Does Interest Rate Parity Work in RMB Forward Pricing? - An Empirical Test on Rolling Sample

The newly-born prospective market of RMB derivatives all over the world makes the pricing of RMB forward contract a hot topic in both theoretical and empirical world. This paper studies the pricing methods in both static and dynamic models and derives three main results. First, offshore NDF markets still have significant effects on the Chinese RMB forward contract market and its pricing mechanism. Second, the interest-rate-parity pricing mechanism begins to work in the determination of RMB interest rate since the revolutions in Chinese foreign exchange market from August 2005. Third, the interest-rate-parity-based RMB forward pricing mechanism is more and more important in RMB forward contract pricing, though the transition from expectation-based to interest-rate-parity-based pricing mechanism hasn´t finished and the inter-banking forward market hasn´t been actively involved in RMB forward pricing mechanism.