國際經(jīng)濟學第九版英文課后答案-第14單元

InternationalEconomics–9thEdition Instructor’sManual

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DominickSalvatore

*CHAPTER14

(CoreChapter)

FOREIGNEXCHANGEMARKETSANDEXCHANGERATES

OUTLINE

14.1 Introduction

14.2FunctionsoftheForeignExchangeMarkets

CaseStudy14-1:TheU.S.DollarastheMajorVehicleCurrency

CaseStudy14-2:TheBirthofaNewCurrency:TheEuro

14.3 ForeignExchangeRates

14.3aEquilibriumForeignExchangeRates

CaseStudy14-3:ForeignExchangeQuotations

14.3bArbitrage

14.3cTheExchangeRateandtheBalanceofPayments

14.4SpotandForwardRates,andForeignCurrencySwaps,FuturesandOptions

14.4aSpotandForwardRates

14.4bCurrencySwaps

14.4cForeignExchangeFuturesandOptions

CaseStudy14-4:QuotationsonForeignCurrencyFuturesandOptions

CaseStudy14-5:Size,CurrencyandGeographicalDistributionoftheForeign ExchangeMarket

14.5ForeignExchangeRisks,Hedging,andSpeculation

14.5aForeignExchangeRisks

14.5bHedging

14.5cSpeculation

14.6InterestArbitrageandEfficiencyofForeignExchangeMarkets

14.6aUncoveredInterestArbitrage

14.6bCoveredInterestArbitrage

14.6cCoveredInterestArbitrageParity

14.6dCoveredInterestArbitrageMargin

14.6eEfficiencyofForeignExchangeMarkets

CaseStudy14-6:LocalCurrencyandDollarStockReturnsAroundtheWorld

14.7EurocurrencyMarkets

14.7aDescriptionandSizeofEurocurrencyMarkets

14.7bReasonsfortheDevelopmentandGrowthoftheEurocurrencyMarket

CaseStudy14-7:SizeandGrowthoftheEurocurrencyMarket

14.7cOperationandEffectsofEurocurrencyMarkets

14.7dEurobondandEuronoteMarkets

CaseStudy14-8:RisingCompetitioninGlobalBanking

Appendix A14.1DerivationofFormulaforCoveredInterestArbitrageMargin

KeyTerms

Foreignexchangemarket Foreignexchangerisk

Vehiclecurrency Hedging

Seignorage Speculation

Euro Stabilizingspeculation

Exchangerate Destabilizingspeculation

Depreciation Interestarbitrage

Appreciation Uncoveredinterestarbitrage

CrossExchangerate Coveredinterestarbitrage

Effectiveexchangerate Coveredinterestarbitrageparity(CIAP)

Arbitrage Coveredinterestarbitragemargin(CIAM)

Spotrate Efficiencyofforeignexchangemarkets

Forwardrate Eurocurrency

Forwarddiscount Eurocurrencymarket

Forwardpremium Offshoredeposits

Currencyswaps Eurobonds

Foreignexchangefutures Euronotes

Foreignexchangeoptions

LectureGuide:

1. Thisisoneofthemostimportantandchallengingofthecorechapters,andto coveritadequatelyrequiresfiveclasses.

2. Iwouldcoverthefirstthreesectionsinthefirstclass,andspendoneclassoneach oftheremainingfoursections.

3. Studentsfindhedgingandspeculationdifficult.Iwouldexplainthemslowlyand verycarefully.Iwouldalsoassignandgoovertheproblemsinclass.

4. Section6oninterestarbitrageandtheefficiencyofforeignexchangemarketsis alsodifficultbutveryimportantandsoIwouldcoveritslowlyandverycarefully.

