scholarly journals Behavioral Biases in Forward Rates as Forecasts of Future Exchange Rates: Evidence of Systematic Pessimism and Under-Reaction

2008 ◽  
Vol 12 (3/4) ◽  
pp. 241-277 ◽  
Author(s):  
Raj Aggarwal ◽  
◽  
Sijing Zong ◽  
Keyword(s):  
Exchange Rates ◽  
Forward Rates ◽  
Behavioral Biases ◽  
Future Exchange

scholarly journals INFORMATION FLOW BETWEEN THE US DOLLAR-RUPIAH EXCHANGE RATES

2020 ◽  
Vol 23 (3) ◽  
pp. 441-464
Author(s):  
Wee-Yeap Lau ◽  
Tien-Ming Yip
Keyword(s):  
Exchange Rates ◽  
Information Flow ◽  
Vital Role ◽  
International Reserves ◽  
Forward Rates ◽  
Policy Tool ◽  
Policy Variable ◽  
The Us ◽  
Us Dollar

This study investigates the information flow between non-deliverable forward (NDF), spot, and forward US dollar–rupiah exchange rates during the post-Quantitative Easing (QE) period. Our results show a unidirectional information flow from NDF to the spot and forward rates in the post-QE period. We also find that the Indonesian government securities (IGS) played a vital role during the QE period, while international reserves preceded the US dollar–rupiah spot, forward, and NDF exchange rates post-QE. Hence, international reserves became an important policy variable in managing the currency value. Our finding redefines the role of IGS as a policy tool. As a policy suggestion, the Bank Indonesia should maintain a sufficient amount of foreign reserves to mitigate foreign exchange risks of the rupiah.

Forecasting foreign currency exchange rates for department of defense budgeting1

2017 ◽  
Vol 17 (3) ◽  
pp. 315-336
Author(s):  
Nicholas R. Gardner ◽  
Jonathan D. Ritschel ◽  
Edward D. White ◽  
Andrew T. Wallen
Keyword(s):  
Exchange Rates ◽  
Department Of Defense ◽  
Opportunity Cost ◽  
Status Quo ◽  
Alternative Methods ◽  
Fiscal Year ◽  
Forward Rates ◽  
Median Error ◽  
The Status ◽  
Time Periods

This paper examines the opportunity cost of applying simple averages in formulating the Department of Defense (DoD) budget for foreign exchange rates. Using out-of-sample validation, we evaluate the status quo of a center-weighted average against a Random Walk model, ARIMA, forward rates, futures contracts, and a private firm's forecasts over two time periods extending from Fiscal Year (FY) 1991 to FY 2014. The results strongly indicate that four of the alternative methods outperform the status quo over the shorter time period, and three methods for both time periods. Furthermore, a non-parametric comparison of the median error demonstrates statistical similarities between the four alternative methods over the short term. Overall, the paper recommends using the futures option prices to decrease forecast error by 3.23% and avoiding a $34 million opportunity cost.

Information Content of Implied Forward Exchange Rates

2003 ◽  
Vol 11 (1) ◽  
pp. 1-23
Author(s):  
Seong Hun Kim ◽  
Dong Se Cha
Keyword(s):  
Exchange Rates ◽  
Interest Rates ◽  
Error Correction ◽  
Information Content ◽  
Term Structure ◽  
Error Correction Model ◽  
Fisher Effect ◽  
Interest Rate Parity ◽  
Correction Model ◽  
Forward Rates

This paper analyzes the information content of the forward exchange rates implied by the interest rate parity, using the Korea and U.S. interest rates and Won/dollar exchange rates observed during the period of March 1991 to December 2002. First, we test the cointegration between implied forward exchange rates and future spot exchange rates to examine their longrun relationship, and find the existence of cointegration. Next, we examine the international Fisher effect and estimate an error correction model for their shortrun relationship. Our analysis supports the international Fisher effect for longer maturities. Our result also supports the error correction model that states that the future spot exchange rates will be adjusted reflecting the information contained in the past-period implied forward rates which is not fully reflected to current spot rates. Finally, we also find that the term structure of implied forward exchange rates is associated with the changes in future spot rates for longer maturities. Based on our findings, we conclude that the longrun relationship exists between the implied forward exchange rates and future spot exchange rates, and the shortrun deviation from the relationship tend to disappear as they return to the longrun relationship in the course of time.

