1978 | OriginalPaper | Chapter
Changes in Exchange Rates and Yield Differentials
Author : Robert Z. Aliber
Published in: Exchange Risk and Corporate International Finance
Publisher: Palgrave Macmillan UK
Included in: Professional Book Archive
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Whether investors find it attractive to alter the currency mix of financial assets and liabilities in anticipation of changes in the exchange rates depends on how fully interest rate differentials and forward exchange rates reflect such anticipations. If Fisher Open holds continuously, changes in the currency mix of portfolios would not affect the firm’s income, net worth or market value; neither would changes in exchange rates. Thus a central question is whether the deviations from Fisher Open are so large that the concept has little empirical usefulness, or whether, if it is useful, deviations are systematic and predictable or random.