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EXCHANGE RATE SYSTEMS AND INVESTOR PREFERENCES
Author(s) -
MELVIN MICHAEL,
ORMISTON MICHAEL B.
Publication year - 1991
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1991.tb00838.x
Subject(s) - floating exchange rate , monetary economics , economics , floating interest rate , exchange rate , investment (military) , fixed exchange rates , interest rate parity , foreign exchange risk , exchange rate regime , interest rate , politics , law , political science
This paper investigates whether or not floating exchange rates add an undesirable level of risk to international investment positions. For investors holding currencies, we find that fixed exchange rates are preferred to floating exchange rates, which supports the often‐argued case that floating exchange rates do excessively increase the riskiness of investment. However, in the more realistic case of investors holding foreign securities, we find that floating exchange rates are preferred to fixed exchange rates; that is, we find that floating exchange rates have not added an undesirable level of risk to international investment positions.