ch04 Fundamentals of Global Markets
(Theodore Levitt) The Globalization of Markets
The Globalization ofMarkets（Theodore Levitt,1983）展示框架1.作者简介2.全球化的驱动因素3.全球化策略4.全球化的内涵5.全球化经营vs. 多国经营6.全球化≠零差异7.总结与讨论作者简介西奥多.莱维特（1925-2006）✓哈弗大学商学院教授，曾任《哈佛商业评论》第八任主编✓现代营销的奠基人之一✓《营销的短视症》，《业务增长市场学》，《全球化的市场》等26篇文章发表于《哈佛商业评论》，具有极高的影响力✓被科特勒称为：莱维特就是营销的代名词全球化的驱动因素外部环境角度：◆科学和技术的发展无界限的沟通、运输、旅行变得可行让世界各个孤立的地区联系起来，企业在各个国家同步开展运营成为可能◆激烈的竞争美国国内市场的竞争日趋激烈，应到国外去寻找市场空白点日本企业对于在全球市场的成功：从汽车、钢铁、高保真音响，到船运、电脑软件等全球化的驱动因素市场需求角度◆人们对于现代性的渴望西伯利亚:当地人向旅行者讨要香烟，电子表，甚至是服装巴西：人们挤入海岸城市，可以通过交换新鲜水果和鸡肉获得最新的电视机◆美国外的其他国家的物质短缺，需求高涨其他地区对于汽车、西方服装、化妆品、盗版光碟的有组织走私超过军火贸易全球化的驱动因素企业角度◆自身发展壮大的需要商业的逐利本性获取竞争优势的重要策略：成本优势，整合优势◆资源和能力已经可以满足在全球开展经营全球化经营意味着企业需要兼顾各个地区的不同经济情况，法律环境，政治基础需在有核心的能力：技术、成本、设计、运营等，以此转化为有竞争力的产品或服务全球化策略◆“标准化”，规模化的生产标准化的产品是指先进的，多功能的，可靠的以及价格低廉的产品，而非所有的产品都是同一标准规模化生产可以降低成本，提供更低的价格，更高的竞争力◆低价销售标准化，规模化生产时前提；需要保证产品的质量，提高可靠性目的：占领市场，不断的提升市场份额高销售，高份额，高利润全球化的策略◆因地制宜的调整组织的运营模式全球化不是意味着忽略各地区的差异,但也不是以此来否定全球化或推迟全球化的进程e.g.中东：不同的政体，法制环境，但是都是伊斯兰卡教的国家调整的措施：雇佣当地的法律顾问、开立信用账户、和当地企业进行合资✓美国泰瑞达分别在美国和日本用不同的产品线全球化的内涵对市场的认识：细分市场vs区域市场传统市场：以地域为细分标准。
ch10ProductandBrandDecisions(全球营销-沃伦·J·
ch10ProductandBrandDecisions(全 球营销,沃伦·J·
Branding Strategies
• Brand acts as an umbrella for new products
– Example: The Virgin Group
• Virgin Entertainment: Virgin Mega-stores and MGM Cinemas • Virgin Trading: Virgin Cola and Virgin Vodka • Virgin Radio • Virgin Media Group: Virgin Publishing, Virgin Television,
different, but we treat them the same. We sell them the same products, we use the same production
methods, we have the same corporate policies. We even use the same advertising—in a different language, of course. - Alfred Zeien Former Gillette CEO
ch10ProductandBrand Decisions(全球营销,沃
伦·J·
PPT文档演模板
2024/2/8
ch10ProductandBrandDecisions(全 球营销,沃伦·J·
Basic Product Concepts
• A product is a good, service, or idea
• Global brands have the same name and similar image and positioning throughout the world
ch GlobalMarketingDecisions 全球营销 沃伦 J 基
– Differentiate customers and rank them in terms of their value to the company
– Interact with customers and develop more cost efficient and effective forms of interaction
Direct Marketing
– Direct mail – Catalogs – Infomercials, Teleshopping
Event Sponsorship
– Concerts, sporting events – Product placement in movies
Internet Communications
© 2005 Prentice
Hall25.03.2020
14-17
Direct Marketing
Any communication with a consumer or business recipient that is designed to generate a response in the form of:
© 2005 Prentice
Hall25.03.2020
14-19
Direct Marketing vs. Mass Marketing
© 2005 Prentice
Hall25.03.2020
14-20
One-to-One Marketing
Building from Customer Relationship Management
2021-2022年收藏的精品资料乔治索罗斯关于金融市场和泡沫演讲全文
2009年10月，乔治·索罗斯在位于匈牙利布达佩斯的中欧大学发表了共分五个部分的系列演讲。
本文是他关于金融市场和泡沫的演讲的全文。
Financial MarketsPublished: October 27 2009 22:26 | Last updated: October 27 2009 22:26Financial markets provide an excellent laboratory for demonstrating and testing the ideas that I put forward in an abstract form yesterday. The course of events is easier to observe than in most other places. Many of the facts take a quantitative form, and the data are well recorded and well preserved. The opportunity for testing occurs because my interpretation of financial markets directly contradicts the efficient market hypothesis, which has been the prevailing theory about financial markets. That theory claims that markets tend towards equilibrium; deviations occur in a random fashion and can be attributed to extraneous shocks. If that theory is valid, mine is false—and vice versa.I am not in a good position to criticize the prevailing paradigm directly. I went into the financial markets in order to make money, and to do that I did not need to know either modern portfolio theory or the theory of rational expectations. I developed my own interpretation of financial markets and put it forward as a clear alternative to the prevailing view. When I published The Alchemy of Finance in 1987 I frankly admitted my ignorance of the generally accepted theories. No wonder that the economics profession reciprocated by ignoring my interpretation. The Governor of the Bank of England, Mervyn King, did me the honor of explicitly dismissing my theory, but most other economists simply ignored it.All this has changed in the wake of the recent financial crisis. Events have conclusively demonstrated the inadequacy of the efficient market hypothesis. It neither predicted nor explained what happened. At the same time, my writings provided a conceptual framework in terms of which events could be better understood.They began to be taken seriously, both by others–like Mervyn King–and by myself. I began to think that my interpretation does provide a new and better paradigm, and I put it forward as such in a book I published early in 2008, well before the bankruptcy of Lehman Brothers.And yet the theory of reflexivity is still not accepted in academic circles. The failure of the efficient market hypothesis is generally admitted, but insofar as a new paradigm is emerging, it is based on behavioral economics. Behavioral economics is compatible with reflexivity but, as I will try to show, it explores only one half of the phenomenon.