Working Paper

Bank positions and forecasts of exchange rate movements

Abstract: Using data on the foreign exchange positions of five leading financial institutions, this paper attempts to determine whether the recent profitability of banks' foreign exchange trading is due to superior abilities to forecast exchange rate movements. Overall, the position data provide evidence that the performances of some financial institutions are 1) better than one might expect if their forecasts were purely random and 2) consistent with the possibility that they may possess information that would be valuable in forecasting changes in exchange rates. The conclusions are limited, however, by the possibility that there exists a time-varying risk premium which is correlated with the positions.

Keywords: Forecasting; Foreign exchange rates;

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: International Finance Discussion Papers

Publication Date: 1994

Number: 486