Risk Assessments and Risk Premiums in the Eurodollar Market
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- Author(s): GERSHON FEDER, KNUD ROSS
- Published: Apr 30, 2012
- Pages: 679-691
- DOI: 10.1111/j.1540-6261.1982.tb02217.x
Increasing awareness of the potential risks involved in lending to heavily indebted governments focuses attention on credit pricing in the Eurodollar market. This paper utilizes a recent survey of country‐by‐country risk assessments as perceived by lenders to show that a systematic relationship exists between these assessments and interest rates in the Euromarket. The relationship is derived from an underlying model described in the paper. The estimated parameters verify a number of hypotheses, providing insights on the loss rates lenders expect to incur in case of default.