Showing papers on "Foreign exchange market published in 1996"

International Business : Competing in the Global Marketplace

Abstract: Part One-Introduction and Overview Chapter 1: Globalization Case: Who Makes the Apple iPhone? Part Two-Country Differences Chapter 2: National Differences in Political Economy Chapter 3: Political Economy and Economic Development Chapter 4: Differences in Culture Chapter 5: Ethics in International Business Case: Siemens Bribery Scandal Case: Disaster in Bangladesh Case: Knights Apparel Case: Japan's Economic Malaise Case: Indonesia: The Next Asian Giant? Part Three-The Global Trade and Investment Environment Chapter 6: International Trade Theory Chapter 7: The Political Economy of International Trade Chapter 8: Foreign Direct Investment Chapter 9: Regional Economic Integration Case: Legal Outsourcing Case: The Global Financial Crisis and Protectionism Case: NAFTA and Mexican Trucking Case: The Rise of the Indian Automobile Industry Case: Logitech Part Four-The Global Monetary System Chapter 10: The Foreign Exchange Market Chapter 11: The International Monetary System Chapter 12: The Global Capital Market Case: South Korean Currency Crisis Case: Russian Ruble Crisis Case: Caterpillar: Competing in a World of Fluctuating Currencies Part Five-The Strategy and Structure of International Business Chapter 13: The Strategy of International Business Chapter 14: The Organization of International Business Chapter 15: Entry Strategy and Strategic Alliances Case: The Evolving Strategy of IBM Case: IKEA in 2013 Case: General Electric's Joint Ventures Case: The Globalization of Starbucks Case: Coca-Cola's Strategy Part Six-Business Operations Chapter 16: Exporting, Importing, and Countertrade Chapter 17: Production, Outsourcing, and Logistics Chapter 18: Global Marketing and R&D Chapter 19: Global Human Resource Management Chapter 20: Accounting and Finance in the International Business Case: Brazil's Gol Airlines Case: Staffing Policy at AstraZeneca

Is Technical Analysis in the Foreign Exchange Market Profitable? A Genetic Programming Approach

Abstract: Using genetic programming techniques to find technical trading rules, we find strong evidence of economically significant out-of-sample excess returns to those rules for each of six exchange rates over the period 1981‐1995. Further, when the dollar/Deutsche mark rules are allowed to determine trades in the other markets, there is significant improvement in performance in all cases, except for the Deutsche mark/yen. Betas calculated for the returns according to various benchmark portfolios provide no evidence that the returns to these rules are compensation for bearing systematic risk. Bootstrapping results on the dollar/Deutsche mark indicate that the trading rules detect patterns in the data that are not captured by standard statistical models.

The Tobin tax : coping with financial volatility

Abstract: In his 1972 Janeway Lectures at Princeton, James Tobin, the 1981 Nobel Prize winner for economics, submitted a proposal for a levy on international currency transactions. The idea was not greeted with enthusiasm, as the 1970s were a period of optimism and confidence in floating exchange rages. Yet, whenever currency crises erupted during the past decades, the proposal for a levy on international currency transactions would once again arise. In the 1990s, two additional facts have sharpened interest in the Tobin tax proposal. First is the growing volume of foreign exchange trading. Second, interest is coming not only from policymakers and experts concerned with the smooth functioning of financial markets. It is shared by those concerned with public financing of development-the fiscal crisis of the state as well as the growing need for international cooperation on problems such as the environment, poverty, peace and security. This work makes a systematic analysis of the proposal for a foreign exchange transactions levy. Its chapters examine the economic desirability of such a levy, its technical and political feasibility, its revenue potential, the possible uses of that revenue, and related administrative and institutional aspects.

The Share Price Reaction of U.K. Exporters to Exchange Rate Movements: An Empirical Study

Abstract: Contrary to prior research, this U.K.-based study finds a contemporaneous relation between the foreign exchange rate and the market value of large exporters. We also find a weak lagged relationship which suggests that the stock market takes time to incorporate all of the implications of foreign currency movements into share prices. Evidence that the nature of this relationship changed when sterling was in the ERM is also provided.

Imperfect knowledge and behaviour in the foreign exchange market

Abstract: This paper explores the consequences of imperfect knowledge for exchange rate dynamics within the monetary class of models. The authors' framework, which they call the theories consistent expectations framework, provides a particular formalization of a world in which agents use theories in order to look forward but in which these theories provide only qualitative knowledge rather than quantitative knowledge about the economy. The authors find that, as long as agents possess at least some degree of imperfect knowledge, the monetary models of the exchange rate generate dynamics consistent with the behavior observed in the literature. Copyright 1996 by Royal Economic Society.

