FOREIGN EXCHANGE的.docVIP

SUPPLIMENT TO CHAPATER 2-OVERVIEW OF INTERNATIONAL FINANCE ◆ BALANCE OF PAYMENTS The balance of payments is defined as the record of all transactions between the residents of a domestic economy and the rest of the world. The current account records the countrys trade in goods and services. The capital account records the purchase and sale of assets. ◆FOREIGN EXCHANGE ◆ THE EXCHANGE RATE The nominal exchange rate is the market price of one currency in terms of another. The effective exchange rate is an index number that is calculated as a weighted average of a currencys nominal exchanges. The real exchange rate is a measure of a countrys competitiveness. In an index form, it measures the relative price of goods of the two countries. It is defined as R = e.Pd = $/￡ *Pd, PF PF The real effective exchange rate is the effective exchange rate adjusted for relative movements in national price or cost indicators of the home country and its partner and competitor countries. ◆ EXCHANGE RATE REGIMES A fixed exchange rate regime is where the central bank sets the price of the currency in terms of one or more other currencies and is prepared to buy or sell its currency only at this fixed price. A floating exchange rate regime is where the central bank has no role in determining the price of its currency and its price is determined instead by the foreign exchange markets. ◆ THE FOREIGN EXCHANGE MARKET The foreign exchange market (forex, FX, or currency market) is a form of exchange for the global decentralized trading of international currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market determines the relative values of different currencies.[1] The foreign exchange market assists international trade and investment by enabling currency conversion. For example, it permits a business in the United