The authors investigate the effect of opening a forward or futures market on spot price or real exchange rate variab ility in a two-agent, two-good, two-state, general-equilibrium model. This is shown to depend upon such familiar parameters as substitutio n elasticities, marginal propensities to consume, and degress of risk aversion. The analysis highlights the importance of the income trans fer, which occurs as a result of capital gains and losses in the forw ard market. The authors find some presumption in favor of the view th at opening a forward market reduces spot price variability. The presu mption is strengthened the less risk averse are agents.