Multinational Financial Management（跨国公司财务管理）ch02 Understanding Exchange Rates.pptVIP

CHAPTER 2 Understanding Exchange Rates Part I. Understanding Exchange Rates I. SETTING THE EQUILIBRIUM A. The exchange rate is the price of one unit of foreign currency expressed as a certain price in local currency. For example $.99/€ means the euro in the U.S. is worth $.99. Understanding Exchange Rates B. How Do Americans Purchase German Goods? 1. Foreign Currency Demand: -derived from the demand for foreign country’s goods, services, and financial assets. e.g. Americans demand German goods such as Mercedes autos The Demand for € in the U.S. Understanding Exchange Rates 2. Foreign Currency Supply: - derived from the foreign country’s demand for local goods. - Foreign buyers must convert their currency in order to purchase. e.g. German demand for US goods such as Dell computers means Germans must convert euros to US $ in order to buy. The Supply of € in the U.S. $/ € Understanding Exchange Rates 3. Equilibrium Exchange Rate occurs where the quantity supplied equals the quantity demanded of a foreign currency at a specific local price. The $/ € Equilibrium Rate Understanding Exchange Rates C. How Exchange Rates Change 1. Increased demand as more foreign goods are demanded, more of the foreign currency is demand at each possible exchange rate 2. The price of the foreign currency in local currency increases. Understanding Exchange Rates 3. Home Currency Depreciation a. Foreign currency more valuable than the home currency. b. Conversely, the foreign currency’s value has appreciated against the home currency. The US$ Depreciates When Understanding Exchange Rates D. Computing a Currency Appreciation = (e1 - e0)/ e0 where e0 = old currency value e1 = new currency value Understanding Exchange Rates EXAMPLE: € Appreciation If the dollar value of the € goes from $1.10 (e0) to $1.2