One puzzle in international finance is the finding that the forward foreign exchange rate is a poor predictor of the future spot foreign exchange rate. It has been postulated that this finding could be explained by the presence of unobservable risk premiums. Theory, however, is silent as to the...

Analyzing inbound and outbound foreign direct investment (FDI) between the U.S. and seven developed countries over the period from 1994 to 2004, this study provides strong evidence for a positive relationship between aggregate FDI flows and a strengthening of a home currency. Further, taking...