Researchers found that it is very difficult to forecast future exchange rates more accurately than the...

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Researchers found that it is very difficult to forecast futureexchange rates more accurately than the forward exchange rate orthe current spot exchange rate. What are the underlying factorsbehind these findings?

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Forward Contracts vs Futures Contracts An Overview Both forward and futures contracts involve the agreement to buy and sell assets at a future date A forward contract though settles at the end of the contract while the settlement for a futures contract happens on a daily basisBoth contracts fundamentally have the same function however the specific details of each are different The forward contract is used primarily by hedgers who want to cut down the volatility of an assets price while futures are preferred by speculators who bet on where the price will move Forward Contracts The forward contract is an agreement between a buyer and seller to trade an asset at a future date The price of the asset is set when the contract is drawn up Forward contracts have one settlement datethey all settle at the end of the contract These contracts are private agreements between two parties so they do not trade on an exchange Because of the nature of the contract they are not as rigid in their terms and conditions Many hedgers use forward contracts to cut down on the volatility of an assets price Since the terms of the agreement are set when the contract is executed a forward See Answer

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