货币金融第十九章.pptx

Chapter 19 The Foreign Exchange Market *© 2005 Pearson Education Canada Inc. Foreign Exchange Rates 2 The Foreign Exchange Market Definitions : 1. Spot exchange rate 2. Forward exchange rate 3. Appreciation 4. Depreciation Currency appreciates, country ’ s goods prices abroad and foreign goods prices in that country 1. Makes domestic businesses less competitive 2. Benefits domestic consumers FX traded in over-the-counter market 1. Trade is in bank deposits denominated in different currencies 3 Example : Canadian steel $100 per t on, Japanese steel 10,000 yen per t on If E = 50 yen/$ then prices are : Canadian Steel Japanese Steel In Canada $100 $100 In Japan 10,000 yen 10,000 yen Law of one price E = 100 yen/$ © 2005 Pearson Education Canada Inc. In Canada $100 $200 In Japan 5000 yen 10,000 yen If E = 100 yen/$ then prices are : Canadian Steel Japanese Steel Law of One Price 4 Purchasing Power Parity (PPP) PPP Domestic price level 10%, domestic currency 10% 1. Application of law of one price to price levels 2. Works in long run, not short run Problems with PPP 1. All goods not identical in both countries : Toyota vs Chevy 2. Many goods and services are not traded : e.g. haircuts 5 PPP: Canada and U.S. 6 Factors Affecting E in Long Run 7 Relative Re iD – iF + (Eet+1 – Et)/Et iD – iF + (Eet+1 – Et) Interest Parity Condition : $ and Euro deposits perfect substitutes iD = iF – (Eet+1 – Et)/Et Example : if iD = 10% and expected appreciation of $, (Eet+1 – Et)/Et, = 5% iF = 15% Expected Returns and Interest Parity Re for $ Deposits iD + (Eet+1 – Et)/Et iD Euro Deposits iF iF – (Eet+1 – Et)/Et Francois Al 8 Assume iF = 10%, Eet+1 = 1 euro/$ Point A: Et = 0.95, RF = . 10 – (1 – 0.95)/0.95 = .048 = 4.8% B: Et = 1.