havior of the Mexican Peso during two diverse periods. The first period is characterized by relatively orderly price movement, while the second encompasses two major devaluations. The results of the study indicate that the price performance was as expected; i.e., orderly during the first period and quite erratic during the second period. The results indicate that the open interest increased as expected during the period of uncertainty when compared to the first period. The implications of this research reaffirm the usefulness of the futures market during periods of instability in the value of the underlying asset.
The International Money Market (IMM) was established in Chicago in 1972 as a division of the Chicago Mercantile Exchange to trade foreign currency futures contracts. This futures market serves the need for trading in foreign currencies for three types of participants: speculators, arbitrageurs, and hedgers. Each of these participants is important to the functioning of the futures market.
The IMM currently trades eight foreign currencies as well as gold, silver, and copper. Although each of these "commodities" varies in price for different reasons, in general the price movements are influenced by happenings in the international environment. Such factors are both natural and man-made, e.g., trade surpluses or deficits, changes of government, prices of individual products, such as petroleum. Since the market is moved by the aggregate decisions of the three types of participants, it is the perceptions or beliefs of those individuals with respect to these various environmental factors that determine the level of prices and price movements on the futures exchange.
The basic functioning of the futures market is quite different from the forward exchange market. In the forward market, contracts are made continually to expire