Hostname: page-component-cd9895bd7-gvvz8 Total loading time: 0 Render date: 2024-12-26T07:39:11.497Z Has data issue: false hasContentIssue false
  • English
  • Français

Exchange-Rate Flexibility and the Efficiency of the Foreign-Exchange Markets

Published online by Cambridge University Press:  19 October 2009

Norman S. Fieleke
Get access Rights & Permissions [Opens in a new window]

Extract

Prior to the recent experience with relatively flexible exchange rates, there was much concern that a high degree of exchange-rate flexibility might somehow overburden the institutions of the foreign-exchange market, particularly the forward market, with disruptive consequences for international commerce. While seldom clearly stated, the reasoning underlying this concern usually proceeded along the following lines. Substantial exchange-rate flexibility would lead business management to expect greater exchange-rate variations, with the result that businesses would seek to cover much more of their foreign-exchange exposure (i.e., would seek to “insure” against the greater exchange-rate risk) by purchasing or selling foreign currency forward. However, foreign-exchange traders either could not accommodate this greatly increased demand for their services, or could accommodate it only at substantially higher cost. Consequently, business firms would significantly reduce the volume of their international transactions.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 10 , Issue 3 , September 1975 , pp. 409 - 428
Copyright
Copyright © School of Business Administration, University of Washington 1975

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

[1]Almon, S. “The Distributed Lag between Capital Appropriations and Expenditures.” Econometrica, Vol. 33 (January 1965), pp. 178–196.CrossRefGoogle Scholar
[2]Arrow, K. J.Essays in the Theory of Risk-Bearing. Chicago: Markham Publishing Co., 1971.Google Scholar
[3]Clarkson, G.P.E. “A Theory of Stock Price Behavior.” Industrial Management Review, Vol. 6 (Spring 1965), pp. 93–103.Google Scholar
[4]Einzig, P. “The Potential Value of Forward Exchange Facilities.” Banca Nazionale del Lavoro Quarterly Review, Vol. 21 (December 1968), pp. 397–414.Google Scholar
[5]Fieleke, N. “Exchange-Rate Flexibility and the Forward-Exchange Markets: Some Evidence from the Recent Experience with the German Mark.” New England Economic Review, May/June 1972, pp. 2–10.Google Scholar
[6]Fieleke, N. “The Hedging of Commercial Transactions between U.S. and Canadian Residents: A View from the United States.” In Canadian-United States Financial Relationships. Boston: Federal Reserve Bank of Boston, 1972, pp. 171–191.Google Scholar
[7]First National City Bank, “Monetary Uncertainty and World Trade.” International Economic Letter, November 1971.Google Scholar
[8]Fisher, L., and Lorie, J. H.. “Rates of Return on Investments in Common Stocks.” The Journal of Business, Vol. 37 (January 1964), pp. 1–21.CrossRefGoogle Scholar
[9]Fitzsimons, R. B. “Who Are the ‘Currency Speculators’?” The Banker, November 1971, pp. 1277–1283.Google Scholar
[10]Fowler, H. H.; Partner, Goldman, Sachs & Co. “Some Scenarios for International Monetary Negotiations.” Remarks made in San Francisco, April 14, 1972.Google Scholar
[11]Friedman, M., and Roosa, R.. The Balance of Payments: Free Versus Fixed Exchange Rates. Washington, D.C.: American Enterprise Institute for Public Policy Research, 1967.Google Scholar
[12]Grubel, H. G.Forward Exchange, Speculation, and the International Flow of Capital. Stanford: Stanford University Press, 1966.Google Scholar
[13]Houthakker, H. S.“Exchange Rate Adjustment.” In U.S., Congress, Subcommittee of the Joint Economic Committee, Factors Affecting the United States Balance of Payments,87th Cong., 2d. sess.,Washington,1962, pp. 292–293.Google Scholar
[14] “An International Banking Survey,” The Economist, November 27, 1971.Google Scholar
[15]Johnston, J.Econometric Methods. New York: McGraw-Hill Book Company, Inc., 1963.Google Scholar
[16]Lanyi, A.The Case for Floating Exchange Rates Reconsidered. Essays in International Finance No. 72. Princeton: Princeton University, 1969.Google Scholar
[17]Machlup, F. “The Forward-Exchange Market: Misunderstandings between Practitioners and Economists.” In Approaches to Greater Flexibility of Exchange Rates, edited by Halm, George N.. Princeton: Princeton University Press, 1970, pp. 297–306.Google Scholar
[18]New York Times, June 21, 1972.Google Scholar
[19]Officer, L. H., and Willett, T. D.. “The Covered-Arbitrage Schedule: A Critical Survey of Recent Developments.” Journal of Money, Credit, and Banking, Vol. 2 (May 1970), pp. 247–257.CrossRefGoogle Scholar
[20]Page, W.; President, Morgan Guaranty Trust Co. of New York. “Address at a luncheon meeting of Italian business leaders in Milan, Italy,” October 27, 1971.Google Scholar
[21]Pelli, G. “Why I Am Not in Favor of Greater Flexibility of Exchange Rates.” In Approaches to Greater Flexibility of Exchange Rates, edited by Halm, George N.. Princeton: Princeton University Press, 1970, pp. 203–293.Google Scholar
[22]Sohmen, E. “Exchange Risks and Forward Coverage in Different Monetary Systems.” In Approaches to Greater Flexibility of Exchange Rates, edited by Halm, George N.. Princeton: Princeton University Press, 1970, pp. 311–315.Google Scholar
[23]Sohmen, E.The Theory of Forward Exchange. Princeton Studies in International Finance No. 17. Princeton: Princeton University, 1966.Google Scholar
[24]Stoll, H. R. “Causes of Deviation from Interest-Rate Parity.” Journal of Honey, Credit, and Banking, Vol. 4 (February 1972), pp. 113–117.CrossRefGoogle Scholar
[25]Working, H. “New Concepts Concerning Futures Markets and Prices.” The American Economic Review, Vol. 51 (May 1961), pp. 160–163.Google Scholar