Foreign Exchange Risk Management by Using the Theory of Exchange Rates Proposed by Samuelson

The theory of exchange rate proposed by Samuelson is based on the theory of international trade, and it is different with the Balassa-Samuelson effect. Through the co-integration test based on the panel data of 22 OECD countries, we find that, for the currencies of most countries, there exists foreign exchange risk during the considered period. Therefore, we can take advantage of the theory of exchange rate proposed by Samuelson to manage risk. Firstly, we can take timely measures to avoid foreign exchange risks. Secondly, we can gain from investment on foreign exchange by predicting the direction of foreign exchange rate movements.