Currency Futures: Some Implications For International Financial Management

Abstract

This paper tests the contemporary currency futures market for interest-rate parity, purchasing-power parity, market efficiency, and hedging effectiveness. The study finds that the currency futures markets is a highly efficient, hedging-effective market exhibiting significant degrees of interest-rate parity and (longer-term) purchasing-power parity. Finally, the study infers from such findings some practicable policy tools for international cash management, multi-country capital budgeting, currency forecasting, and the risk management of foreign exchange exposure.