) External Sustainability Approach - Estimated how much current FX must adjust to force country's external debt(asset) to GDP to sustainable level 3) Reduced-form Econometric Model Approach - Estimates equilibrium path of FX movements based on patterns in key macro variables such as trade. Crash Risk in Carry trade The fat tail (high kurtosis) risk of a large loss within carry trade - primary reason for crash risk is because the carry trade is a leveraged trade. Recall that uncovered interest rate parity asserts that, on a longer-term average, the return on an unhedged foreign-currency asset investment will be the same as a domestic-currency investment.
Bid Ask Dealer"s,.e. 2 ) allow pursuit of independent monetary policy w/o hindering currency values.