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Recent Developments in International Currency Derivatives Market: Implications for Poland


Lucjan T. Orlowski


Sacred Heart University - John F. Welch College of Business

September 1995

CASE Network Studies and Analyses No. 55

Abstract:     
This paper examines the critical problems of international currency derivatives that have emerged in international financial markets over the past two years, emphasizing the departures of spot exchange rate movements from the macroeconomic fundamentals among the “triad” currencies: the U.S. Dollar (USD), the German Mark (DM), and the Japanese Yen (YE). The macroeconomic variables that theoretically play a predominant role in the exchange rate movements are: differences in comparable market interest rates among the countries (interest rate differentials), differences in the rate of growth of real GDP (income differentials), and differences in the rates of inflation (inflation differentials). The changeable sensitivity of exchange rates to these key variables is tested in this paper for the “triad” currencies in two periods: 1991-1993, and 1994-1995. In the latter period, some considerable misalignments between forward rates and changes in spot exchange rates are observed. This is contrary to the historical evidence of the validity of the so-called “unbiased forward rate hypothesis” claiming that forward rates are the best predictor of adjustments of spot rates (Levich, 1976). It is argued that the recently observed failure of the relationship between forward rates and lagged spot rates has contributed to significant losses of investors and speculators in international currency derivative markets.

Number of Pages in PDF File: 24

Keywords: Poland, International Currency Derivatives, International Financial Markets

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Date posted: September 22, 2009  

Suggested Citation

Orlowski, Lucjan T., Recent Developments in International Currency Derivatives Market: Implications for Poland (September 1995). CASE Network Studies and Analyses No. 55. Available at SSRN: http://ssrn.com/abstract=1476255 or http://dx.doi.org/10.2139/ssrn.1476255

Contact Information

Lucjan T. Orlowski (Contact Author)
Sacred Heart University - John F. Welch College of Business ( email )
5151 Park Avenue
Fairfield, CT 06825
United States
203-371-7858 (Phone)
HOME PAGE: http://www.sacredheart.edu/ltorlowski.cfm
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