Abstract
This article derives a complete set of demand and supply functions for forward exchange contracts in a multiperiod economy under incomplete information. Investors can invest in domestic and foreign risky securities; they consume foreign as well as domestic goods that have stochastic prices. Because the aggregate exposure to exchange risk may be different from zero and because investors may have heterogeneous expectations, they take speculative positions. The central theme of the article is an analysis of the role of forward exchange contracts and the effects of incomplete information in the optimal allocation of exchange risk.
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