* * *Let me state the two cardinal principles of my conceptual framework as it applies to the financial markets. First, market prices always distort the underlying fundamentals. The degree of distortion may range from the negligible to the significant. This is in direct contradiction to the efficient market hypothesis, which maintains that market prices accurately reflect all the available information.Second, instead of playing a purely passive role in reflecting an underlying reality, financial markets also have an active role: they can affect the so-called fundamentals they are supposed to reflect. That is the point that behavioral economics is missing. It focuses only on one half of a reflexive process: the mispricing of financial assets; it does not concern itself with the impact of the mispricing on the so-called fundamentals.There are various feedback mechanisms at work which may validate the mispricing of financial assets, at least for a while. This may give the impression that markets are often right, but the mechanism at work is very different from the one proposed by the prevailing paradigm. I claim that financial markets have ways of altering thefundamentals and that may bring about a closer correspondence between market prices and the underlying fundamentals. Contrast that with the efficient market hypothesis, which claims that markets always accurately reflect reality and automatically tend towards equilibrium. There are various pathways by which the mispricing of financial assets can affect the so-called fundamentals. The most widely travelled are those which involve the use of leverage—both debt and equity leveraging. These pathways deserve a lot more research.My two propositions focus attention on the reflexive feedback loops that characterize financial markets. There are two kinds of feedback: negative and positive. Negative feedback is self-correcting; positive feedback is self-reinforcing. Thus, negative feedback sets up a tendency toward equilibrium, while positive feedback produces dynamic disequilibrium. Positive feedback loops are more interesting because they can cause big moves, both in market prices and in the underlying fundamentals. A positive feedback process that runs its full course is initially self reinforcing, but eventually it is liable to reach a climax or reversal point, after which it becomes self reinforcing in the opposite direction. But positive feedback processes do not necessarily run their full course; they may be aborted at any time by negative feedback.* * *I have developed a theory about boom-bust processes, or bubbles, along these lines. Every bubble has two components: an underlying trend that prevails in reality and a misconception relating to that trend. A boom-bust process is set in motion when a trend and a misconception positively reinforce each other. The process is liable to be tested by negative feedback along the way. If the trend is strong enough to survive the test, both the trend and the misconception will be further reinforced. Eventually, market expectations become so far removed from reality that people are forced to recognize that a misconception is involved. A twilight period ensues during whichdoubts grow, and more people loose faith, but the prevailing trend is sustained by inertia. As Chuck Prince, former head of Citigroup said: we must continue dancing until the music stops. Eventually a point is reached when the trend is reversed; it then becomes self reinforcing in the opposite direction.[ C h a r t ]To go back to my original example, the conglomerate boom of the late 1960s: the underlying trend is represented by earnings per share, the expectations relating to that trend by stock prices. Conglomerates improved their earnings per share by acquiring other companies. Inflated expectations allowed them to improve their earnings performance, but eventually reality could not keep up with expectations. After a twilight period the price trend was reversed. All the problems that had been swept under the carpet surfaced, and earnings collapsed. As the president of one of the conglomerates, Ogden Corporation, told me at the time: I have no audience to play to.Typically, bubbles have an asymmetric shape. The boom is long and drawn out: slow to start, it accelerates