《bank,money课件》HO_MB2e_ch08.pptVIP

* * Notes: The increase in demand was not primarily due to higher U.S. interest rates but to problems in the international financial system. Currency crises in several East Asian countries, including South Korea, Thailand, Malaysia, and Indonesia, had resulted in sharp declines in the values of these currencies. When the currencies of Argentina and Russia also experienced sharp declines, many foreign investors engaged in a “flight to quality” in which they purchased assets denominated in U.S. dollars, particularly U.S. Treasury securities, because they appeared to be safe investments. Teaching Tips: Make use of this section to illustrate the global nature of the financial system. Have students discuss how changes in risk perceptions resulted in major movements of financial flows, causing significant changes in the value of currency during the financial crisis. * * * * * * * Shifts in the Demand and Supply for Foreign Exchange Figure 8.4 (1 of 2) The Effect of Changes in the Demand and Supply for Dollars Panel (a) illustrates the effect of an increase in the demand for dollars in exchange for yen. A Demand and Supply Model of Short-Run Movements in Exchange Rates Shifts in the Demand and Supply for Foreign Exchange Figure 8.4 (2 of 2) The Effect of Changes in the Demand and Supply for Dollars Panel (b) illustrates the effect of an increase in the supply of dollars in exchange for yen. A Demand and Supply Model of Short-Run Movements in Exchange Rates The “Flight to Quality” during the Financial Crisis Figure 8.5 Movements in the Trade-Weighted Exchange Rate of the U.S. Dollar During the financial crisis of 2007–2009, many foreign investors sought a safe haven in U.S. Treasury securities. As a result, the demand for dollars and thus the dollar exchange rate increased. A Demand and Supply Model of Short-Run Movements in Exchange Rates The Interest-Rate Parity Condition Investors account for more than 95% of demand for foreign exchange, reflecting the importance of in