Research On Term Structure Characteristics Of Forward Exchange Rate

Forward exchange rate market is now the world's largest and most active trading market.Huge market trading volume reflects the requirement for exchange rate risk management and exchange rate investment management, which puts forward an objective requirement for development of the forward exchange rate theory.When the forward exchange rate is impacted by the events such as benchmark interest rate adjustment, whether there is a point or region that has smaller volatility and whether the point or region is constant? Academic research is currently very limited in this field. The research on this problem will on one hand result in an in-depth discussion of influence factors of exchange rate with different maturities and forward exchange rate's dynamic characteristics.On the other hand, the stable point or period on forward exchange rate term structure can be introduced as forward exchange rate pricing benchmark, which is the basis of the following research and can make forward exchange rate pricing mechanism more reasonable.This study is based on logic as "theoretical study-data analysis empirical test-theoretical interpretation-conclusions application" and the main contents are as follows:The first chapter describes the background for the study, and makes summarized analysis of the literatures in field of exchange rate decision theory and term structure.The second chapter focuses on empirical research and is the core chapter of this article.This chapter takes daily yield of 18 kinds of forward exchange rate involved with euro and dollar as research objectives and the data is obtained from Bloomberg terminal.With determining the mutation windows, comparing volatility of forward exchange rate with different maturity terms,the result reveals that the forward exchange rate with maturity terms from 1 year to 2 year has smallest volatility and displays the smallest degree of response to market shocks.The third chapter focuses on empirical research and is the core chapter of this article.The research objectives are the same as that of the second chapter. The chapter fits daily yield of forward exchange rate in linear time series model and describes the forward exchange rate volatility by calculating the Green function. The result also reveals that the forward exchange rate with maturity terms from 1 year to 2 year has smallest volatility, which is in line with the conclusion of the second chapter.The forth chapter explains the conclusions of empirical tests from a theoretical point of view and summarizes the dynamic features of forward exchange rate.The chapter also introduces the forward exchange rate with maturity terms from 1 year to 2 year as a reference point for the pricing of forward exchange rate,which makes the forward exchange rate pricing model more reasonable.The fifth chapter is the summary of the whole paper and puts forward prospects for further research.