We investigate the effect of opening a forward or futures market on spot price or real exchange rate variability in a two-agent, two-good, two-state general equilibrium model. We derive a linear approximation to the change in spot price variability which results from opening such a market. This is shown to depend upon such familiar parameters as substitution elasticities, marginal propensities to consume, and degrees of risk aversion. Our analysis highlights the importance of the income transfers which occur as a result of capital gains and losses in the forward market. We find that there is some presumption in favor of the view that opening a forward market reduces spot price variability. The presumption is strengthened the less risk averse are agents.