The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.

In the end-game of a fixed exchange rate regime, increases in interest rates to defend the currency may lead to an apparently perverse market response: further downward pressure on the exchange rate. This may result if a large proportion of investors` foreign exchange exposure is dynamically hedged. This paper describes the trading operations involved in implementing dynamic hedges and the impact of these operations on central bank policy. The success of an interest rate defense hinges on the size and timing of the funding operations of those who are being squeezed relative to those engaged in dynamic hedging.

"The book describes and evaluates all of the major market developments that have taken place in the early nineties, including the expansion of futures exchanges in European markets, the introduction of a vast array of new financial futures products, and an expanding product range in the bank-driven OTC market. The book also provides readers with a thorough grounding in the basic components of generic product elements - whether structured on floors, caps, swaps or other types of instruments - in order to better understand all of the possibilities in the hedging market." "In addition, you'll find a wealth of useful reference information including definitions, formulae with sample calculations of all the appropriate risk and hedging concepts, and realistic case discussions and sample calculations.".

The dramatic growth of international capital flow has provided unprecedented opportunities and risks in emerging markets. This book is the result of a conference exploring this phenomenon, sponsored by the Federal Reserve Bank of Dallas. The issues explored include direct versus portfolio investment; exchange rates and economic growth; and optimal exchange rate policy for stabilizing inflation in developing countries. It concludes with a panel discussion on central bank coordination in the midst of exchange rate instability.

This paper analyzes long-term exchange rate modeling. The paper reviews the literature that tests for a unit root in real exchange rates and the closely related work on testing for a unit root in the residual from a regression of the nominal exchange rate on relative prices. It argues that the balance of evidence is supportive of the existence of some form of long-term exchange rate relationship. The paper highlights that the form of this relationship, however, does not accord exactly with a traditional representation of the long-term exchange rate.