国际金融托马斯A普格尔第二章ppt课件

1、Lecture 2: The foreign exchange marketWhat is foreign exchange?Dynamic concept(trading different nations moneys)Static concept(foreign currencies)Demand and supply for foreign exchangeCurrent account: e.g. pay for import of goods Financial account: e.g. invest abroad1.Three Significances of the fore

2、ign exchange marketThe foreign-exchange market is by far the largest and most liquid market in the world.It is a twenty-four hour marketThe markets most widely traded currency is the dollar. .FX market turnover (BIS)2021年美国GDP 为146241.8 亿美圆，中国GDP为403260.0亿元，$/￥=6.65. It is a twenty-four hour market.

3、The markets most widely traded currency is the dollar For most pairs of currencies, the market practice is to trade each of the two currencies against a common third currency as a vehicle, rather than to trade the two currencies directly against each other. The vehicle currency used most often is th

4、e dollar.Currency Pairs in FX Market.10Structure of the MarketThe foreign exchange market is a decentralized, electronically linked network of banks, foreign exchange dealers, and brokersThis network brings together buyers and sellers of foreign exchange around the globeThe foreign exchange market c

5、onsists of two tiers:The Interbank or wholesale marketThe client or retail market Two clearing systems: SWIFT-Society for Worldwide Inter-bank Financial Tele-communication环球同业银行金融电讯系统 CHIPS-Clearing House International Payment System (dollar transfers among members)国际支付结算系统.11Market ParticipantsFive

6、 broad categories of participants operate within these two tiers:Banks and nonbank foreign exchange dealersForeign exchange brokersFirms and individualsSpeculators and arbitrageursCentral banks and treasuries.Foreign exchange quotationDirect quotation: the amount of DC required to purchase one unit

7、of FC直接标价Indirect quotation: the amount of FC required to purchase one unit of DC间接标价Bid price: the exchange rate at which the dealer is willing to buy a currencyAsk (offer) price: the exchange rate at which the dealer is willing to sell a currency13.The dealer need to earn a profit, so she always “

8、buy low and sell high!Bid-ask spread: the difference between the bid price and the ask price (can be in percentage) Factors affecting the bid-ask spreads Market condition Dealer position Liquiditymidpoint price: the average of the bid price and the ask price =(bid+ask)/2basic point: usually 0.0001 (

9、0.01 for JPY) or 0.01%14.Some examples:$/ = 1.6543 1.6547 (direct quote in US)/$ = 0.6043 0.6045 (indirect quote in the US) Note that the DC/FC direct bid (ask) exchange rate is the reciprocal of the indirect ask (bid) exchange rate The bid-ask spread is 0.0004 (4bp, direct), or 0.0002 (2bp, indirec

10、t)The percentage bid-ask spread is 0.0004/1.6547=0.0242% (2.42bp, direct), or 0.0002/0.6045=0.0331% (3.31bp, indirect) The midpoint exchange rate is 1.6545 (direct), or 0.6044 (indirect)15.Cross-rate calculations with bid-ask spreadsExample 2.1: consider the following quotes involving the dollar, po

11、und, and the euro.$/:0.9836/39/: 1.5473/1.5480Compute the effective $/ bid and ask cross-rates, as well as the /$ bid and ask cross-rates?16.Solution 1:($/)bid = ($/)bid*(/)bid = 0.9836*1.5473 = 1.5219 dollar per pound bid rate($/)ask = ($/)ask*(/)ask = 0.9839*1.5480 = 1.5231 dollar per pound ask ra

12、te(/$)bid = (/)bid*(/$)bid = 1/(/)ask*1/($/)ask = (1/1.5480)*(1/0.9839) = 0.6566 pound per dollar bid rate(/$)ask = (/)ask*(/$)ask = 1/(/)bid*1/($/)bid = (1/1.5473)*(1/0.9836) = 0.6571 pound per dollar ask rateSo, the effective $/ bid and ask cross-rates is $/=1.5219/31, and the effective /$ bid and

13、 ask cross-rates is /$=0.6566/71 17$/:0.9836/39/: 1.5473/1.5480.Solution 2: Imaging you want to convert dollar into pound: using dollar to buy euro first (1$ =1/0.9839), and then using the euro to buy pound (1=1/1.5480). The resulting cross-rate is 1$ =0.6566 , or 1= 1.5231$If you want to convert po

14、und into dollar: using pound to buy euro first (1 =1.5473), and then using the euro to buy dollar (1=0.9836 $). The resulting cross-rate is 1 =1.5219$, or 1$ =0.6571.So, the effective $/ bid and ask cross-rates is $/=1.5219/31, and the effective /$ bid and ask cross-rates is /$=0.6566/7118$/:0.9836/

15、39/: 1.5473/1.5480.Arbitrage “Pay nothing for something, or “get something for noting“there is not such thing as a free lunchAny deviation from “the law of one price will present an arbitraging opportunity! Basic strategy: “buy low, sell high!An arbitraging strategy is risk-free. In contrast, a spec

