1、Unit 8Text:Foreign Exchange and Exchange Rate（外汇与汇率）1.Key words2.Foreign exchange market and exchange rate 3.Foreign exchange regimes4.Exchange rate determination5.Questionsforeign currencyforeign exchange marketforeign exchange brokerexchange ratefixed exchange rate regimeflexible exchange rate reg
2、imemanaged exchange rate regimeflow theory of the exchange rateflow supplyflow demandinternational paymentsmonetary theory of the exchange rateportfolio balance theory of the exchange ratesterling-denominated financial liabilitiesfinancial asset2.1 Foreign exchange market2.2 Exchange rateThe foreign
3、 exchange market is the market in which the currencies of different countries are exchanged for one another.The foreign exchange market is not a place with market stalls.Instead it is made up of thousands of people all over the worldimporters and exporters,banks and specialists in the buying and sel
4、ling of foreign exchange called foreign exchange brokers.The sun never sets on the foreign exchange market.Dealers around the world are continually in contact using computers linked by telephones.On any given day,billions of pounds change hands.The price at which one currency exchanges for another i
5、s called a foreign exchange rate.The actions of the foreign exchange brokers make the foreign exchange market highly efficient.Exchange rates are almost identical no matter where in the world the transaction is taking place.3.1 Fixed exchange rate regime3.2 Flexible exchange rate regime3.3 Managed e
6、xchange rate regimeUnder a fixed exchange rate regime,the value of the pound would be pegged by the Bank of England.Under a flexible exchange rate regime,the value of the pound would be determined by market forces with no intervention by the Bank of England.Under a managed exchange rate regime,the B
7、ank of England would intervene in the foreign exchange market to smooth out fluctuations in the value of the pound but it would not seek to maintain the pound at an absolutely constant value for a long period of time.Also,under a managed exchange rate regime,the government would not announce the val
8、ue of the pound that it wished the Bank of England to achieve.4.1 Flow theory4.2 Monetary theory4.3 Portfolio balance theoryThe flow theory of the exchange rate is the proposition that the exchange rate adjusts to make the flow supply of pounds equal to the flow demand for pounds.The flow supply of
9、pounds in any given period depends chiefly on the value of United Kingdom importsThe flow demand for pounds in any given period depends chiefly on the value of United Kingdom exports that foreigners plan to buy during that period of time.In addition to the flow demand and supply resulting from impor
10、ts and exports,there is also a net flow demand or supply resulting from other international payments such as interest,profits and loans.The monetary theory of the exchange rate is the proposition that the exchange rate adjusts to make the stock of a currency demanded equal to the stock supplied.The
11、stock of a currency is identical to the quantity of money.The portfolio balance theory of the exchange rate is the proposition that the exchange rate adjusts to make the stock of all financial assets denominated in units of that currency demanded equal to the stock supplied.(1)What is the foreign exchange rate?(2)What will happen to the price of exports when the foreign exchange rates increase or decrease?(3)Explain the foreign exchange market regimes over the world.(4)Discuss the theories of the determination of the foreign exchange rate.
