This paper tests the hypothesis that traders have rational expeatations and charge no risk premium in the forward exchange market. It uses a statistical procedure which is consistent under a large class of heteroscedasticity, and a set of data which takes into account the institutional features of the forward exchange market. The results show that inferences using this procedure are very different from those using the standard assumption of homoscedasticity.

Do traders in futures markets make use of all relevant information and is this reflected in prices? This collection of original essays by a team of international economists considers these and other questions central to futures markets.