16、ulative strategy is always associated with some degree of risk19.Bilateral arbitrage with bid-ask spreadsNo-arbitrage condition:(FC/DC)bid*(DC/FC)bid 1, or (FC/DC)ask*(DC/FC)ask 1, Example 2.2: DC/FC = 0.8025/0.8041, FC/DC = 1.2498/1.2503; Is there an arbitrage opportunity? If so, what is the arbitr

17、aging strategy? What about DC/FC = 0.8003/0.8005, and FC/DC = 1.2484/1.2490?When the rates are misquoted, the direct bid (ask) of one currency is not the reciprocal of its indirect ask (bid).20.DC/FC = 0.8025/0.8041, FC/DC = 1.2498/1.2503 FC/DC=1.2436/1.2461 use1.2461 FC buy 1 unit DC, sell DC, rece

18、ive 1.2498 FC DC/FC= 0.8003/0.8005, FC/DC=1.2484/1.2490 FC/DC=1.2492/1.2495 use1.2490 FC buy 1 unit DC, sell DC, receive 1.2492 FC .Triangular arbitrage with bid-ask spreadsNo-arbitrage condition: the implied cross-rate is consistent with the actual cross-rateExample 2.3: FC1/DC=0.9836/39;FC1/FC2=1.

19、5373/80; DC/FC2=1.5219/31; Is there an arbitrage opportunity? If so, what is the arbitraging strategy? 22.FC1/DC=0.9836/39; FC1/DC=0.9836/39;FC1/FC2=1.5373/80; DC/FC2=1.5219/31DC/FC2=1.5219/31; FC2/FC1=0.6502/05(FC1/DC)bid*(DC/FC2 )bid* (FC2/FC1 )bid 1(FC1/DC)ask*(DC/FC2 )ask* (FC2/FC1 )ask 1Use 0.9

20、839 FC1 buy 1 unit DC,Sell DC, receive 1/1.5231 FC2Sell FC2, receive 1.5373/1.5231 FC1.Forward foreign exchange rateA forward forex contract is an agreement to exchange one currency for another on a specified date in the future at a rate set now (the forward exchange rate)A spot rate is the prevaili

21、ng rate in the marketThe forward rate is not the same as the future spot rate!24.Trading involving forward exchange rateOpen positionLong positionShort positionHedging: offsetting a long (short) position in a foreign currency, or covering the open positionSpeculating: deliberately establishing a net

22、 position (long or short) in a foreign currencyHedging eliminates risk exposure, whereas speculation increases risk exposure25.Some examples:A US exporter signs a contract with a French importer for 1 million euro of goods, to be delivered in three months. The current spot rate is /$=0.7125, and the

23、 3-months forward rate is /$=0.7225The US exporter has an open (long) position of 1 million euro If the US exporter also signs a forward contract to sell 1 million euro in three months, she eliminates her exposure to exchange rate risk (hedging)If, instead, the US exporter expects the euro will appr

24、eciate against the dollar, she signs a forward contract to buy 1 million euro in 3 months. She increases her exposure to exchange rate risk (speculation)26. spot rate: /$=0.7125 3-months forward rate: /$=0.7225US1 million euro Forward contract to sell 1 million euro in three months, get 1/0.7225mill

25、ion dollar .Forward contract to buy 1 million euro in 3 months, spend 1/0.7225 million dollar. Suppose the spot rate after 3 months is 0.7100 (euro appreciate). Sell 1million euro, receive 1/0.7100 million dollar. Earn(1/0.7100 - 1/0.7225 )million dollar.Depreciation and appreciationSuppose that in

26、the base year, 1$=0.6 and 1$=120JPY. A few years later, 1$=0.75 and 1$=90JPY. Is the dollar depreciated or appreciated?The nominal effective exchange rate (NEER) is the trading-volume-weighted currency index28.Another measure of a countrys international competiveness is real exchange rate (RER), whi

27、ch includes not only the effect of nominal exchange rate, but also price levels. RER=ePf/Pd e: nominal exchange rate(direct quotation) Pf: foreign price Pd: domestic price29.Assume that JPY/$=94.06 in 1995, and JPY/$=110.22 in 2005. Based on the price levels in 1995, The US price level in 2005 is 12

28、8.14, and the Japanese price level is 98.17. The real exchange rate in 2005 is: 110.22*(128.14/98.17)=143.87. In other word, the real appreciation of $ against JPY from 1995 to 2005 is about 53% (143.87-94.06)/94.06.If we replace real exchange rate (RER) with nominal exchange rate in the calculation

29、 of nominal effective exchange rate (NEER), we have our third measure of change in exchange rate, namely real effective exchange rate (REER).31.Floating exchange ratesDownward-sloping demand curveEquilibrium exchange rateShift in demand and supply curvesFixed exchange ratesPar value and the narrow b

30、andSupply and demand gapGovernment intervention32.What makes the demand curve slope downward?Fixed the price $1.98/The British government must buy (320-270)million pounds, equal to the gap ABFixed the price $0.505/SFrThe Swiss government must sell (575-475)billion Swiss francs.What makes the floating exchange rate rise or fall over time? For the U.K.Exportation (to U.S.