PROFITS FROM FORWARD EXCHANGE SPECULATION.

This article discusses the study which investigated whether speculation in forward exchange is profitable or not. This study develops one method and applies it to empirical data. A method of making indirect inferences about the elasticity of supply of forward exchange is used. The approach involves the measurement of a rate of return which a speculator could have earned if he had followed certain simple rules of behavior during a period of approximately six years from July 1955 to April 1961. According to the theoretical framework presented the high rates may simply reflect a risk premium. The biggest risk facing the speculator is that of devaluation.