【PPT精品课件】货币金融学7版英文课件--19-大学课件2.pptx
Chapter 19The Foreign Exchange Market 2005 Pearson Education Canada Inc.Foreign Exchange Rates2 2005 Pearson Education Canada Inc.The Foreign Exchange MarketDefinitions:1.Spot exchange rate2.Forward exchange rate3.Appreciation4.DepreciationCurrency appreciates,countrys goods prices abroad and foreign goods prices in that country1.Makes domestic businesses less competitive2.Benefits domestic consumersFX traded in over-the-counter market1.Trade is in bank deposits denominated in different currencies3 2005 Pearson Education Canada Inc.Law of One PriceExample:Canadian steel$100 per ton,Japanese steel 10,000 yen per tonIf E=50 yen/$then prices are:Canadian SteelJapanese SteelIn Canada$100$200In Japan5000 yen10,000 yenIf E=100 yen/$then prices are:Canadian SteelJapanese SteelIn Canada$100$100In Japan10,000 yen10,000 yenLaw of one price E=100 yen/$2005 Pearson Education Canada Inc.4Purchasing Power Parity(PPP)PPP Domestic price level 10%,domestic currency 10%1.Application of law of one price to price levels2.Works in long run,not short runProblems with PPP1.All goods not identical in both countries:Toyota vs Chevy2.Many goods and services are not traded:e.g.haircuts5 2005 Pearson Education Canada Inc.PPP:Canada and U.S.6 2005 Pearson Education Canada Inc.Factors Affecting E in Long RunBasic Principle:If factor increases demand for domestic goods relative to foreign goods,E 2005 Pearson Education Canada Inc.7Expected Returns and Interest Parity Re forFrancoisAl$DepositsiD+(Eet+1 Et)/EtiDEuro DepositsiFiF (Eet+1 Et)/EtRelative ReiD iF+(Eet+1 Et)/EtiD iF+(Eet+1 Et)/EtInterest Parity Condition:$and Euro deposits perfect substitutesiD=iF (Eet+1 Et)/EtExample:if iD=10%and expected appreciation of$,(Eet+1 Et)/Et,=5%iF=15%8 2005 Pearson Education Canada Inc.Deriving RF CurveAssume iF=10%,Eet+1=1 euro/$PointA:Et=0.95,RF=.10 (1 0.95)/0.95=.048=4.8%B:Et=1.00,RF=.10 (1 1.0)/1.0=.100=10.0%C:Et=1.05,RF=.10 (1 1.05)/1.05=.148=14.8%RF curve connects these points and is upward sloping because when Et is higher,expected appreciation of F higher,RF Deriving RD CurvePoints B,D,E,RD=10%:so curve is verticalEquilibriumRD=RF at E*If Et E*,RF RD,sell$,Et If Et E*,RF E*,RETF RETD,sell$,Et If Et E*,RETF iD,real rate,Eet+1 more than iD RF out RD out and Et 2005 Pearson Education Canada Inc.15Response to Ms 1.Ms,P,Eet+1 expected appreciationof F,RF shiftsright2.Ms,iD,RD shiftsleftGo to point 2 and Et 3.In the long run,iDreturns to old level,RD shifts back,goto point 3 and getExchange Rate Overshooting 2005 Pearson Education Canada Inc.16Why Exchange Rate Volatility?1.Expectations of Eet+1 fluctuate2.Exchange rate overshooting17 2005 Pearson Education Canada Inc.
