Foreign Exchange Rate Forecasting Techniques: Implications for Business and Policy

FOREIGN EXCHANGE RATE FORECASTING is a growth industry. At least 23 commercial services throughout the world, employing a variety of techniques, now provide foreign exchange rate forecasts. The purpose of this paper is to review and evaluate these techniques and services and to consider the implications of the findings for business and policy. The paper first considers whether foreign exchange rate forecasting is futile in light of the evidence that the foreign exchange market is an efficient market. Ten major forecasting services that rely in whole, or in large part, on formal models or decision rules are then evaluated on the basis of their predictive accuracy. Finally, the implications of the findings are considered for corporations trying to manage their foreign exchange exposure and for policy makers concerned about exchange rate stability.