第三章外汇市场

1CHAPTER3TheForeignExchangeMarket2国家外汇管理局24小时网上外汇交易/cns/中国银行/en/common/service.jsp路透社/rss/newsrss.aspx主要外汇行情网站34Fedraisesratesagain

Thecentralbank'spolicy-makersboostedtheirtargetforthefederalfundsrateaquarter-percentagepointto3.75percent,thehighestlevelinmorethanfouryears.Thefedfundsrate,anovernightbanklendingrate,affectstheratesforcreditcards,carloansandadjustable-ratemortgages.September20,20055TopicsForeignExchangeandForeignExchangeRateMajorfunctionsoftheforeignexchangemarketsExchangerates:DefinitionCrossratesTherelationshipbetweenspotrateandforwardratesForeignExchangeMarkets6ChapterOutlineFunctionandStructureoftheFOREXMarketTheSpotMarketDemandandsupplyforforeignexchangeTheForwardMarket7ForeignExchangeandExchangerateForeignExchange1.itistheactoftradingdifferentnationsmoney2.bankdepositsdenominatedintheforeigncurrency3.typically,bankdepositsdenominatedinUSdollarsEachcountryhasacurrencyinwhichthepricesofgoodsandservicesarequotedAnexchangerateisthepriceofonecurrencyintermsofanother.Thisissometimescalledthenominalexchangerate8910111213AnexchangeratecanbequotedintwowaysDirect(American)termsandindirect(European)termsInthiscoursewewillalways(unlessotherwisestated)quotetheexchangerateindirecttermsExchangeRateQuoting14PriceofforeigncurrencyintermsofnationalcurrencyHowmanyunitsofnationalcurrencydoweneedtobuyaunitofforeigncurrencyExample$/€,$/¥Today’sdollar-euroexchangerateis$1.27384pereuroDirectTerms15PriceofnationalcurrencyintermsofforeigncurrencyHowmanyunitsofforeigncurrencydoweneedtobuyaunitofnationalcurrencyExample€/$,¥/$Today’seuro-dollarexchangerateis€0.931015perUSDIndirectTerms16AdepreciationofthedollaragainsttheeuromeansthatthepriceofaeurointermsofdollarshasgoneupAnappreciationofthedollaragainsttheeuromeansthatthepriceofaeurointermsofdollarshasgonedownAppreciationandDepreciationofaCurrency17IfthedollardepreciatesagainsttheeurothismustmeanthattheeurohasappreciatedagainstthedollarIfthedollarappreciatesagainsttheeurothismustmeanthattheeurohasdepreciatedagainstthedollarAppreciationandDepreciationofaCurrency18AnexchangeratedepreciationmeansthedomesticcurrencyhasdepreciatedandanexchangerateappreciationmeansthedomesticcurrencyhasappreciatedIftheexchangeratedepreciatesthene↑Iftheexchangerateappreciatesthene↓AppreciationandDepreciationoftheExchangeRate19Ifthe$/€exchangeratemovesfrome=1.00toe=.95….exchangeratehasappreciatedby5%Dollarhasappreciatedagainsttheeuroby5%(itnowcost$0.95asopposedto$1tobuy€1)andtheeurohasdepreciatedagainstthedollarbyapproximately5%(itnowcosts€1.05tobuy$1)Example20CompetitivenessIftherealexchangeratedepreciates,thepriceofforeigngoodsrelativetothepriceofdomesticgoodsincreasesandexportsbecomemorecompetitivewhileimportsbecomemoreexpensiveIftherealexchangerateappreciates,thepriceofforeigngoodsrelativetothepriceofdomesticgoodsdecreasesandexportsbecomelesscompetitivewhileimportsbecomecheaper21UnderstandingtheBalanceofPayments

TradeBalance&ExchangeRate

Doescurrencydevaluationordepreciationimprovetradebalance?

TheJ–Curve

WhentheU.S.dollardepreciates,U.S.importpricesincrease,butexportquantitiesdonotchangeimmediately.SotheimmediateeffectofthedollardepreciationisdeteriorationoftheU.S.tradebalance.Overtime,pricesandquantitieswilladjust-imports¯whileexports­sothetradebalanceimproves.Thistimepathofthetradebalancefollowingcurrencydevaluation/depreciationiscalledtheJ-curve.Seegraphonnextslide.22UnderstandingtheBalanceofPayments

TradeBalanceTheJ-Curve

TimeTimeofdepreciationTradeBalance23ReasonsfortheJ-CurveImportandexportvolumesareslowtoadjustafterexchangeratechangesMostimportandexportordersareplacedmonthsinadvance,hencetheprimaryeffectofadepreciationistoraisethevalueofthepre-contractedlevelofimports24TheforeignexchangemarketItisthemarketinwhichnationalmoneysaretradedforothernationalmoneys.

Anexchangerateisthepriceofonecurrencyintermsofanothercurrency.

