This papar is supposed to explore the efficiency of China's forward exchange rate market and its funcion on forcasting the subsequent changes in the spot exchange rate. Enlightened by the theory on the term structure of treasury bill yields, the author developed a vector error correction model with the spot and forward exchange rates in domestic and overseas financial markets respectively. Empirical results refused the efficiency hypothesis for both the NDF and domestic forward exchange rate, and the two rates were featured by weak ability of forcasting the future market fluctuation. However, NDF still contains more information regarding future changes in the spot exchange rates than its domestic counterpart, which may be explained by the factors from the institution restriction, market segmentation, market scale and efficiency, as well as RMB's internationalization.
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