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Few studies have examined the impact that central bank indirect intervention has on exchange rates. Efficient market theory predicts that new information within central bank communication will become a component of information used by currency traders. This study applies a novel methodology to examine whether information contained within Bank of Canada and the Reserve Bank of Australia communications does in fact get embedded within the information reported on the financial newswires. The primary data are speeches that are made public by the two central banks and from news as reported by Reuters from 1995 to 2009. Applying content analysis and an innovative use of information science theoretic measures, we demonstrate the flow-through of information contained within central bank communications to the information set used by traders.

Traditionally, central banks have used direct intervention in currency markets when the exchange rate has moved away from equilibrium or when the volatility has been excessive and the literature on the effects of indirect intervention is sparse. We examine whether indirect intervention has any impact on the exchange rate levels by examining the central bank verbal communications in Australia and Canada. We find evidence that the Bank of Canada’s (BOC’s) speeches reduce the mean exchange rate returns but not the Reserve Bank of Australia’s (RBA’s) speeches. Our results show that the socio-economic similarities between countries do not guarantee a similar impact of indirect intervention.

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This paper provides survey evidence captured from a sample of 113 respondents to a 2008 questionnaire sent to 344 companies in Thailand. The study examines Thai hedging practices following the Asian Financial Crisis of 1997. Thai companies, like their international counterparts, rely predominantly on matching and forward contracts to hedge transaction exposure. Thai companies, however, appear to be less rigorous when it comes to internal control and supervision of derivative activity. It is recommended that Thai companies improve their risk management practices by putting into place a documented hedging policy, which includes a requirement that senior staff be actively engaged in the risk management activities of the firm.