Foreign Exchange Theory And Practice

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In practice, however, the, readjustment is brought about through a movement in the future rather than the spot quotation. This is because the future market, being far less active than the spot market, is more sen- sitive to the action of the forces making for parity. In the last illustration, for example, the equivalence between the two forms of exchange is re-established to a greater extent by the advance of the future rate than by the decline of the spot rate.
In arriving at the law governing
... the relationship of the two FUTURE CABLE EXCHANGE 63 rates, we tacitly assumed that trading in future cables was of sufficient proportions actually to produce the tendency to parity. With the exception of a few maturities, however, which from time to time become fairly active in answer to periodical or special developments, business in futures is too light in volume to pro- duce any strong tendency to parity with spot cables, so that the relationship between the two rates is usually a loose one.

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