To be precise, market efficiency need not imply that future prices are unbiased forecasts. For an exposition of the efficient markets argument, see VasicekAldrich A.McQuownJohn A., “The Efficient Market Model,”Financial Analysts Journal (September-October 1972), pp. 71–82.
2.
See, for example, AnkromRobert, “Among Their Hedges, Treasurers May Miss the Obvious,”Euromoney (December 1977), p. 99.
3.
The precise formulas for these linkages between interest rates, forward exchange rates, and currency and inflation rate expectations may be found in GiddyIan H., “An Integrated Theory of Exchange Rate Equilibrium,”Journal of Financial & Quantitative Analysis (December 1976).
4.
See studies cited in BurgerA. E.LangR. W.RascheR. H., “The Treasury Bill Futures Market and Market Expectations of Interest Rates,”Federal Reserve Bank of St. Louis—Monthly Review (July 1977), p. 5.
5.
AliberR. Z., “Exchange Risk, Political Risk, and Investor Demand for External Currency Deposits,”Journal of Money, Credit and Banking (May 1975), pp. 161–179.
6.
Versions of this idea can be found in AdlerMichael C.DumasBernard, “Portfolio Choice and the Demand for Forward Exchange,”American Economic Review (May 1976), pp. 332–339; and SolnikBruno H., “The International Pricing of Risk: An Empirical Investigation of the World Capital Market Structure,”Journal of Finance (May 1974), pp. 365–379.
7.
See FrankelJeffrey A., “On the Mark: A Theory of Floating Exchange Based on Real Interest Differentials,” unpublished manuscript, Massachusetts Institute of Technology, October 1977. Appendix A.
8.
RobbinsSidney M.StobaughRobert B., “The Bent Measuring Stick for Foreign Subsidiaries,”Harvard Business Review (September-October 1973).
9.
These issues are discussed in some detail in LessardDonald R.LorangePeter, “Currency Changes and Management Control: Resolving the Centralization / Decentralization Dilemma,”Accounting Review (July 1977).
