| Sumario: | This article presents a formal model of forward exchange market speculation which is based upon the present structure of the international monetary system with binomial speculative expectations. The recognition of the binomial character of speculative expectations which is embodied in our speculative excess demand function for forward exchange alters the traditional interest rate parity theory model in two ways: first, the position of the speculative market schedule becomes highly sensitive to speculative expectations about devaluation; second, the speculative market schedule is asymmetric in the presence of devaluation fear.
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