We investigate, here, the exchange rate expectations, which are broad models of exchange rate forecasting and efficiency, by looking at approaches, such as the static expectations, the extrapolative, the adaptive, the rational, the regressive, and some general specifications of the above expectations. At the end, orthogonality tests suggest that rejection of the unbiased forward rate hypothesis is caused by different variables (like “news”, unexpected shocks, latent variables, forecast errors in money supplies, interest rate differentials, stock market risk premia, and various forms of conditional variance). Also, empirical tests of the above exchange rate expectations are taking place for four different exchange rates ($/€, $/£, C$/$, and ¥/$). Theoretical discussion and empirical evidence have emphasized the impact of “news” on exchange rates, which affect agents’ expectations, too. Agents are using the exchange rate expectations effectively.
JEL classification numbers: E4, F31, F47, G14, G15
Keywords: Demand for Money and Exchange Rate, Foreign Exchange, Forecasting and Simulation, Information and Market Efficiency, International Financial Markets.