Define how fx futures market be used for price discovery, Financial Management

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How can the FX futures market be used for price discovery?

Answer:  To the amount that FX forward prices are an unbiased predictor of future spot exchange rates, the market anticipates if one currency will be grateful for or depreciate versus another.  Since FX futures contracts trade in an expiration cycle, dissimilar contracts expire at different periodic dates into the future.  The pattern of the prices of these contracts offers information like to the market’s current belief about the relative future value of one currency versus other at the scheduled expiration dates of the contracts.  One will usually see a steadily appreciating or depreciating pattern; though, it may be mixed at times.  So, the futures market is useful for price discovery that is obtaining the market’s forecast of the spot exchange rate at dissimilar future dates.


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