Economics, Econometrics and Finance
8 years ago

Study reveals forward exchange rates offer little insight into future rates.

Journal of Monetary Economics
Forward and spot exchange rates
Eugene F. Fama

Paper Summary

Forward exchange rates do not predict future spot rates well. However, both components of forward rates change over time. Most of the variation in forward rates is due to changes in premiums, and these premiums are negatively related to expected future spot rates.

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