《国际货币与金融经济学 Daniels》ch04.pptVIP

The Forward Currency Market and Financial Arbitrage Managing Foreign Exchange Risk Foreign Exchange Risk Foreign exchange risk is the risk that the value of a future receipt or obligation will change due to a change in foreign exchange rates. Because these international transactions span time, foreign exchange risk can arise. Sources of Risk Transaction exposure: the risk that the domestic cost or proceeds of a transaction may change. Translation exposure: also known as accounting exposure the risk that the translation of value of foreign-currency-denominated assets is affected by exchange rate changes. Economic exposure: also known as operating the risk that exchange rate changes may affect the present value of future income streams. Hedging and Speculating Hedging is the act of offsetting an exposure to risk. Covered Exposure refers to a foreign exchange risk that has been completely eliminated with a hedging instrument. Long and Short Positions Traders are long in a foreign currency if the value of their foreign-currency-denominated assets exceeds the value of their foreign-currency-denominated liabilities. Traders are short in a foreign currency if the value of their foreign-currency-denominated assets is less than the value of their foreign-currency-denominated liabilities. Hedging There are a number of instruments that can be used to hedge foreign exchange risk. Chapter 4 deals with the forward markets, while Chapter 5 introduces foreign exchange futures, options, and swaps. Forward Market The forward market is the market for contracts that ensure the future delivery of a currency at a specified exchange rate. Typical maturity is 1,3,6, 9 and 12 months. The forward rate is determined by the forces of supply and demand in the forward market. The Forward Market for the Pound Initially the forward market for the pound is in equilibrium at the forward rate or 1.620. An increase in the demand for the pound forward shifts the demand curve to the right. This re