Twocurrenciesinvolved

dependingonTimingofdelivery

1.Spot

2.Forward

Spottransactions:Involvetheimmediate(twoday)exchangeofbankdepositsForwardtransactions,Theexchangeofbankdepositsatsomespecifiedfuturedate25CurrenciesandExchangeRatesEachcountryhasacurrencyinwhichthepricesofgoodsandservicesarequotedAnexchangerateisthepriceofonecurrencyintermsofanother.Thisissometimescalledthenominalexchangerate26FunctionsoftheFXMarketTransferpurchasingpowerbetweencountriesthroughtrade,directinvestment,etc.ProvisionofcreditthroughLetterofCredit(L/C).Mechanismstohedge（套期保值）andtransferFXrisk27MajorMarketParticipantsTwotiersoftheFXmarket:TheinterbankmarketorwholesalemarketRetailmarketMarketparticipants:Commercialbanks,

largemultinationalbanks.CorporationsandindividualsNonbankfinancialinstitutionsCentralBanksBrokers28Interbankforeignexchangetrading

InterbankforeignexchangetradingMostforeignexchangetradingistradingamongthebanksthemselvesItistheinterbankpartofforeignexchangemarketThepurposeofbanksusinginterbanksmarket1.Sellingorbuyingforeignexchangeinittoloweritscostoftrading2.Toavoidforeignexchangerisksbyreadjustitsownpositions3.Onlythepositionisinbalance,therisksarezero29ThefeaturesofTheforeignexchangemarket

Itisadecentralizedmarket,Itisactuallyaworldwidenetworkoftraders,ConnectedbytelephonelinesandcomputerscreensThereisnocentralheadquarters

Dollar/Euromosttradedcurrencypair,followedbydollar/yenanddollar/poundFXtradingcenters:UK(31%),US(19%),Japan(8%)，Singapore(7%)Dailyglobalvalueofforextrading$1.7trillion$vehiclecurrency30FXMarketInstruments（融资工具）SpottransactionsCurrencyforward（远期）Currencyfutures（期货）Currencyoptions（期权）Currencyswaps（掉期）Currencyswaps：相对各方在规定期限内交换不同货币的利息支付流量，然后在到期时按照协定的汇率交换相应货币本金31FOREXMarketTime

24-hourmarket3233BankInstructionstransmittingsystems:towsystemsinvolvingmoderncomputersandtelecommunicationtechnologiesSWIFT:TheSocietyforWorldwideInterbankFinancialTelecommunications.(formemberbanks)CHIPS:

ClearingHouseInterbankPaymentsSystem(clearingdollartransfersamongitsmembers)ECHO

ExchangeClearingHouseLimited,thefirstglobalclearinghouseforsettlinginterbankFOREXtransactions.343536373839404142ArbitrageTheprocessofbuyingandsellingtomakearisklesspureprofit,calledarbitrage43Tomakearisklessprofitbyarbitragingthroughthetwodifferentlocationsexchangerates,aprocesscalledbiangulararbitragee.g.LondonS(USD/GBP)=2NewYorkS(USD/GBP)=1.8Howcanwemakemoney?44Tomakearisklessprofitbyarbitragingthroughthethreedifferentlocationsexchangerates,aprocesscalledtriangulararbitrage454647484950NewYork$2.00/£London€3.00/£Frankfurt€1.00/$Sell£for$Sell$for€

Sell€for£Startwith£1Areyoumakingmoney??CrossExchangeRates

Inter-marketArbitrage51DemandandsupplyforforeignexchangeDemand:importersofforeigngoodsandservices,investorswhowanttoinvestabroad;bankswhichwanttomakeitspositioninbalance;centerbanksinterventioninforeignexchangemarket;SpeculatorswhowanttomakeprofitbyestablishaforeignexchangepositionSupply:exporters,banks,centerbanksinvestors52DemandandsupplyforforeignexchangeSystemdollarrisesinvalue

dollarfallsinvalueFlexibleappreciationdepreciationFixedrevaluationdevaluationChangesintheExchangeRateFactorsthatcauseacurrencytodepreciate:Arapidgrowthofincome(relativetotradingpartners)thatstimulatesimportsrelativetoexports.Ahigherrateofinflationthanone'stradingpartners.Areductionindomesticrealinterestrates(relativetoratesabroad).GreatdeficitChangesintheExchangeRateFactorsthatcauseacurrencytoappreciate:

Aslowergrowthraterelativetoone’stradingpartners.Alowerinflationthanone'stradingpartners.Anincreaseindomesticrealinterestrates

(relativetoratesabroad).GreatsurplusQuestionsforThought:

Otherthingsconstant,whichofthefollowingwouldcausetheRMBtoappreciate?a. Lessrapidgrowthofincomethanourtradingpartners.b. Alowerrateofinflationthanourtradingpartners.c. AnoutflowofcapitalbecauseoffearthattheChinafinancialmarketwillperformpoorlyinthefuture.d.Anincreaseinthequantityofcomputerequipment