最新multinational financial management（跨国公司财务）ch04 international finance and currency parity conditions(共40张ppt课件).pptx

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1、CHAPTER 4International Finance and Currency: Parity Conditions 1第一页，共四十页。PART I. ARBITRAGE AND THE LAW OF ONE PRICEI.THE LAW OF ONE PRICEA. Law states:Identical goods sell for the same price worldwide.第二页，共四十页。ARBITRAGE AND THE LAW OF ONE PRICEB.Theoretical basis:If the prices after exchange-rate ad

2、justment were not equal, arbitrage in the goods worldwide ensures eventually it will.第三页，共四十页。ARBITRAGE AND THE LAW OF ONE PRICEC.Five Parity Conditions Result From These Arbitrage Activities1.Purchasing Power Parity (PPP)2.The Fisher Effect (FE)3.The International Fisher Effect(IFE)4.Interest Rate

3、Parity (IRP)5.Unbiased Forward Rate (UFR) 第四页，共四十页。ARBITRAGE AND THE LAW OF ONE PRICED.Five Parity Conditions Linked by1.The adjustment of variousrates and prices to inflation.2.The notion that money should have no effect on real variables (since they have been adjusted for price changes).第五页，共四十页。A

4、RBITRAGE AND THE LAW OF ONE PRICEE.Inflation and home currency depreciation:1.jointly determined by the growth of domestic money supply;2.Relative to the growth ofdomestic money demand.第六页，共四十页。ARBITRAGE AND THE LAW OF ONE PRICEF. THE LAW OF ONE PRICE- enforced by international arbitrage.第七页，共四十页。PA

5、RT II. PURCHASING POWER PARITYI. THE THEORY OF PURCHASINGPOWER PARITY: states that spot exchange rates between currencies will change to the differential in inflation rates between countries.第八页，共四十页。PURCHASING POWER PARITYII. ABSOLUTE PURCHASING POWER PARITYA. Price levels adjusted for exchange rat

6、es should beequal between countries第九页，共四十页。PURCHASING POWER PARITYII. ABSOLUTE PURCHASING POWER PARITYB. One unit of currency has same purchasing power globally.第十页，共四十页。PURCHASING POWER PARITYIII. RELATIVE PURCHASING POWER PARITYA.states that the exchange rate of one currency against another will

7、adjust to reflect changes in the price levels of the two countries.第十一页，共四十页。PURCHASING POWER PARITY1.In mathematical terms:where et = future spot rate e0= spot rate ih= home inflation if = foreign inflation t= the time periodtfthtiiee110第十二页，共四十页。PURCHASING POWER PARITY2.If purchasing power parity

8、is expected to hold, then the bestprediction for the one-periodspot rate should betfthtiiee110第十三页，共四十页。PURCHASING POWER PARITY3.A more simplified but less precise relationship isthat is, the percentage change should be approximately equal to the inflation rate differential.fhtiiee0第十四页，共四十页。PURCHAS

9、ING POWER PARITY4.PPP says the currency with the higher inflation rate is expected to depreciate relative to the currency with the lower rate of inflation.第十五页，共四十页。PURCHASING POWER PARITYB.Real Exchange Rates:the quoted or nominal rate adjusted for a countrys inflation rate isthtfttiiee)1()1(第十六页，共

10、四十页。PURCHASING POWER PARITYC.Real exchange rates1.If exchange rates adjust to inflation differential, PPPstates that real exchange rates stay the same.第十七页，共四十页。PURCHASING POWER PARITYC.Real exchange rates 2.Competitive positions:domestic and foreign firmsare unaffected.第十八页，共四十页。PART III.THE FISHER

11、 EFFECT (FE)I. THE FISHER EFFECTstates that nominal interest rates (r) are a function of the real interest rate (a) and a premium (i) for inflation expectations. R = a + i第十九页，共四十页。THE FISHER EFFECTB.Real Rates of Interest1. Should tend toward equality everywhere through arbitrage.2. With no governm