Vietnam : Transition to a Market Economy

Abstract: The paper explores the pattern of transition of the Vietnamese economy, the policies that were applied, and the reasons for the country's success. In particular, it focuses on output performance; state-owned enterprises; foreign direct investment; determinants of inflation; dollarization and problems of economic management; international integration and exchange rate policy; growth and diversification of trade, trade reform, exchange reform, and exchange rate policy.

Is Technical Analysis in the Foreign Exchange Market Profitable? A Genetic Programming Approach

Abstract: We use genetic programming techniques to identify optimal technical trading rules. We find strong evidence of economically significant out-of-sample excess returns to the rules for each of six exchange rates ($/DM, $/Yen, $/SF, $/£, DM/Yen, SF/£), over the period 1981–95. Some of the rules have a structure similar to those used by technical analysts. Betas calculated for the returns according to various benchmark portfolios provide no evidence that the returns to these rules are compensation for bearing systematic risk. ‘Bootstrapping’ results for the $/DM indicate that the trading rules are detecting patterns in the data that are not captured by standard statistical models.

Informed Traders, Intervention and Price Leadership: A Deeper View of the Microstructure of the Foreign Exchange Market

Abstract: This paper identifies price leadership patterns in foreign exchange trading, with a focus on central bank intervention as an informational trigger for leadership positioning. Granger causality tests applied to DM/US$ spot rate quotes reveal Deutsche Bank as a price leader up to 60 minutes prior to Bundesbank interventionary reports. By the minus 25-minute mark, interbank quote adjustments become two-way Granger-causal. These results suggest that central bank activity is revealed in stages: first to the price leader, then to competitors and lastly to the general public.

Technical Trading Rule Profitability and Foreign Exchange Intervention

Abstract: There is reliable evidence that simple rules used by traders have some predictive value over the future movement of foreign exchange prices. This paper will review some of this evidence and discuss the economic magnitude of this predictability. The profitability of these trading rules will then be analyzed in connection with central bank activity using intervention data from the Federal Reserve. The objective is to find out to what extent foreign exchange predictability can be confined to periods of central bank activity in the foreign exchange market. The results indicate that after removing periods in which the Federal Reserve is active, exchange rate predictability is dramatically reduced.

The interaction between the frequency of market quotations, spread and volatility in the foreign exchange market

Abstract: There is an empirical relationship between volatility, average spread, and number of quotations in the foreign exchange spot market. The estimation procedure involves two steps. In the first one the optimal functional form between these variables is determined through a maximization procedure of the unrestricted VAR, involving the Box—Cox transformation. The second step uses the two-stage least squares method to estimate the transformed variables in a simultaneous equation system framework. The results indicate that the number of quotations successfully approximates activity in the spot market. Furthermore, the number of quotations and temporal dummies reduce significantly the conditional heteroskedasticity e⁄ect. We also discuss information aspects of the model as well as its implications for financial informational theories. Inter- and intra-day patterns of the three variables are also revealed.

Announcement Effects and Seasonality in the Intra-day Foreign Exchange Market

Abstract: This paper examines two aspects of spot FX volatility. Using intra-daily quotation data on the Deutsche Mark/Dollar we simultaneously estimate the deterministic intra-daily seasonal pattern inherent in volatility and the effects of US macroeconomic announcements. The empirical specification and estimation technique is based on the Stochastic Volatility methodology contained in Harvey, Ruiz and Shephard (1994). Results conform with previous work, in that ¶news¶ effects are strong and persistent, being felt for over one hour after the initial release time. Inclusion of an explicit seasonal is shown to be essential for the accurate estimation of other volatility components. Further estimations allow us to examine which particular pieces of US data move the markets. These result show that the most important statistics are those associated with the Employment and Mercantile Trade reports.

Recent Exchange Rate Experience and Proposals for Reform

Abstract: The paper reviews the grounds for fears that foreign exchange markets are not behaving as well as they should: recent misalignments and crises, and seven sets of academic findings. (1) Exchange rate volatility is high, (2) with possible adverse effects. (3) Volatility cannot be explained by observable fundamentals, (4) and changes when the regime changes, even without a change in volatility of fundamentals. (5) Expectations appear to be biased. (6) Short-term expectations are destabilizing. And (7) the effect of changes in monetary policy on the exchange rate is drawn out over time, and is not instantaneous.

