Macroeconomics 12th Edition by Rudiger Dornbusch, Stanley Fischer ,Richard Startz

Exercise 17

Consult The Wall Street Journal or some other newspaper that lists foreign exchange rates on its financial pages. For some countries, such as Britain and Japan, you should find futures prices listed. A futures price is the price to be paid today to receive one unit of the foreign currency in the future. A 30-day futures price for the pound sterling, say, is the price paid today to receive 1 pound 30 days from now. Explain why the futures prices are not generally equal to the spot price-the price paid today to receive the foreign currency today. See whether you can explain the difference between the relationship of spot and futures prices for the pound and yen, respectively.