothesis of unit root is rejected at the 1 per cent level of significance. Residuals of the regressions are found to be stationary. For India, the mean of the measure of risk premium is found to be positive and statistically different from zero. So, the overall results con-firm the presence of a systematic risk associated with the invest-ments in India compared to those in the US. 3 ConclusionsWe have undertaken a detailed empirical exercise to test for the presence of risk premium in the foreign exchange market interms of ex post deviation from the UIP condition in India.Wehave used a statistical measure of the risk premium followed by the t-test as well as the single equation regression analysis. We have found that there are ex post deviations from UIP in the sense that the sample mean of the measure of risk premium is statistically different from zero. Moreover, the year-wise trend in risk premium from 1997 to 2006 brings out a signifi-cant change in the nature of risk in the context of the Indian economy. There are two distinct phases during the entire time period of analysis. The first is 1997 to 2001 and the second is the period thereafter. In the first phase, the estimated risk premium is higher for government bonds with longer maturity periods. In the next phase, starting with 2002, the average risk premium is higher for maturity periods of one, two and three years. It should also be noted that the years 1999 and 2005 are signifi-cant because the estimated risk premium is the same at 0.05 and 0.02 across all maturities. This behaviour indicates that further research on the changing nature of risks in the Indian context needs to be undertaken.In addition, the estimated coefficients of the regression equation also rejectUIP. This also confirms the hypothesis that theUIP condition does not hold for the Indian case. However, this conclusion rules out any prediction errors of forecasting future exchange rates so that the expectations are assumed to be rational. The presence of systematic risk in the context of the Indian foreign exchange market implies that international investors require a higher rate of return vis-à-vis US in order to compensate the risk.

Dear reader,

To continue reading, become a subscriber.

Explore our attractive subscription offers.

Click here

Comments

(-) Hide

EPW looks forward to your comments. Please note that comments are moderated as per our comments policy. They may take some time to appear. A comment, if suitable, may be selected for publication in the Letters pages of EPW.

Back to Top