The potential volume of forward exchange facilities

Abstract

The extensive and rapidly growing literature on forward exchange deals with its technique and with its theory almost exclusively from the point of view of the causes and effects of changes in forward rates. Very little has been published about the potential volume of forward exchange facilities. The present article analyses this aspect of the subject and its complexities, and at the same time corrects certain errors contained in the author’s earlier writings on the subject. While it is taken widely for granted that, in the absence of exchange controls affecting the freedom of dealing in forward exchanges, the volume of forward exchange operations has no limits, the author demonstrates that this “sky is the limit” view toward forward exchange transactions is mistaken.

JEL: F31