Economics, Econometrics and Finance
4 years ago

Brazilian FX Futures Market Dictates Exchange Rates, Spot Market Follows Suit.

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Textos para discussão
Mercados futuro e à vista de câmbio no Brasil: O rabo balança o cachorro
André Ventura, Márcio Garcia

Paper Summary

The study compared the futures and spot FX markets in Brazil to see where the FX rate is determined. By analyzing bid, ask, and deal data, it was found that the futures market is more liquid than the spot market. The FX rate is set first in the futures market and then transmitted to the spot market through arbitrage. This unique setup in Brazil's FX markets is due to historical factors.