ADDITIONAL MATERIALS

Foreign Exchange Risk Premium Determinants: Case of Armenia. - Poghosyan T, Kocenda E, 2006. William Davidson Institute Working Paper, No. 811, University of Michigan Business School.

The paper studies foreign exchange risk premium using the uncovered interest rate parity framework in a single country context. The paper provides the results of the simple tests of uncovered interest parity condition, which indicate that contrary to established view dominating in empirical literature there is a positive correspondence between exchange rate depreciation and interest rate diferentials in Armenian deposit market. Furthermore, the paper presents and discusses a systematic positive risk premium required by the economic agents for foreign exchange transactions, which increases over the investment horizon. The two currency alne term structure framework is applied to identify the factors driving the systematic exchange rate risk premium in Armenia.

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