The Economics of Foreign Exchange

Review
Presents a practical guide to the economics of foreign exchange, comparing and contrasting the theoretical economics of foreign exchange movements with the practical realities of exchange rate markets. Examines five theories of exchange rate movements: purchasing power parity; the balance of payments approach; the asset market approach; the monetary approach; and rational expectations and the forward market. Examines the advantages and disadvantages of fixed and floating exchange rates. Reviews the history of the foreign exchange market since Bretton Woods. Describes the operation of the spot and foreign exchange markets. Examines the ways in which game theory might be used to explain the market and explores the effect of new foreign exchange hedging instruments on the market. Discusses technical or chart analysis and explains the usefullness of economic forecasting of exchange rates. Douch is Senior Manager of Global Treasury Services, London, for Barclays Bank, PLC. Index.Journal of Economic Literature

Book Description
A pioneering exploration of the relevance of economic theory to the practical realities of the foreign exchange market, this volume presents a well-reasoned, comprehensive examination of the degree to which economic theories and forecasts are helpful in predicting exchange rates. Douch begins by examining each of the different economic approaches by explaining exchange rate movements and then analyzes the actual workings of the foreign exchange market from the perspective of the market participants. Particular emphasis is placed upon the reasons for the observed failure of economic theory to reliably predict exchange rate movements over time.


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A pioneering exploration of the relevance of economic theory to the practical realities of the foreign exchange market, this volume presents a well-reasoned, comprehensive examination of the degree to which economic theories and forecasts are helpful in predicting exchange rates. Douch begins by examining each of the different economic approaches by explaining exchange rate movements and then analyzes the actual workings of the foreign exchange market from the perspective of the market participants. Particular emphasis is placed upon the reasons for the observed failure of economic theory to reliably predict exchange rate movements over time.


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