Economics, Econometrics and Finance
4 years ago

Currency futures now drive cash market prices, changing global exchange dynamics.

The Journal of Derivatives
Price Discovery in the Foreign Currency Futures and Spot Market
Joshua V. Rosenberg, Leah Goldman Traub

Paper Summary

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The article explores how the foreign currency futures market interacts with the cash market. By analyzing exchange rate movements in 1996 and 2006, the researchers found that in 1996, futures prices mostly influenced cash market prices, while in 2006, the influence was reversed. This shift is attributed to increased transparency in the cash FX market.