国际金融 chapter 4.docx

Chapter FourForward Exchange and International Financial Investment一、Exchange rate risk1. Exchange rates change over time in both Floating-rate system and Fixed-rate system2. Exchange rate risk3. Hedging套期保值-act of reducing or eliminating a net asset or net liability position in the foreign currencyHedger4. Speculating-act of taking a net asset position净资产头寸/多头 or a net liability position净负债头寸/空头 in some asset classSpeculator二、The market basics of forward foreign exchange1. Forward foreign exchange contract-agreement to exchange one currency for another on some date in the future at a price set now (forward exchange rate)2. Banks-foreign exchange dealers, willing to meet the needs of customers for the specific size of the forward exchange contract3. Common dates for future exchange: 30,90,180days4. The future spot rate-the spot rate the ends up prevailing in the future5. Forward exchange market is particularly convenient for large customers.6. Some customers must pledge a margin保证金u Hedging using forward foreign exchange1. Hedging-acquiring an asset in a foreign currency to offset a net liability position空头already held in the foreign currency, or acquiring a liability in a foreign currency to offset a net asset position多头 already held；-reducing both kinds of “open” positions敞口in a foreign currency2. Long positions多头头寸-holding net asset in the foreign currency3. Short positions空头头寸-owing more of the foreign currency than one holdsu Speculating using forward foreign exchange1. “buy low, sell high”2. What if many people expect the spot exchange rate value of the pound to depreciate to $1.70 by Aug., and they are willing to speculate using the forward exchange market? -They will sell pounds forward in large amounts. The increased supply of pounds forward will put downward pressure on the forward exchange rate value of the pound, driving it toward $1.70.3. Hypothesis: The speculators pressure on supply and demand should drive the forward exchange rate to equal the average expected value of the future spot exchange rate.u Futures, options, and swaps1. Currency futures外汇期货-contracts traded on organized exchanges Compared to forward foreign exchange contract:1)standard contract 2)provide margin保证金 3)contract is “marked to market” daily逐日结算制.too many losses and you will receive a call to add to your margin account 4)almost anyone able to enter a future contract Drawback: losses on your open positions can become very large. You must honor your agreements.2. Currency option外汇期权-gives the buyer of the option the right to buy foreign currency/call option买权期权 or to sell foreign currency/put option卖权期权 Exercise price执行价格/strike price敲定价格 Premium(fee)权利金 Disadvantage: must pay a premium to obtain it Advantage: the size of any loss on the contract is limited to this premium-you cannot lose more.3. Currency swap外汇掉期-agree to exchange flows of different currencies during a specified period of time.-a set of spot and forward foreign exchanges packaged into one contract. Ad: 1) lower transactions costs by using one contract and a subtle but important decrease in risk exposure.2) any failure by the other side to honor the contract cancels all future obligations, while in the package of separates the other side might try to default on some contracts but force you to honor others.三、International financial investment1. Covered international investment2. Uncovered international investment四、International investment with coverInvest in US: Returnus=1 + iInvest in UK: Returnuk=(1 + if) f /eWhich is more profitable?CD is a handy guide to the profitable exchange between currencies that traders use it to make arbitrage profits on any diffenrential.Covered interest differential(CD)抵补利差：CD= CD = (1 + if)f/e - (1 + i) Approximately,Forward premium(F)=(f e) / e (F: discount if negative)So, CD = F + (if i)u Covered interest arbitrage抵补套利-buying a countrys currency spot and selling that countrys currency forward, to make a net profit from the combination of the difference in interest rates and the forward premium on that countrys currency.A profitable covered differential is usually gone within a minuteu Covered interest parity抵补利率平价-opportunities to make arbitrage profits would be self-eliminating because forward exchange rate would adjust so that CD returned to zero.CD=0Equivalent ways: 1) F= i if -approximate equation F=(1+i)/(1+if) 1-full equation 2) F+if=i Covered interest parity provides an explanation for differences between spot and forward exchange rates A country with if that is lower than i will have a forward premium (F) on its currency. Covered interest parity links together four rates. Spot and forward rates for major currencies are highly positively correlated over time: experience from the last several decades五、International investment without cover无抵补的国际投资u Expected uncovered interest differential (EUD): EUD = (1 + if) eex /e - (1 + i) Where, if: foreign interest rates, i: domestic interest rates, eex: expected future spot rate将来即期汇率(with foreign currency as the denominator currency) , e: spot exchange rate. Approximately, EUD =Expected appreciation + (if i) Where, Expected rate of appreciation= (eex e) / eu Why invest uncovered? Expected return is high enough to compensate the risks Lower the overall riskiness of the entire portfolio.Uncovered interest parity/international fisher effect国际费雪效应- EUD=0 Expected appreciation of foreign currency= i if Expected appreciation of foreign currency+ if = i六、Does interest parity really hold? Empirical evidenceu Evidence on covered interest parity Basic test: Eurocurrency deposits offered by large banks to international customers; A more stringent test: comparable short-term financial assets in separate national financial markets; Conclusion: Covered Interest Parity holds very well in recent decades (since mid-1980s) . CD: the US against Germany, Japan and France (78-93)1. Capital controls2. Political risk3. Covered interest parity applies almost perfectly in the Eurocurrency market, and it applies to a growing number of countries that have liberalized or eliminated their restrictions on international movement of financial capital.u Evidence on uncovered interest parity Uncovered Interest Parity is hard to be tested using actual data: Two approaches Figure 4.3 EUD: The US against & Germany and Japan (1991-2005) Conclusion1: Uncovered Interest Parity is useful as a rough approximation empirically, but it appears to apply imperfectly to actual rates. Conclusion2: The forward exchange rate is only roughly useful as an indicator of expected future spot rate. Why not perfect? - exchange rate risk mattersUncovered interest differential is often larger than the risk premium necessary to compensate for this risk Why larger? -the expectations of market participants about future spot exchange rates are biased. Uncovered interest parity is useful at least as a rough approximation empirically, but it also appears to apply imperfectly to actual rates.u Evidence on forward exchange rates and expected future spot exchange rates1. If there is substantial speculation using the forward exchange market, then the forward rate = average market expectation of the future spot exchange rate.2. The only difference between covered and uncovered interest parity: the replacement of the current forward exchange rate(远期汇率) with the currently expected future spot exchange rate(对将来即期汇率的预期).3. The forward exchange rate is roughly useful as an indicator of the markets expected future spot rate or as a predictor of this future spot rate, but there are biases:1)risk premiums风险溢价2)in the forecasts themselves预测本身的误差七、Eurocurrencies欧洲货币1. Eurocurrency deposit-denominated in a currency other than the currency of the country where the bank is located. (Better)-a bank deposit that is not subject to the u