Showing papers on "Foreign exchange market published in 1975"

The Random Behavior of Flexible Exchange Rates: Implications for Forecasting

Abstract: This article explores the forecasting accuracy of the “random walk” and other models of exchange rate behavior Under present conditions of floating exchange rates, it is argued, anticipations of future demand and supply determine fluctuations in exchange rates The authors present results consistent with the notion that, for the world's major currencies, the foreign exchange market is an “efficient market” and exchange rate forecasting is not profitable

Exchange Risk, Political Risk, and Investor Demand for External Currency Deposits

Abstract: The growth of the external currency market is an institutional response to the costs and risks that derive from national regulation of financial transactions.l The deposits produced within the external market have combinations of exchange risk attributes and political risk attributes different from those associated with domestic deposits. Investors who acquire external deposits necessarily alter the risk attributes of their portfolios; either the currency in which their deposits are denominated or the country in which deposits are produced is changed. Frequently it is asserted that the growth of the external market has led to a change in the currency mix of investor portfolios and that investors hold a larger share of their portfolios in dollardenominated deposits than they would in the absence of the external market.2 Sometimes it is asserted that the links among national money markets have been tightened as a result of the growth of the market or investors are said to be more willing to alter the currency mix of their portfolios

The Role of Expected Value Analysis for Speculative Decisions in the Forward Currency Market

Abstract: I. Introduction, 157. — II. Expected profits and the generalized mean, 159. — III. A comment on Siegel's analysis, 165. — IV. Expected value analysis in other areas of economics, 168.

The Performance of the Foreign Exchange Markets: 1971–1974

Abstract: This paper explores the behavior of the foreign exchange markets for the floating rate period since 1973 and the immediately preceding fixed rate period. The author presents evidence showing that the cost of forward cover and the gains from speculation in the forward market for the major currencies has not changed significantly between the two periods and, in fact, the forward rate has been an unbiased predictor of the future spot rate for the floating rate period.

Capital control policies and foreign share prices

Abstract: THIS NOTE examines whether capital flow restrictions, originally enacted for balance of payments reasons, had the intended effect of isolating the national segments of the international equity market. It focuses specifically on measures adopted in the United States, the United Kingdom, and France. While segmentation may be expected, the evidence presented below does serve to emphasize the restrictive nature of a basic assumption in much of the economic literature, namely, that there is a single, completely integrated, international market for financial assets. In a world without barriers to capital movements, and with instantaneous information flows, arbitrage would assure that the market price of a security in one country would be equal to the market price of the same security in the second country, expressed in the currency of the first country at the current exchange rate. However, in the measurement of this equalization, certain statistical difficulties may arise in obtaining comparable security price quotations. Most importantly, capital control measures may prevent this equalization. In order to see how, in fact, the prices for a given security differed between markets, and what such price differentials might indicate about the impact of different capital control measures, Wednesday closing quotations from several markets for stocks of various international firms were collected for the-period January 1971 to December 1972. The mean values of the quotations in the currency of quotation, and the quotations, expressed in U.S. dollars, for security shares with standardized par values are given in Table 1.1 To have any a priori expectations about the price differences shown in Table 1, it is necessary to review briefly the capital control instruments that affected portfolio flows between the five national capital markets during this time: the U.S. Interest Equalization Tax (IET), the British investment currency market, and the French financial franc market. Most U.S. purchases of foreign securities from nonresidents were subject to the IET set at a rate of 11.25 per cent.2 Because foreign shares already owned by U.S. residents were not subject to this tax, one would expect the percentage differential between the value of these shares in the U.S. market and their value in the home market to vary between zero and the full tax rate, depending on demand conditions.3

The Behavior of Professional Risk-Bearers: Test of a Theory: Comment

Abstract: The nebulous nature of exchange rate expectations and speculation has posed a severe handicap to empirical studies of foreign exchange markets. The desire to circumvent this problem has led to numerous attempts by economists to specify an objective indicator of such speculative behavior. Perhaps the most formalized of these guides was derived by Jerome Stein.l This objective indicator of the speculative behavior of professional risk-bearers has been tested by Fred Glahe [2] . However, the benchmark utilized by Glahe in his test of Stein's theory is inappropriate. The purpose of this note is to illuminate this defect and provide an alternative test of Stein's theory. In contrast to the abstract analysis of most writers on forward-exchange theory, Stein provided a highly institutionalized approach to the forward market in his monograph "The Nature and Efficiency of the Foreign Exchange Market." Rather than develop a model of the idealized market participants, Stein's analysis was based on various features of the existing institutional framework of the forward market. His exposition described the role of large banks as professional risk-bearers (i.e., speculators), the speculative role of commercial traders through leads and lags in their spot market transactions, covered interest arbitrage, and covered foreign borrowing. An important implication of this institutional setting is that only the large banks can speculate in the forward market while all other speculators are restricted by bank practices to the spot market. Combining this institutional framework with the observation that "there is one pattern of price behavior that results from random variations in the balance of payments; and a different pattern of price behavior that results when the market thinks that changes in the exchange rates will occur in the near future" [4, p. 5] provides the foundation upon which Stein built his indicator of the speculative behavior of the professional risk-bearers. The operational indicator devised by Stein is designed to indicate the behavior of the professional risk-bearers not only during speculative periods, i.e., "when the

Euro-currency market as recycling medium

Abstract: During the past year the Euro-currency market played a very large role in bridging over the oil-induced payments imbalances. In the interest of international monetary stability this market should now move somewhat away from the centre of the stage and leave the main responsibility for the recycling of oil funds to the official financing mechanisms.

The social cost of foreign exchange in an economy with trade distortions and differential rates of domestic taxation

Abstract: The need to calculate the shadow price of foreign exchange for economic project evaluation has been recognized for the same time in the case of developing countries. Most of these countries have large trade distortions, and in addition, often the project being evaluated will have a relatively significant impact on the country’s balance of payments either as a user or supplier of foreign exchange. In estimation the shadow price of foreign exchange, certain assumptions need to be made concerning the trade policies that the country will undertake during the period that the shadow exchange rate will be used. The model developed in this paper begins with the assumption that the present tax, tariff and subsidy distortions which have caused a divergence between the market and economic value of foreign exchange will remain in the future.