This chapter surveys recent theoretical and empirical contributions on foreign exchange rate
determination. The chapter first examines monetary models under uncovered interest parity …

We propose a dynamic general equilibrium model of exchange rate determination that
accounts for all major exchange rate puzzles, including Meese-Rogoff, Backus-Smith …

The downside risk capital asset pricing model (DR-CAPM) can price the cross section of
currency returns. The market-beta differential between high and low interest rate currencies …

We investigate the relation between global foreign exchange (FX) volatility risk and the cross
section of excess returns arising from popular strategies that borrow in low interest rate …

We propose a new model of exchange rates, based on the hypothesis that the possibility of
rare but extreme disasters is an important determinant of risk premia in asset markets. The …

Currency carry trades exploiting violations of uncovered interest rate parity in G10
currencies deliver significant excess returns with annualized Sharpe ratios equal to or …

We test the relevance of technical and fundamental variables in forming currency portfolios.
Carry, momentum, and value reversal all contribute to portfolio performance, whereas the …

Recent work in international finance suggests that exchange rate puzzles can be accounted
for if (1) aggregate uncertainty is time-varying, and (2) countries have heterogeneous …

I propose a new factor—the global downside market factor—to explain high returns to carry
trades. I show that carry trades have high downside market risk, ie they crash systematically …

The Mussa (1986) puzzle is the observation of a sharp and simultaneous increase in the
volatility of both nominal and real exchange rates following the end of the Bretton Woods …