This dissertation focuses on the behavior of the exchange rate and the currency risk premium. The first chapter studies the problem of exchange rate disconnect from economic fundamentals by analyzing the role of heterogeneous information among investors. The second paper examines the relationship between currency risk premia, interest rate differentials, real exchange rates, and external imbalances. The third chapter investigates the violation of uncovered interest rate parity, the exchange rate, and the currency risk premium in a model where consumption growth prospects contain a long-run risk component with the stochastic volatility.