Global Business and Finance Review (Mar 1996)
EMPIICAL DISTRIBUTIONS OF FOREIGN EXCHANGE RATES UNDER THE FLOATING EXCHANGE RATE SYSTEM
Abstract
The shape offoreign exchange probability distributions is important in practical applications oftheoretical models ofinternationalfinance. This paper extends previous analyses ofthe shape ofexchange rate distributions by considering a wider range ofcandidate processes. The results indicate that the logistic distribution provides the best representation ofcurrency returnsforfour major currencies (the German mark, Japanese yen, Canadian dollar and British pound) against the U. S. dollar between January 1973 and July 1995. These results are significant because they show that in spite ofthe apparent increase in exchange rate variability during the 1980s and J990s there has been a stable underlying distribution for major currencies.
