InternationalFinancialManagement2国际财务管理培训教材.ppt

* * Chapter 2 Exchange Rates and International Financial Markets * Objectives This chapter provides a foundation for understanding how exchange rates are determined, also identifies and discusses the various international financial markets used by MNCs. The specific objectives are: * to explain how the equilibrium exchange rate is determined; * to examine factors that affect the equilibrium exchange rate; and * to describe the background and corporate use of the international financial markets. * Determination of Equilibrium Exchange Rate An exchange rate measures the value of one currency in units of another currency. When a currency declines in value, it is said to depreciate. When it increases in value, it is said to appreciate. The percentage change in the value of a foreign currency is computed as (St – St-1)/ St-1 ( where St denotes the spot rate at time t.) * Determination of Equilibrium Exchange Rate An exchange rate represents the price of a currency, which is determined by the demand for that currency relative to the supply of that currency. The equilibrium exchange rate is the point where the demand for one currency equates the supply of that currency. The equilibrium exchange rate will change over time. * Factors that Influence Exchange Rates Relative Inflation Rates Relative Interest Rates It is useful to consider real interest rates Relative Income Levels Government Controls * foreign exchange barriers; * foreign trade barriers; * intervening in the foreign exchange market; * affecting macro variables. * Factors that Influence Exchange Rates Expectations * Foreign exchange markets react to any news that may have a future effect. * Institutional investors often take a currency