《金融市场与机构 Jeff Madura》ch16.pptVIP

16 Foreign Exchange Derivative Market Chapter Objectives Explain how various factors affect exchange rates Describe how foreign exchange risk can be hedged with foreign exchange derivatives Describe how to use foreign exchange derivatives to capitalize (speculate) on expected exchange rate movements Background On Foreign Exchange Markets Exchanging currencies is needed when: Trade (real) prompts need for forex Capital flows (financial) prompts need for forex Foreign exchange trading Via global telecommunications network between mostly large banks Bid/ask spread Foreign Exchange Rates Quoted two ways: Foreign currency per U.S. dollar Dollar cost of unit of foreign exchange Appreciation/depreciation of currency Appreciation = more forex to buy $ Purchase more forex with $ Depreciation = foreign goods cost more $ Total return to foreign investor decreases Background on Foreign Exchange Markets Exchange rate quotations are available in the financial press and on the Internet with spot exchange rate quotes for immediate delivery Forward exchange rate is for delivery at some specified future point in time Forward premium is the percent annualized appreciation of a currency Forward discount is the percent annualized depreciation of a currency Background on Foreign Exchange Markets Exchange rates involve different kinds of quotes for comparing the value of the U.S. dollar to various foreign currencies 1 unit of foreign currency worth some amount of U.S. dollars—e.g. $.70 U.S. per Canadian Dollar 1 U.S. dollar’s value in terms of some amount of foreign currency– e.g. CD$1.43 per U.S. dollar Note reciprocal relationship Cross-exchange rates express relative values of two different foreign currencies per $1 U.S. Background on Foreign Exchange Markets Cross-exchange rates are foreign exchange rates of two currencies relative to a currency. Value of one unit of currency A in units of currency B = value of currency A in $ divided by value of currency B in $ British Pound = $1.45