gradually until it flattens out during the twilight period. The bust is short and steep because it is reinforced by the forced liquidation of unsound positions. Disillusionment turns into panic, reaching its climax in a financial crisis.Bubbles that conform to this pattern go through distinct stages: inception; a period of acceleration, interrupted and reinforced by successful tests; a twilight period; and the reversal point or climax, followed by acceleration on the downside culminating in a financial crisis. The length and strength of each stage is unpredictable, but there is an internal logic to the sequence of stages. So the sequence is predictable—but even that can be terminated by government intervention or some other form of negative feedback.The simplest case is a real estate boom. The trend that precipitates it is that credit becomes cheaper and more easily available; the misconception that turns the trend into a bubble is that the value of the collateral is independent of the availability of credit. As a matter of fact, the relationship between the availability of credit and the value of the collateral is reflexive. When credit becomes cheaper and more easily available, activity picks up and real estate values rise. There are fewer defaults, credit performance improves, and lending standards are relaxed. So at the height of the boom, the amount of credit involved is at its maximum and a reversal precipitates forced liquidation, depressing real estate values.Yet, the misconception continues to recur in various guises. The international banking crisis of 1982 revolved around sovereign debt where no collateral is involved. The creditworthiness of the sovereign borrowers was measured by various debt ratios, like debt to GDP or debt service to exports. These ratios were considered objective criteria, while in fact they were reflexive. When the recycling of petrodollars in the 1970s increased the flow of credit to countries like Brazil, their debt ratios improved, encouraging further inflows and starting a bubble.* * *Not all bubbles involve the extension of credit; some are based on equity leveraging. The best example is, of course, the Internet bubble of the late 1990s. When Alan Greenspan spoke about irrational exuberance in 1996 he misrepresented bubbles. When I see a bubble forming I rush in to buy, adding fuel to the fire. That is not irrational. And that is why we need regulators to counteract the market when a bubble is threatening to grow too big, because we cannot rely on market participants, however well informed and rational they are.* * *Bubbles are not the only form in which reflexivity manifests itself. They are only the most dramatic and the most directly opposed to the efficient market hypothesis; therefore they deserve special attention. But reflexivity can take many other forms. In currency markets, for instance, the upside and downside are symmetrical so that there is no sign of an asymmetry between boom and bust. But there is no sign of equilibrium either. Freely floating exchange rates tend to move in large, multi-year waves.The most important and most interesting reflexive interaction takes place between the financial authorities and financial markets. Because markets do not tend toward equilibrium they are prone to produce periodic crises. Financial crises lead to regulatory reforms. That is how central banking and the regulation of financial markets have evolved. Both the financial authorities and market participants act on the basis of imperfect understanding, and that makes the interaction between them reflexive.While bubbles only occur intermittently, the interplay between authorities and markets is an ongoing process. Misunderstandings by either side usually stay within reasonable bounds because market reactions provide useful feedback to the authorities, allowing them to correct their mistakes. But occasionally the mistakes prove to beself-validating, setting in motion vicious or virtuous circles. Such feedback loops resemble bubbles in the sense that they are initially self reinforcing, but eventually self defeating.