2 Equlibrium in foreign exchange market课件.ppt

International Finance;Chapter Organization;Learning Goals ;;Brain Storm ;Fundamental Definitions for Exchange Rates ;Domestic and Foreign Prices If we know the exchange rate between two countries’ currencies, we can compute the price of one country’s exports in terms of the other country’s money.;;;Two types of changes in exchange rates: Depreciation （贬值）of home country’s currency A rise in the home currency prices of a foreign currency It makes home goods cheaper for foreigners and foreign goods more expensive for domestic residents. Appreciation（升值） of home country’s currency A fall in the home price of a foreign currency It makes home goods more expensive for foreigners and foreign goods cheaper for domestic residents. ; You had $1000 spare cash before you leaved for china, will you leave them in your US account or take it back? ;Demand for Foreign Currency;Demand for Foreign Currency;Step1: $1000*6.4￥/$= ￥ 6400 Use RMB/dollar exchange rate to finger out the RMB price of a dollar deposit. Step2: $1000(1+4%)=$1040 use the dollar interest rate to find the amount of dollar you will have from now if you purchase one dollar deposit today.;Step3: $1040*6.3 ￥/$= ￥ 6552 use the exchange rate you expect to prevail a year from today to calculate the expected the RMB value of the dollar amount in step2.;Step4 (6552-6400)/6400=2.375% calculate the expected rate of RMB return on a dollar deposit. 3.5% 2.375% If the exchange rate is 6.5, which one do you prefer? ;Notations ;Compare R￥ and R$ +(Ee￥/$ - E￥/$)/E￥/$ + R$ *(Ee￥/$ - E￥/$)/E￥/$ a simple rule: compare R￥ and R$ +(Ee￥/$ - E￥/$)/E￥/$ ;Interest Parity（利率平价）: The Basic Equilibrium Condition R￥ = R$ + (Ee￥/$ - E￥/$)/E￥/$ ;Questions:;Interest Parity, again:;Equilibrium RMB/Dollar Exchange Rate;Equilibrium in the Foreign Exchange Market;Effect of a Rise in the RMB Interest Rate;Effect of a Rise in the Dollar Interest Rate;玖粤推讯肺厉淮训淮