The paper discusses exchange rate overshooting in connection with foreign exchange intervention.

The paper examines the hypothesis that the nominal exchange rate follows a logistic equation within the framework of the equilibrium exchange rate model.

This paper employs a stochastic option-pricing models to investigate when should an emerging market engage in financial liberalisation in a framework inwhich policymakers choose an optimal exchange rate target aimed at minimising price volatility and the risk of a debt crisis.

The literature overwhelmingly belives that over (under) valued real exchange rate is associated with high (low) financial premiums under exchange rate. We wish to opppose this view.