Covered and Uncovered Interest Rate Parity(国际金融-香港大学,WONG Ka Fu)2.0汇总.pptVIP

Expectations Lottery 2 0.2 probability to win 1000 0.3 probability to win 500 0.5 probability to win 0 Expect to win 0.2 × 1000 + 0.3 × 500 + 0.5 × 0 = 350 Expectations Lottery 3 Pi = f(yi) probability to win yi Expect to win Et(y) = ?i Pi yi = ?i f(yi) yi Expectations Lottery 4 f(y) probability to win y Expect to win Et(y) = E(y| information available at time t) = ?y?? f(y) y dy Replacing assets with deposits greatly simplifies the algebra: Some unknown quantities become known: Pt+1 = 1 Pt = 1 Dt+1 = Rt= home interest rate Pt+1*= 1 Pt* = 1 Dt+1*= Rt*= foreign interest rate The only unknown at time t is et+1 Expected return and expected rate of return Expected return on a home asset: Et (Pt+1 + Dt+1 - Pt ) = Et (Pt+1 + Dt+1) - Pt Expected rate of return on a home asset: Et [(Pt+1 + Dt+1) / Pt - 1 ] = Et (Pt+1 + Dt+1) / Pt - 1 Rate of return of home deposit Et (Pt+1 + Dt+1) / Pt - 1 Pt+1 = 1 Pt = 1 Dt+1 = Rt= home interest rate Et (1 + Rt) / 1 - 1 = Rt Expected return and expected rate of return Expected return on a foreign asset: Et [ et+1 (Pt+1* + Dt+1* ) - etPt* ] = Et [ et+1 (Pt+1* + Dt+1* ) ] - etPt* Expected rate of return on a foreign asset Et { [(et+1 / et ) (Pt+1* + Dt+1* ) / Pt* ] - 1 } = Et [(et+1 / et ) (Pt+1* + Dt+1* ) ] / Pt* - 1 Rate of return on foreign deposit Et [(et+1 / et ) (Pt+1* + Dt+1* ) ] / Pt* - 1 Pt+1*= 1 Pt* = 1 Dt+1*= Rt*= foreign interest rate Et [(et+1 / et ) (1 + Rt* ) ] / 1 - 1 = [Et (et+1 ) / et ] (1 + Rt* ) - 1 Rate of return on foreign deposit [Et (et+1 ) / et ] (1 + Rt* ) - 1 = (1 + Rt* ) { [Et (et+1 ) - et ] + et ] } / et - 1 = [Et (et+1 ) - et ] / et + 1 + Rt* [Et (et+1 ) - et ] / et + Rt* - 1 ? [Et (et+1 ) - et ] / et + Rt* RHS = [Et (et+1 ) - et ] / et + Rt* Suppose Et (et+1 ) and Rt* fixed, larger et implies smaller RHS Suppose et and Rt* fixed, larger Et (et+1 ) implies larger RHS RHS = [Et (et+1 ) - et ] / et + Rt* Suppose