【PPT精品课件】货币金融学7版英文课件--19-大学课件2.ppt

,Chapter 19,The Foreign Exchange Market,2005 Pearson Education Canada Inc.,2005 Pearson Education Canada Inc.,19-2,Foreign Exchange Rates,2005 Pearson Education Canada Inc.,19-3,The Foreign Exchange Market,Definitions:1.Spot exchange rate2.Forward exchange rate3.Appreciation4.DepreciationCurrency appreciates,countrys goods prices abroad and foreign goods prices in that country1.Makes domestic businesses less competitive2.Benefits domestic consumersFX traded in over-the-counter market1.Trade is in bank deposits denominated in different currencies,19-4,Law of One Price,Example:Canadian steel$100 per ton,Japanese steel 10,000 yen per tonIf E=50 yen/$then prices are:Canadian SteelJapanese SteelIn Canada$100$200In Japan5000 yen10,000 yenIf E=100 yen/$then prices are:Canadian SteelJapanese SteelIn Canada$100$100In Japan10,000 yen10,000 yenLaw of one price E=100 yen/$,2005 Pearson Education Canada Inc.,2005 Pearson Education Canada Inc.,19-5,Purchasing Power Parity(PPP),PPP Domestic price level 10%,domestic currency 10%1.Application of law of one price to price levels2.Works in long run,not short runProblems with PPP1.All goods not identical in both countries:Toyota vs Chevy2.Many goods and services are not traded:e.g.haircuts,2005 Pearson Education Canada Inc.,19-6,PPP:Canada and U.S.,19-7,Factors Affecting E in Long Run,Basic Principle:If factor increases demand for domestic goods relative to foreign goods,E,2005 Pearson Education Canada Inc.,2005 Pearson Education Canada Inc.,19-8,Expected Returns and Interest Parity,Re forFrancoisAl$DepositsiD+(Eet+1 Et)/EtiDEuro DepositsiFiF(Eet+1 Et)/EtRelative ReiD iF+(Eet+1 Et)/EtiD iF+(Eet+1 Et)/EtInterest Parity Condition:$and Euro deposits perfect substitutesiD=iF(Eet+1 Et)/EtExample:if iD=10%and expected appreciation of$,(Eet+1 Et)/Et,=5%iF=15%,2005 Pearson Education Canada Inc.,19-9,Deriving RF Curve,Assume iF=10%,Eet+1=1 euro/$PointA:Et=0.95,RF=.10(1 0.95)/0.95=.048=4.8%B:Et=1.00,RF=.10(1 1.0)/1.0=.100=10.0%C:Et=1.05,RF=.10(1 1.05)/1.05=.148=14.8%RF curve connects these points and is upward sloping because when Et is higher,expected appreciation of F higher,RF Deriving RD CurvePoints B,D,E,RD=10%:so curve is verticalEquilibriumRD=RF at E*If Et E*,RF RD,sell$,Et If Et E*,RF RD,buy$,Et,2005 Pearson Education Canada Inc.,19-10,Deriving RETF Curve,Assume iF=10%,Eet+1=1 euro/$PointA:Et=0.95RETF=.10(1 0.95)/0.95=.048=4.8%B:Et=1.00RETF=.10(1 1.0)/1.0=.100=10.0%C:Et=1.05RETF=.10(1 1.05)/1.05=.148=14.8%RETF curve connects these points and is upward sloping because when Et is higher,expected appreciation of F higher,RETF Deriving RETD CurvePoints B,D,E,RETD=10%:so curve is verticalEquilibriumRETD=RETF at E*If Et E*,RETF RETD,sell$,Et If Et E*,RETF RETD,buy$,Et,2005 Pearson Education Canada Inc.,19-11,Equilibrium in the Foreign Exchange Market,19-12,Shifts in RF,RF curve shifts right when1.iF:because RF at each Et2.Eet+1:because expected appreciation of F at each Et and RF Occurs Eet+1 iF:1)Domestic P,2)Trade Barriers 3)Imports,4)Exports,5)Productivity,2005 Pearson Education Canada Inc.,2005 Pearson Education Canada Inc.,19-13,Shifts in RD,RD shifts right when1.iD;because RD at each EtAssumes that domestic e unchanged,so domestic real rate,2005 Pearson Education Canada Inc.,19-14,Factors that Shift RF and RD,19-15,Response to i Because e,1.e,Eet+1,expectedappreciation of F,RF shifts out toright2.iD,RD shifts torightHowever because e iD,real rate,Eet+1 more than iD RF out RD out and Et,2005 Pearson Education Canada Inc.,19-16,Response to Ms,1.Ms,P,Eet+1 expected appreciationof F,RF shiftsright2.Ms,iD,RD shiftsleftGo to point 2 and Et 3.In the long run,iDreturns to old level,RD shifts back,goto point 3 and getExchange Rate Overshooting,2005 Pearson Education Canada Inc.,2005 Pearson Education Canada Inc.,19-17,Why Exchange Rate Volatility?,1.Expectations of Eet+1 fluctuate2.Exchange rate overshooting,