Multinational Financial Management（跨国公司财务管理）ch07 Foreign Exchange Market Operation and Mechanics.ppt

CHAPTER7,ForeignExchangeMarket:OperationandMechanics,PARTI.INTRODUCTION,I.INTRODUCTIONA.TheCurrencyMarket:wheremoneydenominatedinonecurrencyisboughtandsoldwithmoneydenominatedinanothercurrency.,INTRODUCTION,B.InternationalTradeandCapitalTransactions:facilitatedwiththeabilitytotransferpurchasingpowerbetweencountries,INTRODUCTION,C.Location1.OTC-type:nospecificlocation2.Mosttradesbyphone,telex,orSWIFTSWIFT:SocietyforWorldwideInterbankFinancialTelecommunications,PARTII.ORGANIZATIONOFTHEFOREIGNEXCHANGEMARKET,I.PARTICIPANTSINTHEFOREIGNEXCHANGEMARKETA.Participantsat2Levels1.WholesaleLevel(95%)-majorbanks2.RetailLevel-businesscustomers,ORGANIZATIONOFTHEFOREIGNEXCHANGEMARKET,B.TwoTypesofCurrencyMarkets1.SpotMarket:-immediatetransaction-recordedby2ndbusinessday,ORGANIZATIONOFTHEFOREIGNEXCHANGEMARKET,2.ForwardMarket:-transactionstakeplaceataspecifiedfuturedate,ORGANIZATIONOFTHEFOREIGNEXCHANGEMARKET,C.ParticipantsbyMarket1.SpotMmercialbanksb.brokersc.customersofcommercialandcentralbanks,ORGANIZATIONOFTHEFOREIGNEXCHANGEMARKET,2.ForwardMarketa.arbitrageursb.tradersc.hedgersd.speculators,ORGANIZATIONOFTHEFOREIGNEXCHANGEMARKET,II.CLEARINGSYSTEMSA.ClearingHouseInterbankPaymentsSystem(CHIPS)-usedinU.S.forelectronicfundtransfers.,ORGANIZATIONOFTHEFOREIGNEXCHANGEMARKET,B.FedWire-operatedbytheFed-usedfordomestictransfers,ORGANIZATIONOFTHEFOREIGNEXCHANGEMARKET,III.ELECTRONICTRADINGA.AutomatedTrading-genuinescreen-basedmarket,ORGANIZATIONOFTHEFOREIGNEXCHANGEMARKET,B.Results:1.Reducescostoftrading2.Threatenstradersoligopolyofinformation3.Providesliquidity,ORGANIZATIONOFTHEFOREIGNEXCHANGEMARKET,IV.SIZEOFTHEMARKETA.Largestintheworld2004:US$1.9trilliondailyorUS$475trillionayearIn1999theUSGDPwasUS$9.1trillion,ORGANIZATIONOFTHEFOREIGNEXCHANGEMARKET,B.MarketCenters(2004):#1:London=$753billiondaily#2:NewYork=$461billiondaily#3:Tokyo=$199billiondaily,PARTIII.THESPOTMARKET,I.SPOTQUOTATIONSA.Sources1.Allmajornewspapers2.Majorcurrencieshavefourdifferentquotes:a.spotpriceb.30-dayc.90-dayd.180-day,THESPOTMARKET,B.MethodofQuotation1.Forinterbankdollartrades:a.Americantermsexample:$1.21/b.Europeantermsexample:Peso1.713/$,THESPOTMARKET,2.Fornonbankcustomers:Directquotegivesthehomecurrencyprice(alwaysinthenumerator)ofoneunitofforeigncurrency.EXAMPLE:$1.81/Sincethisisadirectquote,weknowthatintheU.S.,onepoundtransactedat$1.81.,THESPOTMARKET,C.TransactionsCosts1.Bid-AskSpreadusedtocalculatethefeechargedbythebankBid=thepriceatwhichthebankiswillingtobuyAsk=thepriceitwillsellthecurrency,THESPOTMARKET,4.PercentSpreadFormula(PS):,THESPOTMARKET,D.CrossRates1.Theexchangeratebetween2non-US$currencies.,THESPOTMARKET,2.CalculatingCrossRatesSupposeyouwanttocalculatethe/crossrate.Youknow.5556/US$and.8334/US$then/=.5556/US$.8334/US$=.6667/,THESPOTMARKET,E.CurrencyArbitrage1.Ifcrossratesdifferfromonefinancialcentertoanother,andprofitopportunitiesexist.2.Buycheapinoneintlmarket,sellatahigherpriceinanother3.TheCriticalRoleofAvailableInformation,THESPOTMARKET,F.SettlementDateValueDate:1.Datemoniesaredue2.2ndWorkingdayafterdateoforiginaltransaction.,THESPOTMARKET,G.ExchangeRisk1.Bankers=middlemena.Incurringriskofadverseexchangeratemoves.b.Increaseduncertaintyaboutfutureexchangeraterequires1.)Demandforhigherriskpremium2.)Bankerswidenbid-askspread,MECHANICSOFSPOTTRANSACTIONS,SPOTTRANSACTIONS:ExampleStep1.Currencytransaction:verbalagreement,U.S.importerspecifies:a.Accounttodebit(hisacct)b.Accounttocredit(exporter),MECHANICSOFSPOTTRANSACTIONS,Step2.Banksendsimportercontractnoteincluding:-amountofforeigncurrency-agreedexchangerate-confirmationofStep1.,MECHANICSOFSPOTTRANSACTIONS,Step3.SettlementCorrespondentbankinHongKongtransfersHK$fromnostroaccounttoexporters.ValueDate.U.S.bankdebitsimportersaccount.,PARTIV.THEFORWARDMARKET,I.INTRODUCTIONA.DefinitionofaForwardContract:anagreementbetweenabankandacustomertodeliveraspecifiedamountofcurrencyagainstanothercurrencyataspecifiedfuturedateandatafixedexchangerate.,THEFORWARDMARKET,2.PurposeofaForward:Hedgingtheactofreducingexchangeraterisk.,THEFORWARDMARKET,B.ForwardRateQuotations1.TwoMethods:a.OutrightRate:quotedtocommercialcustomers.b.Swap