The Road Less Travelled: Institutional Aspects of Data and their Influence on Empirical Estimates with an Application to Tests of Forward Rate Unbiasedness

Abstract: The difference between data used in empirical studies and that envisioned in the theory can influence empirical estimates, sometimes by enough that the direction of future research is altered. This paper illustrates how, in the context of tests of forward rate unbiasedness, a lack of articulation about the mechanics underlying foreign exchange market speculation and about the institutional aspects governing spot and forward rate contracts leads to sampling of the data in a way that is not consistent with the theory. The authors find that the sampling problems account for some but not all of the bias in the coefficient on the forward premium. Copyright 1996 by Royal Economic Society.

Foreign Exchange Operations and the Federal Reserve

Abstract: Credibility for low inflation is the cornerstone of an effective monetary policy. And public support for Fed independence is the foundation of that credibility. Fed intervention in foreign exchange markets creates doubt about whether monetary policy will pursue low inflation or exchange rate objectives. Moreover, foreign exchange operations financed by the Fed undermine the Fed's independence, especially when they involve direct loans to foreign governments. For these reasons the authors recommend that the Fed be separated completely from foreign exchange operations with the Treasury.

Management and Control of Foreign Exchange Risk

Abstract: Introduction. 1. Determination of Spot Exchange Rates. 2. Determination of Forward Exchange Rates. 3. Currency Futures, Options and Swaps. 4. Forecasting Floating Exchange Rates. 5. Forecasting Pegged Yet Adjustable Exchange Rates. 6. Accounting Exposure to Foreign Exchange Risk. 7. Economic Exposure to Foreign Exchange Risk. 8. Exchange Risks in International Trade. 9. Optimal Currency Denomination in Long Term Debt Financing. 10. Hedging Translation Exposure. 11. Exchange Rates and the International Control Conundrum. Conclusion. Index.

Exchange rate policies during transition from plan to market

Abstract: This paper reviews the exchange rate policies adopted in the early years of transition, paying attention to the dilemmas concerning the degree of convertibility, the initial choice of exchange rate regime and the required scale of devaluation. The initial liberalization and devaluation were then followed by a period of real exchange rate appreciation, which was accompanied by improving export performance; this second phase has policy implications that are briefly discussed. Throughout, a key constraint is the inability of the central bank to target simultaneously monetary aggregates, interest rates and the exchange rate. In the presence of large capital inflows the authorities have to manage the exchange rate and domestic monetary policy in order to keep inflation acceptably low while maintaining international competitiveness.

Why does the Australian Dollar Move so Closely with the Terms of Trade

Abstract: The paper is motivated by two empirical results. Australia’s terms of trade exhibit temporary fluctuations around a slowly declining trend, and movements in Australia’s real exchange rate tend to follow those in the terms of trade. Together these results imply predictability in Australia’s real exchange rate as well as the presence of predictable excess returns that are sometimes quite large. Using a simple econometric model, with the terms of trade as the sole explanator, the paper demonstrates the forecastability of Australia’s real exchange rate over horizons ranging from one to two years. It then quantifies the magnitude of the predictable excess returns to holding Australian dollar denominated assets over such horizons, finding them to be highly variable and sometimes quite large in magnitude. The results suggest a relative scarcity of forward-looking foreign exchange market participants with an investment horizon of a year or more.

Foreign exchange market bid—ask spreads and the market price of social unrest

Abstract: Time-series evidence yields estimates of the increase in the spread on the South African rand on days when riots, demonstrations, armed attacks, and related deaths occur in South Africa. The cross-section evidence demonstrates how spreads vary across thirty-six industrial and developing countries as spot rate volatility and country risk vary. Both the changes in the spread over time for particular countries and the changes in the spread across the countries at a particular time appear to be significantly related to countries' risk differences and exchange-rate volatility. Copyright 1996 by Royal Economic Society.

ARCH effects and cointegration: Is the foreign exchange market efficient?

Abstract: Extensive empirical work has produced mixed evidence regarding the validity of the unbiased efficient expectations hypothesis in the foreign exchange market. Empirical analysis in this paper, via cointegration techniques, produces the same inconclusive results for three currency markets, namely, the FFR/$US, the DM/$US and the Yen/$US foreign exchange market. However, when modeling conditional heteroskedasticity of exchange rates, through autoregressive conditional heteroskedasticity (ARCH) models, the results are fairly conclusive; the presence of the efficient foreign exchange market hypothesis is found in all these three currency markets.

