Devaluation expectations and forward currency markets in Finland

The study examines Finland’s forward currency markets and the information they provide about devaluation expectations.

Exchange rates agreed on forward markets may reflect companies’ assessments of devaluation risk, although the connections are not straightforward due to, for example, the Bank of Finland’s forward market policy. Such indirect information is valuable because companies’ expectations cannot be directly observed, yet they influence the willingness to invest and capital movements.

This information proved particularly useful, for example, in 1977, when currency markets were turbulent and exchange rates were changed on two occasions. Only one previous study has been published on the subject — Tanskanen’s examination of the dollar forward market for the years 1973–1976, in which the reflection of devaluation expectations in forward markets was addressed only briefly. (AI translation)

• ISSN: 0358-5980
• ISBN: 951-9281-11-8