scholarly journals Future exchange rates and Siegel's paradox

2018 ◽  
Vol 37 ◽  
pp. 168-172 ◽  
Author(s):  
Keivan Mallahi-Karai ◽  
Pedram Safari
Keyword(s):  
Exchange Rates ◽  
Future Exchange

scholarly journals Future Spot Rate: The Implications in Indonesia

2020 ◽  
Vol 20 (1) ◽  
pp. 155
Author(s):  
R Adisetiawan ◽  
Pantun Bukit ◽  
Ahmadi Ahmadi
Keyword(s):  
Time Series ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Empirical Evidence ◽  
Forward Rate ◽  
Spot Rate ◽  
Forward Rates ◽  
Currency Exchange ◽  
Short Period ◽  
The Exchange Rate

Investors, multinational companies and governments require a rate forecasting to make informed decisions about the hedging of debts and receivables, funding and short-term investments, capital budgeting and long-term financing. The process of making forecasting from market indicators, known as market-based forecasting, is usually developed based on spot rates and forward rates. The current spot rate can be used as forecasting, as the exchange rate reflects the market estimate of the spot rate in a short period of time. The forward rate is used in forecasting, as the exchange rate reflects the market estimate of the spot rate at the end of the forecasting period. Based on the research conducted by Chiang (1986) of the samples used, empirical evidence indicates spot rates and forward rates are significant as predictors of future spots. Empirical evidence suggests that spot rates provide better forecasting results compared to forward rates. The research uses regression models for market-based forecasting methods. The variables used in this study are spot rates, forward rates and future spots. The samples used are from Bank Indonesia for spot rates in January – March 2019 and future spot in April – June 2019, and from Jakarta Futures exchange for forward rates in January – March 2019. The Stochastic and Chow Test models are selected and their use has been evaluated using quality and precise testing measures. Based on the sample period used, empirical evidence suggests that spot rates and forward rates are significant in predicting future spots for EUR, JPY and AUD currencies. Current spot rates provide better forecasting results in predicting Future spot compared to the forward rate. Both the 15Ft">  and 15St">  coefficient are sensitive to new information from the variation of the coefficient and time, it can increase the forecasting of the equation to each currency exchange rate used. The study states that variables from time series should be effectively utilized and utilized in predicting currency exchange rates, as this research demonstrates the absence of dependence on time series Can be concluded that foreign exchange rates in each country follow a pattern that is not stationary. The spot Euro exchange rate turns out to be statistically more accurate with an error rate of 0.004144% forecasting with the value of regression coefficient of Euro exchange rate is a Future Spot = 21.504,88 – 0.341229Spot + 15et+1"> .

The World Economy

1995 ◽  
Vol 152 ◽  
pp. 29-59 ◽  
Author(s):  
Ray Barrell ◽  
Nigel Pain ◽  
Julian Morgan
Keyword(s):  
Exchange Rate ◽  
Financial Markets ◽  
Exchange Rates ◽  
World Economy ◽  
Real Exchange Rates ◽  
Equity Prices ◽  
Forward Rates ◽  
Effective Exchange ◽  
Rate Mechanism

The pattern of real exchange rates has changed significantly since February. Our currency forecasts at that time were in line with the implied forward rates in financial markets, with the yen projected to appreciate slowly against the dollar, rising from 100 to the dollar in the first quarter of 1995 to around 90 to the dollar in 1997. Within Europe, we projected a further small appreciation of the D-mark and a continuing depreciation of the lira and the peseta. Overall, we expected ‘real exchange rates to stay approximately stable’. In the event, the yen rose strongly in March and April to around 80 to the dollar, while the D-mark rose from around 1.50 to 1.38 to the dollar. At the same time, the lira/D-mark exchange rate fell by over 10 per cent and the Exchange Rate Mechanism was placed under renewed strain, with both the peseta and the escudo being devalued. As a result, the Japanese and US real effective exchange rates are respectively 15 per cent higher and 7 per cent lower than we had previously expected. These developments also had a wider impact on financial markets. The discount rate was cut in Japan and Germany and long-term rates rose in Italy and Spain. Equity prices fell sharply in those countries with appreciating currencies and jumped up in most of the countries whose exchange rate has depreciated.

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