AnswerstoProblems:

1.a. WithsupplycurveofpoundsS￡,theequilibriumexchangerateisR=$2/￡1and theequilibriumquantityisQ=￡40million(pointEinFigure1onthenextpage) underaflexibleexchangeratesystem.Ontheotherhandwithsupplycurveof poundsS’￡,theequilibriumexchangeratewouldbeR=$3/￡1andtheequilibrium quantitywouldbeQ=￡20million(pointBinFigure1).

b. IftheUnitedStateswantedtomaintaintheexchangeratefixedatR=3inFigure1 withsupplycurveS￡,theU.S.centralbankwouldgain￡40millioninreserves perday.

2.a. SeeFigure2onthenextpage.

b. WithsupplycurveofpoundsS*￡,theequilibriumexchangeratewouldbe R=$1/￡1andQ=￡70millionunderaflexibleexchangeratesystem(seeFigure2).

c. IftheUnitedStateswantedtomaintainafixedexchangerateofR=1inFigure2 withS*￡,theU.S.centralbankwouldlose￡50millionofreservesperday.

3. Use$2topurchase￡1inNewYork,usethe￡1topurchase410yensinLondon, andusethe410yenstopurchase$2.05inTokyo,thusearning$0.05inprofitfor eachpoundsotransferred.

4.a. Theforcesatworkthatwillmakethecrossexchangeratesconsistentincurrency arbitrageinthepreviousproblemareasfollows.Thesellingofpoundsforyensin LondonwillreducetheyenpriceofthepoundinLondonuntilitis400yensto1.

b.TheconsistentcrossratesinProblem3are:$2=￡1=400yens.

5.a. Thepoundisatathree-monthforwardpremiumof1cor0.5%(or2%/year)with

respecttothedollar.

b. Thepoundisatathree-monthforwarddiscountof4cor2%(or8%/year)with

respecttothedollar.

6.a. Theeuroisatthree-monthforwardpremiumof1%(or4%/year)withrespectto theSwissfranc.

b.Thedollarisatthree-monthforwarddiscountof5%(or20%/year)withrespectto

theyen.

7. Theimporterwouldhavetopurchaseforward￡10,000poundsfordeliveryin threemonthsattoday'sFR=$1.96/￡1.

Afterthreemonths(andregardlessofwhatthespotrateisatthattime),the

importerwouldpay$19,600andobtainthe￡10,000heneedstomakethe payment.

8. Theexporterwouldhavetosellforward￡10,000poundsfordeliveryinthree monthsattoday'sFR=$1.96/￡1.

Afterthreemonths,theexporterwilldeliverthe￡10,000andreceive$19,600.

9. Thespeculatorcanspeculateintheforwardexchangemarketbypurchasing poundsforwardfordeliveryinthreemonthsatFR=$2/￡1.

Ifthespeculatoriscorrect,hewillearn5cperpoundpurchased.

10. Thespeculatorcanspeculateintheforwardexchangemarketbysellingpounds forward.

Ifthespeculatorisright,hewillearn5cperpoundtransferred.

If,ontheotherhand,SR=$2.05/￡1,thespeculatorwilllose5cperpound.

11. Theinterestarbitrageurwillearn2%peryearfromthepurchaseofforeignthree- monthtreasurybillsifhecoverstheforeignexchangerisk.

12.a.Iftheforeigncurrencywasinsteadataforwardpremiumof1percentperyear,

theinterestarbitrageurwouldearn5%peryear.

b. Iftheforeigncurrencywasataforwarddiscountof6percentperyear,itwould payforinvestorstotransferfundsfromthehigher-tothelower-interestcenter andlose4%interestbutgain6%fromtheforeignexchangetransaction,foranet gainof2%peryear.

13.a. AtpointB,thelossof1%peryearfromtheforwardpremiumontheforeign exchangetransactiononthepartoftheforeigninvestorismorethanmadeupby the2%peryeargainfromthehigherinterestrateinournation.

AtpointB',the1%interestlossperyearonarbitrageinflowintoournationisless

thanthe2%peryeargainontheforwarddiscountoncurrencytransaction.

AsarbitrageinflowcontinuesfrompointB,thepositiveinterestdifferentialinfavorofournationdeclinesandtheforwardpremiumontheforeigncurrencyincreases.

