FMI7e_ch16Foreign Exchange Derivative Markets(金融市场好机构—7e, by Jeff Madura)).ppt

Chapter 16 Foreign Exchange Derivative Markets Chapter Outline Background on foreign exchange markets Factors affecting exchange rates Movements in exchange rates Forecasting exchange rates Forecasting exchange rate volatility Speculation in foreign exchange markets Foreign exchange derivatives International arbitrage Explaining price movements of foreign exchange derivatives Background on Foreign Exchange Markets Foreign exchange markets consist of a global telecommunications network among large commercial banks that serve as financial intermediaries Banks are located in New York, Tokyo, Hong King, Singapore, Frankfurt, Zurich, and London The bid price is always lower than the ask price Institutional use of foreign exchange markets The degree of international investment by financial institutions is influenced by potential return, risk, and government regulations Institutions are increasing their use of the foreign exchange markets because of reduced information and transaction costs Background on Foreign Exchange Markets (cont’d) Background on Foreign Exchange Markets (cont’d) Background on Foreign Exchange Markets (cont’d) Exchange rate quotations The spot exchange rate is for immediate delivery Forward rates indicate the rate at which a currency can be exchanged in the future Cross-exchange rates Some quotations express the exchange rate between two non-dollar currencies Computing A Cross-Exchange Rate The euro is worth $1.15, and the Canadian dollar is worth $0.60. What is the value of the euro in Canadian dollars? Background on Foreign Exchange Markets (cont’d) Types of exchange rate systems 1944 to 1971: the exchange rate at which one currency could be exchanged for another was maintained within 1 percent of a specified rate (the Bretton Woods era) 1971: an agreement among major countries (Smithsonian Agreement) allowed for devaluation of the dollar and a widening of the boundaries to 2.25% 1973: bou