12、ent interference nominal rates vary by inflation differential orrh - rf = ih - if第二十页，共四十页。THE FISHER EFFECTC.According to the Fisher Effect,countries with higher inflation rates have higher interest rates.第二十一页，共四十页。THE FISHER EFFECTD.Due to capital market integration globally, interest rate differ

13、entials are eroding.第二十二页，共四十页。PART IV. THE INTERNATIONAL FISHER EFFECT (IFE)I. IFE STATES:A. the spot rate adjusts to the interest rate differential between two countries.第二十三页，共四十页。THE INTERNATIONAL FISHER EFFECTIFE = PPP + FEtfthtrree)1()1(0第二十四页，共四十页。THE INTERNATIONAL FISHER EFFECTB.Fisher postu

14、lated1. The nominal interest rate differential should reflect the inflation rate differential.第二十五页，共四十页。THE INTERNATIONAL FISHER EFFECTB.Fisher also postulated that2.Expected rates of return are equal in the absence of government intervention.第二十六页，共四十页。THE INTERNATIONAL FISHER EFFECTC. Simplified

15、IFE equation:(if rf is relatively small)100hfeerre第二十七页，共四十页。THE INTERNATIONAL FISHER EFFECTD. Implications of IFE1.Currency with the lower interest rate is expected to appreciate relative to the onewith a higher rate.第二十八页，共四十页。THE INTERNATIONAL FISHER EFFECTD. Implications of IFE2.Financial market

16、 arbitrage:insures interest rate differential is an unbiased predictor of change in future spot rate. 第二十九页，共四十页。PART VI. INTEREST RATE PARITY THEORYI. INTRODUCTIONA. The Theory states:the forward rate (F) differs from the spot rate (S) at equilibrium by an amount equal to the interest differential

17、(rh - rf) between two countries.第三十页，共四十页。INTEREST RATE PARITY THEORY2. The forward premium ordiscount equals the interestrate differential. (F - S)/S = (rh - rf) where rh = the home raterf = the foreign rate第三十一页，共四十页。INTEREST RATE PARITY THEORY3.In equilibrium, returns oncurrencies will be the sam

18、ei. e. No profit will be realizedand interest parity existswhich can be written11hfrFSr第三十二页，共四十页。INTEREST RATE PARITY THEORYB.Covered Interest Arbitrage1. Conditions required:interest rate differential doesnot equal the forward premium or discount.2. Funds will move to a countrywith a more attracti

19、ve rate.第三十三页，共四十页。INTEREST RATE PARITY THEORY3. Market pressures develop:a.As one currency is more demanded spot and sold forward.b. Inflow of fund depresses interest rates.c.Parity eventually reached.第三十四页，共四十页。INTEREST RATE PARITY THEORYC.Summary:Interest Rate Parity states:1.Higher interest rate

20、s on a currency offset by forward discounts.2.Lower interest rates are offset by forward premiums. 第三十五页，共四十页。PART VI. THE RELATIONSHIP BETWEEN THE FORWARD AND THE FUTURE SPOT RATEI. THE UNBIASED FORWARD RATEA. States that if the forward rate is unbiased, then it should reflect the expected future s

21、pot rate.B. Stated asft = et第三十六页，共四十页。PART VI. CURRENCYFORECASTINGI. FORECASTING MODELSA.Created to forecast exchange rates in addition to parity conditions.B.Two types of forecast:1.Market-based 2.Model-based第三十七页，共四十页。CURRENCY FORECASTINGMARKET-BASED FORECASTS:derived from market indicators.A. Th

22、e current forward rate contains implicit information about exchange rate changes for one year.B.Interest rate differentials may be used to predict exchange rates beyond one year.第三十八页，共四十页。CURRENCY FORECASTINGMODEL-BASED FORECASTS:include fundamental and technical analysis.A.Fundamental relies on ke

23、y macroeconomic variables and policies which most like affect exchange rates.B.Technical relies on use of 1. Historical volume and price data2. Charting and trend analysis第三十九页，共四十页。内容(nirng)总结CHAPTER 4。1.In mathematical terms:。2.Financial market arbitrage:。c.Parity eventually reached.。MODEL-BASED FORECASTS:第四十页，共四十页。