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The Forward Exchange Rate and the Interest Rate within a Production Economy

Author

Listed:
  • Akiba, Hiroya

    (Waseda University)

Abstract

This paper considers some equilibrium characteristics of the forward foreign exchange rate and the interest rate within a production economy. In order to derive the optimal solutions, a two-stage decision process is assumed; the first is the production decision, and the second is the portfolio decision. With some additional assumptions, both the forward exchange rate and the interest rate are shown to depend on the underlying stochastic parameter in the production function. Unlike in an exchange economy, the unbiasedness hypothesis of the forward exchange rate fails because of random technological shocks in produc - tion.

Suggested Citation

  • Akiba, Hiroya, 1997. "The Forward Exchange Rate and the Interest Rate within a Production Economy," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 12, pages 227-241.
    • Handle: RePEc:ris:integr:0048
    as

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    More about this item

    Keywords

    Forward; Exchange; Rate;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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