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Short-Term Foreign Assets and Portfolio Risk

Author

Listed:
  • Arthur J. Raymond

    (Muhlenberg College)

Abstract

This study addresses the effect of exchange-rate changes on short-term asset portfolios. If foreign exchange-rate changes and domestic inflation are not independent, then two principal results emerge. First, foreign short-term assets, exposed to exchange risk, may be less risky than foreign short-term assets that are covered in the forward market. Second, a portfolio containing both domestic short-run assets and foreign short-run assets, exposed to exchange risk, will always have less portfolio risk than a portfolio of either domestic short-term assets, or foreign short-run assets covered in the forward market.

Suggested Citation

  • Arthur J. Raymond, 1995. "Short-Term Foreign Assets and Portfolio Risk," Eastern Economic Journal, Eastern Economic Association, vol. 21(3), pages 327-337, Summer.
    • Handle: RePEc:eej:eeconj:v:21:y:1995:i:3:p:327-337
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume21/V21N3P327_337.pdf
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    More about this item

    Keywords

    Portfolio;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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