* * *It is important to realize that not all price distortions are due to reflexivity. Market participants cannot possibly base their decisions on knowledge—they have to anticipate the future, and the future is contingent on decisions that people have not yet made. What those decisions are going to be and what effect they will have cannot beaccurately anticipated. Nevertheless, people are forced to make decisions. To guess correctly, people would have to know the decisions of all of the other participants and their consequences, but that is impossible.Rational expectations theory sought to circumvent this impossibility by postulating that there is a single correct set of expectations and people’s views will co nverge around it. That postulate has no basis in reality, but it is the basis of financial economics as it is currently taught in universities. In practice, participants are obliged to make their decisions in conditions of uncertainty. Their decisions are bound to be tentative and biased. That is the generic cause of price distortions.Occasionally, the price distortions set in motion a boom-bust process. More often, they are corrected by negative feedback. In these cases market fluctuations have a random character. I compare them to the waves sloshing around in a swimming pool as opposed to a tidal wave. Obviously, the latter are more significant but the former are more ubiquitous. The two kinds of price distortions intermingle so that in reality boom-bust processes rarely follow the exact course of my model. Bubbles that follow the pattern I described in my model occur only on those rare occasions where they are so powerful that they overshadow all the other processes going on at the same time.* * *It will be useful to distinguish between near equilibrium conditions, which are characterized by random fluctuations, and far-from-equilibrium situations where a bubble predominates. Near equilibrium is characterized by humdrum, everyday events which are repetitive and lend themselves to statistical generalizations.Far-from-equilibrium conditions give rise to unique, historical events where outcomes are generally uncertain but have the capacity to disrupt the statistical generalizations based on everyday events.The rules that can guide decisions in near equilibrium conditions do not apply infar-from-equilibrium situations. The recent financial crisis is a case in point. All the risk management tools and synthetic financial products that were based on the assumption that price deviations from a putative equilibrium occur in a random fashion broke down, and people who relied on mathematical models which had served them well in near-equilibrium conditions got badly hurt.I have gained some new insights into far-from-equilibrium conditions during the recent financial crisis. As a participant I had to act under immense time pressure, and I could not gather all of the information that would have been available—and the same applied to the regulatory authorities in charge. That is how far-from-equilibrium situations can spin out of control. This is not confined to financial markets. I experienced it, for instance, during the collapse of the Soviet Union. The fact that the participant’s thinking is time-bound instead of timeless is left out of the account by rational expectations theory.I was aware of the uncertainty associated with reflexivity, but even I was taken by surprise by the extent of the uncertainty in 2008. It cost me dearly. I got the general direction of the markets right, but I did not allow for the volatility. As a consequence, I took on positions that were too big to withstand the swings caused by volatility, and several times I was forced to reduce my positions at the wrong time in order to limit my risk. I would have done better if I had taken smaller positions and stuck with them.I learned the hard way that the range of uncertainty is also uncertain and at times it can become practically infinite. Uncertainty finds expression_r in volatility. Increased volatility requires a reduction in risk exposure. This leads to what Keynes calls increased liquidity preference. This is an additional factor in the forced liquidation of positions that characterize financial crises. When the crisis abates and the range of uncertainty is reduced, it leads to an almost automatic rebound in the stock market as the liquidity preference stops rising and eventually falls. That is another lesson I have learned recently.I need to point out that the distinction between near and far equilibrium conditions was introduced by me while trying to make some sense out of a confusing reality, and it does not accurately describe reality. Reality is always more complicated than the dichotomies we introduce into it. The recent crisis is comparable to a hundred-year storm. We have had a number of crises leading up to it. These are comparable to five or ten-year storms. Regulators who had successfully dealt with the smaller storms were less successful when they applied the same methods to the hundred-year storm. This goes to show that not all far- from-equilibrium conditions are alike.The picture I am painting is very different from the efficient market hypothesis. I believe it is more realistic, and it offers plenty of scope for further research. This prepares the ground for a specific hypothesis to explain