国际金融考试题.pdf

Problem Set 1 Problem Set 1 Exchange Rate Forecasting Assume that Company A owes Company B 1 000 000 GBP in 90 days The current spot exchange rate is 1 50USD GBP and the 90 days forward exchange rate is 1 53USD GBP Suppose that Company A can enlist the services of two forecasting companies C and D Company C predicts that the exchange rate will be 1 65USD GBP 90 days later whereas Company D predicts that the exchange rate will be 1 51USD GBP After 90 days the exchange rate turns out to be 1 55USD GBP Question a How do we measure the accuracy of forecast and which forecast is more accurate b But which forecast is more economically valuable for Company A and why 2 The Real Exchange Rate and the Real Interest Rate Differential Most of the time we will give a time series graph of the real exchange rate and the real interest rate differential to convince the readers that there should be a strong relationship between these two variables For instance if the real exchange rate is defined using the nominal exchange rate expressed as foreign currency per domestic currency USD for instance increases decreases in the real exchange rate represent real appreciations depreciations of the dollar relative to foreign currencies Usually it will be apparent that when the dollar is relatively strong weak in real terms the U S real interest rate seems relative high low compared to foreign real interest rates Question a Why should the level of the real exchange rate be related to the differential between the real interest rates on different currencies Hint convert the uncovered interest rate parity from a relationship between nominal interest rates and nominal rates of depreciation into a relationship between real interest rates and expected real rates of depreciation Even though the link between the expected real interest rate differential and the expected rate of change of the real exchange rate being established we have not yet generated the relationship presented in the graph i e the level of the real exchange rate and the real interest rate differential Assume that the real exchange rate moves around over time but it is expected to return eventually to its unconditional mean We can model the real exchange rate experiencing transitory deviations from its unconditional mean as an autoregressive process which can be represented in the follow equation 11 ln ln 1 ttt qqqq 1 In the above equation q represents the long run equilibrium of the logarithm of the real exchange rate which is its unconditional mean The innovation in the real exchange rate is 1t This innovation represents the change in the real exchange rate that is due to new Problem Set 2 information between period t and period 1t and it consequently has a mean of zero The coefficient which is between 0 and 1 tells us how fast the real exchange rate converges to its unconditional mean When is close to 1 deviations of the real exchange rate from its long run equilibrium can be quite persistent Question b For the AR 1 real exchange rate process how can we interpret the result derived in a c How do we test the relationship between the Real Exchange Rate and the Real Interest Rate Differential and why does this link appear to be so weak empirically 3 An Asset Market Approach to Exchange Rate Determination The asset market approach to the exchange rate determination recognizes that the exchange rate is the relative price of two monies which makes the exchange rate an asset price since monies are assets Hence exchange rates should fluctuate randomly and the value of the exchange rate of say dollar per euro should be determined by people s willingness to hold the outstanding supplies of dollar and euro denominated assets These demands in turn depend on the expectations of the future values of these assets We can capture these reasoning in a simple equation 1 tttt efaE e 1 where t e is the logarithm of the current nominal exchange rate expressed as domestic currency per foreign currency t f is the value of market fundamentals at time t and a is a coefficient less than but may be close to 1 Equation 1 states that the nominal exchange rate depends on its expected values prevailing in the next period and on the current fundamentals Question a Derive the relationship between the current exchange rate and all information about current and expected future fundamentals What is the economic intuition In the monetary exchange rate model there are distinct demands for non interest bearing domestic and foreign currencies the demand for nominal money arises from the demand for real money balances That is people are only concerned with the real value of the nominal money they are holding Suppose that equilibrium in the domestic money market can be described as 0 ttyti t mpbb ybi 3 where tt m p and t y are the logarithm of the domestic money supply price level and real income while t i is the domestic nominal interest rate The foreign money market equilibrium can be defined analogously using an asterisk to denote the foreign variables Problem Set 3 0 ttyti t mpbb ybi 4 For simplicity assume that the positive b parameters are the same in the two countries Question b Derive the relation under the monetary theory of the exchange rate determination And what is the economic intuition The flexible price monetary approach exchange rate determination model assumes that the prices of goods are fully flexible and that PPP holds at all times using a broad price index These are extreme assumptions given that the validity of PPP has been questioned One natural modification is to assume that PPP holds but only for tradable goods Assume that the domestic composite consumption goods C can be written in a Cobb Douglas form 1 01 TN CCC where T C and N C denote the consumption of tradable and non tradable goods with weights i e expenditure shares and 1 respectively The foreign composite consumption goods C can be defined in the same way 1 01 TN CCC with variable denotes the foreign analog Question c Show the result that the consumption based price index P can be written as 1 NN PPP where P is the minimum nominal expenditure TTNN ZP CP C such that 1 1 TN CCC given prices of the tradable and non tradable goods In this case what is the relationship between the logarithm of nominal exchange rate and those fundamental variables 4 Here is our short run open economy model i UIP e EE RR E ii Money Market Equilibrium M L R Y P with 0 R L iii Goods Market Equilibrium YD where DC YTIGCA q YT is the aggregate demand for domestic goods and services with 01 Y C and 0 Y CA But the validity of this assumption depends on the response of export and import volumes to real exchange rate changes Please derive the condition i e the Marshall Lerner conditi