A note on the performance of foreign exchange forecasters in a portfolio framework

Abstract: This note investigates the ability of 22 currency forecasters to predict movements in three major exchange rates. In particular, it examines the profitability of portfolios of forward market positions constructed on the basis of the predictions of each forecaster. The key findings of the paper are that just one panel member proves significantly profitable to follow, and that investing on the basis of the naive alternative prediction of ‘no change’ produces high, though volatile, profits. We conclude that the majority of currency analysts have little ability to predict the future.

Does Central Bank Intervention Stabilize Foreign Exchange Rates

Abstract: Since the adoption of a flexible exchange rate system in 1973, central banks of most industrialized countries have continued to intervene in foreign exchange markets. One reason is that exchange rate volatility has increased. To reduce volatility, many European countries have agreed to keep exchange rates within a band around a target exchange rate, implementing this policy by intervening in foreign exchange markets when necessary. Even without an explicit exchange rate commitment, countries such as the United States and Japan have intervened in foreign exchange markets to help stabilize exchange rates. Opinions differ on whether central banks can stabilize exchange rates. Some analysts believe central bank intervention can reduce exchange rate volatility by stopping speculative attacks against a currency. Other analysts, though, believe central bank intervention may increase volatility if the intervention contributes to market uncertainty or encourages speculative attacks against the currency. This article presents empirical evidence on this controversy. The first section discusses why exchange rates are volatile and why policymakers may want to reduce volatility. The second section examines how central bank intervention may affect volatility. The third section presents empirical evidence suggesting that central bank intervention does not generally reduce exchange rate volatility. Rather, central bank intervention typically appears to have had little effect on volatility. EXCHANGE RATE VOLATILITY This section discusses the causes and consequences of exchange rate volatility. Also discussed are various ways to measure exchange rate volatility. Causes of volatility Exchange rate volatility is often attributed to three factors: volatility in market fundamentals, changes in expectations due to new information, and speculative "bandwagons" (Engel and Hakkio). Volatility in market fundamentals, such as the money supply, income, and interest rates, affects exchange rate volatility because the level of the exchange rate is a function of these fundamentals. For example, large changes in the money supply can lead to changes in the level of the exchange rate. Changes in the level of the exchange rate in turn imply exchange rate volatility. Changes in expectations about future market fundamentals or economic policies also affect exchange rate volatility. When market participants receive new information, they alter their forecasts of future economic conditions and policies. Exchange rates based on these forecasts will also change, thereby leading to exchange rate volatility. For example, news about a change in monetary policy may cause market participants to revise their expectations of future money supply growth and interest rates, which could alter the level and hence the volatility of the exchange rate. In addition to being affected by expectations of future fundamentals and policies, volatility is also affected by the degree of confidence with which these expectations are held. For instance, if traders are uncertain about their forecasts of future economic conditions, they are more likely to revise their currency positions once new information becomes available. These revisions to currency positions in turn imply an increase in the frequency, and hence in the volatility, of exchange rate changes. In brief, exchange rate volatility tends to rise with increases in market uncertainty about future economic conditions and tends to fall when new information helps resolve market uncertainty. Finally, exchange rate volatility can be caused by speculative bandwagons, or speculative exchange rate movements unrelated to current or expected market fundamentals. For example, if enough speculators buy dollars because they believe the dollar will appreciate, the dollar could appreciate regardless of fundamentals. If it then becomes apparent that market fundamentals will not sustain such an appreciation, active selling by the same speculators could cause the dollar to depreciate. …

A Simultaneous Trade Model of the Foreign Exchange Hot Potato

Abstract: The foreign exchange market is distinctive at the microstructural level. The three most striking features relative to other markets are: (1) trading volume is enormous, (2) the share of interdealer trading is very high, and (3) the transparency of order flow is very low. This paper introduces a model designed to capture these three features. The model includes multiple dealers who trade with customers and among themselves. In contrast to the sequential move framework of the canonical dealer trading game, here we introduce a simultaneous move trading game (with multiple periods). The model produces hot potato trading among dealers--a term that refers to repeated passing of inventory imbalances. This type of trading appears to account for much of the enormous volume in foreign exchange, and squares with the fact that the share of interdealer trading is very high. We show, however, that hot potato passing of inventories is not innocuous: because the passing of inventories dilutes the information content of order flow, this hampers information aggregation, making price less informative.