Chapter 14 Money,Interest Rates and Exchange Rates 国际财务管理课件.pptVIP

Chapter 14 Money,Interest Rates and Exchange Rates Money Defined The Demand for Money by Individuals Aggregate Money Demand The Equilibrium Interest Rate The Money Supply and the Exchange Rate in the Short Run Money,the Price Level,and the Exchange Rate in the Long Run Inflation and Exchange Rate Dynamics Introduction Factors that affect a country’s money supply or demand are among the most powerful determinants of its currency’s exchange rate against foreign currencies. This chapter combines the foreign-exchange market with the money market to determine the exchange rate in the short run. It analyzes the long-term effects of monetary changes on output prices and expected future exchange rates. 14-1 Money Defined Money as a Medium of Exchange A generally accepted means of payment Money as a Unit of Account A widely recognized measure of value Money as a Store of Value A transfer of purchasing power from the present into the future 14-1-1 What Is Money? M1: The total amount of currency and checking deposits held by households and firms. Assets widely used and accepted as a means of payment. Money is very liquid, but pays little or no return. All other assets are less liquid but pay higher return. Money Supply (Ms) Ms = Currency + Checkable Deposits 14-1-2 How the Money Supply Is Determined An economy’s money supply is controlled by its central bank. The central bank: Directly regulates the amount of currency in existence Indirectly controls the amount of checking deposits issued by private banks 14-2 The Demand for Money by Individuals Three factors influence money demand: Expected return Risk Liquidity 14-2-1 Expected Return The interest rate measures the opportunity cost of holding money rather than interest-bearing bonds. A rise in the interest rate raises the cost of holding money and causes money demand to fall. 14-2-2 Risk Holding money is risky. An unexpected increase in the prices of goods and services could reduce the value of money in terms of