The Determination of Exchange Rates汇率的确定.pptVIP

CHAPTER 2 THE DETERMINATION OF EXCHANGE RATES CHAPTER 2 OVERVIEW: PART I. EQUILIBRIUM EXCHANGE RATES II. ROLE OF CENTRAL BANKS III. EXPECTATIONS AND THE ASSET MARKET MODEL Part I. Equilibrium Exchange Rates I. SETTING THE EQUILIBRIUM A. Exchange Rates market-clearing prices that equilibrate the quantities supplied and demanded of foreign currency. Equilibrium Exchange Rates B. How Americans Purchase German Goods 1. Foreign Currency Demand -derived from the demand for foreign country’s goods, services, and financial assets. e.g. The demand for German goods by Americans Equilibrium Exchange Rates 2. Foreign Currency Supply: a. derived from the foreign country’s demand for local goods. b. They must convert their currency to purchase. e.g. German demand for US goods means Germans convert DM to US $ in order to buy. Equilibrium Exchange Rates 3. Equilibrium Exchange Rate: occurs when the quantity supplied equals the quantity demanded of a foreign currency at a specific local price. Equilibrium Exchange Rates C. How Exchange Rates Change 1. Increased demand as more foreign goods are demanded, the price of the foreign currency in local currency increases and vice versa. Equilibrium Exchange Rates 2. Home Currency Depreciation a. Foreign currency becomes more valuable than the home currency. b. Conversely, the foreign currency’s value has appreciated against the home currency. Equilibrium Exchange Rates 3. Calculating a Depreciation: Currency Depreciation where e0 = old currency value e1 = new currency value Note: Resulting sign is always negative Equilibrium Exchange Rates Currency Appreciation Equilibrium Exchange Rates EXAMPLE: dm Appreciation If the dollar value of the dm goes from $0.64 (e0) to $0.68 (e1), then the dm has appreci