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Volume :22 Issue : 1 1994      Add To Cart                                                                    Download

EFFICENCY OF EXCHANGE RATE DETERMINATION: THE CASE OF KUWAIT

Auther : John Pippenger , Yousuf Hassan. J. Mohamad

The foreign exchange market for Kuwaiti dinar appears to be as efficient as foreign exchange markets for OECD countries. After adjusting for the effects of bid-ask spreads, there is no evidence of significant deviations from either cross rate or covered interest rate arbitrage. Like other exchange rates, dinar rates are volatile, but substantially less volatile than short-term interest rates. The relation between forward rates and future spot rates is the same as for the United State and other large countries.

There is a small but systematic inverse relationship between the change in spot rates predicted by forward premia and the actual changes in spot rates. Whether this pattern should be interpreted as evidence rejecting efficiency or one of the other assumptions underlying the statistical tests is, at this time, not clear.

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