Burnside, Craig. <br/><br/>
Understanding the Forward Premium Puzzle:  A Microstructure Approach / 
Craig Burnside, Martin S. Eichenbaum, Sergio Rebelo. 
 - Cambridge, Mass.  National Bureau of Economic Research  2007. 
 - 1 online resource:  illustrations (black and white); 
 - NBER working paper series  no. w13278 .
 - Working Paper Series (National Bureau of Economic Research)  no. w13278. .
<br/><br/> July 2007. 
<br/><br/> High-interest-rate currencies tend to appreciate relative to low-interest-rate currencies. We argue that adverse-selection problems between participants in foreign exchange markets can account for this 'forward premium puzzle.' The key feature of our model is that the adverse selection problem facing market makers is worse when, based on public information, a currency is expected to appreciate. 
<br/><br/>
<br/><br/><br/>System requirements: Adobe [Acrobat] Reader required for PDF files. <br/>Mode of access: World Wide Web.