indexpart 2-a (新窗口).ppt

Exchange Rates and the Foreign Exchange Market:An Asset Approach(I) Exchange Rate (P329) The price of one currency in terms of another. It is also an asset price, a form of wealth. Questions: Is it a ratio of purchasing power of two countries? The ratio of purchasing power is changing depending on the commodities. Otherwise there will be no more international trade. If the ratio of purchasing power is the same for any commodity, there will be no international trade to speak of. Direct Quotation American terms? An unit of F=an amount of home。 US$ 100 = RMB 827.70 JP￥ 100000 = RMB 7820.10 HK$ 100 = RMB 106.12 It has been adopted in many countries, including China. Indirect Quotation European terms? An unit of home=an amount of F。 price of 1 AUD is 0.52 USD i.e. 1 AUD exchanges for 0.52 USD It is adopted in U.K, and to quote U.K. pound in the United States. Indirect quotes used by Commonwealth countries Domestic currency / unit of foreign currency If foreign currency / domestic currency. This is an INDIRECT QUOTE Indirect is unnatural: Think of the price of car = $ / Car In our daily life: Unit of commodity = amount of money Advantage of indirect quote Depreciation of domestic currency = ↓ ER Appreciation of domestic currency = ↑ ER E.g. Depreciation: $1=￥0.1208 changes to 0.1100 (Indirect) or from 8.277 to 8.280 (Direct) Direct and Indirect quotes in China Spread [Buy ] [Sell] = Spread The size of the spread indicates liquidity, e.g. turnover in this currency Cross rates Consider USD / AUD = 0.52 GBP / AUD = 0.37 these together imply a rate between USD and GBP which is the cross rate: GBP / USD = GBP / AUD USD / AUD Case in China Quotation in China Official vs. Market 官方汇率Official Rate:规定法定价值： 贬值Devaluation;升值Revaluation; 市场汇率Market Rate:由市场供求关系决定波动： 　下浮Depreciation;上浮Appreciation Three basic concepts 名义汇率 (Nominal Exchange Rate) 实际汇率 (Real Exchange Rate) 有效汇率 (Effective Exchange Rate) The Foreign Exchange Market Websites of F