The study looked at different models to understand currency risk and used traders' forecasts to measure expected returns. They found that the Imperfect Knowledge Economics (IKE) model had better results than traditional models like UIP and CAPM. The IKE model showed that the currency risk premium is related to how far the exchange rate is from its benchmark value. The study also found that volatility affects short-term dynamics, but only after considering the gap effect. This suggests that previous studies may have missed the impact of volatility on currency risk.