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FCRP - Foreign Currency Risk Premium

(E(So) - So)/So - (Rd - Rf)

why is the difference in interst rates deducted? I understand that this is risk of the domestic currency appreciating...

If the expected spot rate in the future keeps pace exactly with Interest rate differential , there is no premium over the forward rate , so no need to adjust the discount rate further.

If the expectation is different than the forward rate , a premium needs to be calculated to calcualte a sensitivity of the discount rate to the currency rate change

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