The Behavior of Foreign Exchange Rates

Abstract

The analysis of the distribution of foreign exchange rate changes provides a description of the behavior of foreign exchange rates and its determining underlying process. The application of empirical methodologies or further theoretical developments is limited by the nature of this distribution. In this paper, the empirical analysis of major currencies during the flexible exchange rate period suggests that there is no unique distribution representing the behavior of the foreign exchange rate. This, however, is determined both by foreign exchange management policies and the fundamental economic forces.