FromB',theinterestdifferentialinfavoroftheforeigncountryincreasesandthe

forwarddiscountontheforeigncurrencydecreases.

14.a. AtCIAP,thereisnofurtherpossibilityfromincreasingreturnsoverandabove thosethatinvestorscanachieveintheirowncountry,butthisdoesnotmeanthat returnsinthetwocountriesareequalized.

Asproofofthis,wecanseethatintheexamplegivenattheendofSection14.6d,

annualizedreturnsremainat8percentinLondonforBritishinvestorsandare increasedfrom6percentto6.852forAmericaninvestorswithoutconsidering transactioncostsand6.602percentifweconsidertransactioncostsof1/4of1 percentinvestinginLondon.Thus,returnsbecomelessunequalasaresultof CIA,butarenotequalized!

App.1a.a.TheU.S.investorwillgetback($200,000)(1.015)=$203,000.

b.TheU.S.investorwillgetback$203,000+($200,000)(0.00213)=

$203,000+$426=$203,426.

c.TheU.S.investorwillgetback$205,000+($200,000)(0.0025)=

$203,000+$500=$203,500,anoverestimationof$74.

Multiple-choiceQuestions:

1.Whichisnotafunctionoftheforeignexchangemarket?

a.totransferfundsfromonenationtoanother

b.tofinancetrade

*c.todiversifyrisks

d.toprovidethefacilitiesforhedging

2.Anincreaseinthepoundpriceofthedollarrepresents:

*a.anappreciationofthedollar

b.adepreciationofthedollar

c.anappreciationofthepound

d.adevaluationofthedollar

3.Achangefrom$1=€1to$2=€1represents

*a.depreciationofthedollar

b.anappreciationofthedollar

c.adepreciationofthepound

d.noneoftheabove

4.Ashortageofpoundsunderaflexibleexchangeratesystemresultsin:

a.adepreciationofthepound

*b.adepreciationofthedollar

c.anappreciationofthedollar

d.nochangeintheexchangerate

5.Aneffectiveexchangerateisa:

a.spotrate

b.forwardrate

c.flexibleexchangerates

*d.weightedaverageoftheexchangeratesbetweenthedomesticcurrencyand thenation'smostimportanttradepartners

6.Theexchangerateiskeptwithinnarrowlimitsindifferentmonetarycentersby:

a.hedging

*b.exchangearbitrage

erestarbitrage

d.speculation

7.IfSR=$1/€1andthethree-monthFR=$0.99/€1:

*a.theeuroisatathree-monthforwarddiscountof1%

b.theeuroisataforwarddiscountof1%peryear

c.theeuroisatathree-monthforwardpremiumof1%

d.thedollarisatathree-monthforwarddiscountof1%

8.Hedgingrefersto:

a.theacceptanceofaforeignexchangerisk

*b.thecoveringofaforeignexchangerisk

c.foreignexchangespeculation

d.foreignexchangearbitrage

9.AU.S.importerscheduledtomakeapaymentof€100,000inthreemonthscanhedge

hisforeignexchangeriskby:

a.purchasing$100,000intheforwardmarketfordeliveryinthreemonths

b.selling€100,000inthespotmarketfordeliveryinthreemonths

*c.purchasing€100,000intheforwardmarketfordeliveryinthreemonths

d.selling€100,000inthespotmarketfordeliveryinthreemonths

10.Ifthethree-monthFR=$1/€1andaspeculatoranticipatesthatSR=$1.02/€1inthree

months,hecanearnaprofitby:

a.sellingeurosforward

*b.purchasingeurosforward

c.sellingdollarsforward

d.purchasingdollarsforward

11.Destabilizingspeculationreferstothe:

*a.saleoftheforeigncurrencywhentheexchangeratefallsorislow

b.purchaseoftheforeigncurrencywhentheexchangeratefallsorislow

c.saleoftheforeigncurrencywhentheexchangeraterisesorishigh

d.alloftheabove

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