The Forward Rate as an Accurate Predictor of Future Spot Rates

The Forward Rate as an Accurate Predictor of Future Spot Rates Corporate treasurers, in managing their foreign currency payables and receivables, are continually forced to decide whether to deal forward or to wait and to deal spot in the future. The forward market provides a market where, for a price, the risk of adverse foreign exchange rate fluctuations can be sold off to professional risk bearers. The last ten years have seen considerable turmoil in the foreign exchange markets. In this article I want to examine several issues. Firstly, how do you measure the cost of forward cover under flexible rates and has there been any change in the cost of cover of flexible compared with fixed rates Secondly, to what extent is the forward market a reliable forecaster of future spot rates Thirdly, what, if any, are the corporate hedging implications of the behaviour of the forward market http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Managerial Finance Emerald Publishing

The Forward Rate as an Accurate Predictor of Future Spot Rates

Managerial Finance, Volume 4 (2): 12 – Feb 1, 1978

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0307-4358
DOI
10.1108/eb013419
Publisher site
See Article on Publisher Site

Abstract

Corporate treasurers, in managing their foreign currency payables and receivables, are continually forced to decide whether to deal forward or to wait and to deal spot in the future. The forward market provides a market where, for a price, the risk of adverse foreign exchange rate fluctuations can be sold off to professional risk bearers. The last ten years have seen considerable turmoil in the foreign exchange markets. In this article I want to examine several issues. Firstly, how do you measure the cost of forward cover under flexible rates and has there been any change in the cost of cover of flexible compared with fixed rates Secondly, to what extent is the forward market a reliable forecaster of future spot rates Thirdly, what, if any, are the corporate hedging implications of the behaviour of the forward market

Journal

Managerial FinanceEmerald Publishing

Published: Feb 1, 1978

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