国际金融ch13.pptVIP

THE DEMAND FOR CURRENCY DEPOSITS (CONT.) The difference in the rate of return on dollar deposits and euro deposits is R$ - (R€ + (Ee$/€ - E$/€)/E$/€ ) = R$ - R€ - (Ee$/€ - E$/€)/E$/€ expected rate of return = interest rate on dollar deposits interest rate on euro deposits expected rate of return on euro deposits expected exchange rate current exchange rate expected rate of appreciation of the euro 揽哄顿搭鹰锣寇帕逊蚊晓憎笋丁密痴凛务亡颅堑交萧邓苏唬忆啡览步联礁国际金融ch13国际金融ch13 THE DEMAND FOR CURRENCY ASSETS 主规裔撒陷现授惦弯槛睛虽侣僚耶宋舀简膳恰彰苟遮戊腹卿先遇挂幌旱陛国际金融ch13国际金融ch13 THE MARKET FOR FOREIGN EXCHANGE We use the demand for (rate of return on) dollar denominated deposits and the demand for (rate of return on) foreign currency denominated deposits to construct a model of the foreign exchange market. The foreign exchange market is in equilibrium when deposits of all currencies offer the same expected rate of return: interest parity. interest parity implies that deposits in all currencies are deemed equally desirable assets. 站套还道到铸兴橡溶焚讫耸啡涩穿五钾慧员涅捣俏脉酬褪盂彼雏裙矿娶袱国际金融ch13国际金融ch13 THE MARKET FOR FOREIGN EXCHANGE (CONT.) Interest parity says: R$ = R€ + (Ee$/€ - E$/€)/E$/€ Why should this condition hold? Suppose it didn’t. Suppose R$ R€ + (Ee$/€ - E$/€)/E$/€ . Then no investor would want to hold euro deposits, driving down the demand and price of euros. Then all investors would want to hold dollar deposits, driving up the demand and price of dollars. The dollar would appreciate and the euro would depreciate, increasing the right side until equality was achieved. 鸥识动丈锤驴看赘津苦翻蓑目拜诬极罢粘候蓉奶年卒迫涵畦稍亚旗田痘氏国际金融ch13国际金融ch13 THE MARKET FOR FOREIGN EXCHANGE (CONT.) How do changes in the current exchange rate affect expected returns in foreign currency? 章碱弘疤龟舵慎予呜据痴峦桃伤堕炼稀眼羚段穿鸟开陷扎持寓琅语村抵纪国际金融ch13国际金融ch13 THE MARKET FOR FOREIGN EXCHANGE (CONT.) Depreciation of the domestic currency today lowers the expected return on deposits in foreign currency. A current depreciation of domestic currency will raise the ini