1、International Finance3-1Chapter 3The Foreign Exchange MarketInternational Finance3-23.1 Foreign Exchange and Exchange RatesThe foreign exchange market is the market in which national moneys are traded for other national moneys.In this market an exchange rate is the price of one currency in terms of
2、another currency.lTwo currencies involved lTiming of delivery1.Spot2.ForwardInternational Finance3-3Spot&forward exchange ratelSpot exchange rate 即期汇率lThe price for“immediate”exchange.lForward exchange rate 远期汇率lThe price now for an exchange that will take place sometime in the future.International
3、Finance3-4Locations of international financial centersNote:Size of dots(squares)indicates cities relative importanceSo PauloRio de JanieroMexicoCitySanFranciscoNewYorkTorontoBombayMelbourneSydneyTokyoHong KongSingaporeParisZurichFrankfurtAmsterdamViennaMadridHamburgDusseldorfRomeBrusselsChicagoLondo
4、nBaselInternational Finance3-53.2 Currency quotationlDirect quote 1单位的外币等于多少人民币,用本国货币表示外国货币的价格,lThe base(unchanged)currency is foreign currency;the quoted currency is domestic currency.lEg,in China,CAD/RMB=6.3783 is direct quote,it means CAD1=RMB6.3783.lIndirect quote lOpposite to the direct quotelC
5、AD/RMB=6.3783 is indirect quote in Canada.lUSD quotelThe base currency is USD while other currencies as quoted currencies.International Finance3-6Spot market quotationlExample:US dollar/Hong Kong dollar may be expressed aslUSD/HKD 7.7967/7.7972lThe two numbers indicate the dealers buy and sell price
6、lThe dealer will buy USD1 for HKD7.7967lThe dealer will sell USD1 for HKD7.7972lDealer buys low and sells highlThe difference between the buy and sell price is the spreadInternational Finance3-7Cross rate 套算汇率（交叉汇率）套算汇率（交叉汇率）lAlmost all currencies are quoted against the USD(key currency,vehicle curr
7、ency).lWhen transactions occur between two non-USD currencies the cross-rate needs to be caltulated.International Finance3-8Currency quotationl International Finance3-93.3 Telecommunication systemslSWIFTSociety for Worldwide Interbank Financial Telecommunications环球同业银行金融电讯协会 lCHIPSClearing House Int
8、ernational Payments System纽约清算所银行同业支付系统 International Finance3-103.4.1 Exchange rate determinantslDemand for currencylDownward sloping demand curve(i.e.devaluation of RMB results in greater demand by foreigners)lA fall in the price of the RMB is equivalent to a reduction in the price of everything i
9、n ChinalTo purchase Chinese goods and services,foreigners must buy RMB(export)International Finance3-113.4.1 Exchange rate determinantslSupply of currencylUpward sloping supply curve(i.e.The quantity of RMB supplied to the FX market increases as the price of the RMB increases)lAs the RMB appreciates
10、,the price of foreign currency falls,making foreign goods cheaper for Chinese residentslThe demand for foreign currency increases and therefore the supply of RMBInternational Finance3-123.4.1 Exchange rate determinantslMatch the corresponding impact:U.S.exports of goods&servicesU.S.imports of goods&
11、servicesCapital outflowsCapital inflows A supply of foreign currency&a demand for$A demand for foreign currency&a supply of$International Finance3-133.4.1 Exchange rate determinantslEquilibrium exchange ratelThe equilibrium exchange rate is the rate at which the quantity of RMB supplied to the marke
12、t is equal to the demand for RMBlIt shows the unique rate at which both the demanders and suppliers of RMB will be satisfiedInternational Finance3-143.4.2 Floating vs.Fixed Exchange RateslFloating exchange rate system:lWithout intervention by governments or certral bankers.The spot price of foreign
13、currency is market-driven,determined by the interaction of private demand and supply for that currency.lFixed exchange rate system:lOfficials strive to keep the exchange rate virtually fixed(or pegged)by govt intervention.International Finance3-153.4.2 Floating exchange ratesInternational Finance3-1
14、63.4.3 Fixed exchange ratesInternational Finance3-173.5 What is arbitrage?lThe process of buying and selling to make a(nearly)riskless pure profit,ensures that rates in different locations are essentially the same,and that rates and cross-rates are related and consistent among themselves.l套汇者利用不同外汇市
15、场在同一时刻的汇率差异，在汇率低的市场上买进，同时在汇率高的市场卖出，通过贱买贵卖来赚取利润的活动。lLocational arbitrage 地域套汇lTriangular arbitrage 三角套汇International Finance3-18Locational ArbitragelQ:If you notice the following exchange rate,what will you do?l$1.70/in Londonl$1.60/in New YorklBuy in N.Y.and simutaneously sell them in L.D.Like:lBuy
16、1000(pay$1,600)in N.Y.lSell 1000(receive$1,700)in L.D.Profit$100 International Finance3-19Triangular ArbitragelQ:What would happen if the rates like these?l$1.60/,$0.50/SFr,SFr3/lLets start with$150 and end up with$.1.$SFr$2.$SFr$3.1.6/3=0.5/1 sfr is more value so begin in sfr4.150=300=100=1605.Profit=10International Finance3-20Presentation QuestionlTextbook P54 lQuestion:2,4,6,8,10
