【PPT精品課件】貨幣金融學(xué)7版英文課件-19-大學(xué)課件2

1、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 forei

2、gn 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, Japanes

3、e 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.

4、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 20

5、05 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$

6、 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 Educat

7、ion 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, expecte

8、d 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 Can