the recent financial crisis. It is not derived from my theory of bubbles by deductive logic. Nevertheless, the two of them stand or fall together.So here it goes. I contend that the puncturing of the subprime bubble in 2007 set off the explosion of a super-bubble, much as an ordinary bomb sets off a nuclear explosion. The housing bubble in the United States was the most common kind, distinguished only by the widespread use of collateralized debt obligations and other synthetic instruments. Behind this ordinary bubble there was a much larger super-bubble growing over a longer period of time which was much more peculiar. The prevailing trend in this super-bubble was the ever increasing use of credit and leverage. The prevailing misconception was the belief that financial markets are self correcting and should be left to their own devices. President Reagan called it the magic of the marketplace, and I call it market fundamentalism. It became the dominant creed in the 1980s when Ronald Reagan was President of the United States and Margaret Thatcher was Prime Minister of the United Kingdom.What made the super-bubble so peculiar was the role that financial crises played in making it grow. Since the belief that markets could be safely left to their own devices was false, the super-bubble gave rise to a series of financial crises. The first and most serious one was the international banking crisis of 1982. This was followed by many other crises, the most notable being the portfolio insurance debacle in October 1987, the savings and loan crisis that unfolded in various episodes between 1989 and 1994, the emerging market crisis of 1997/1998, and the bursting of the Internet bubble in 2000. Each time a financial crisis occurred, the authorities intervened, merged away or otherwise took care of the failing financial institutions, and applied monetary and fiscal stimuli to protect the economy. These measures reinforced the prevailing trend of ever increasing credit and leverage, but as long as they worked, they also reinforced the prevailing misconception that markets can be safely left to their owndevices. It was a misconception, because it was the intervention of the authorities that saved the system; nevertheless these crises served as successful tests of a false belief, and as such, they inflated the super-bubble even further.Eventually the credit expansion became unsustainable and the super-bubble exploded. The collapse of the subprime mortgage market led to the collapse of one market after another in quick succession because they were all interconnected, the firewalls having been removed by deregulation. That is what distinguished this financial crisis from all those that preceded it. Those were successful tests that reinforced the process; the subprime crisis of 2007 constituted the turning point. The collapse then reached its climax with the bankruptcy of Lehman Brothers, which precipitated the large-scale intervention of the financial authorities.It is characteristic of my boom-bust model that it cannot predict in advance whether a test will be successful or not. This holds for ordinary bubbles as well as the super-bubble. I thought that the emerging market crisis of 1997/8 would constitute the turning point for the super-bubble but I was wrong. The authorities managed to save the system and the super-bubble continued growing. That made the bust that eventually came in 2008 all the more devastating.After the bankruptcy of Lehman Brothers on September 15, 2008, financial markets had to be put on artificial life support. This was a shock not only for the financial sector but also for the real economy. International trade was particularly badly hit. But the artificial life support worked, and financial markets stabilized. The economy gradually revived. A year later, the whole episode feels like a bad dream and people would like to forget it. There is a widespread desire to treat the crisis as just another crisis and return to business as usual. But reality is unlikely to oblige. The system is actually broken and needs to be fixed.* * *My analysis offers some worthwhile clues to the kind of regulatory reform that is needed. First and foremost, since markets are bubble-prone, the financial authorities have to accept responsibility for preventing bubbles from growing too big. Alan Greenspan and others have expressly refused to accept that responsibility. If markets can’t recognize bubbles, Greenspan asserted, neither can r egulators—and he was right. Nevertheless, the financial authorities have to accept the assignment, knowing full well that they will not be able to meet it without making mistakes. They will, however, have the benefit of receiving feedback from the markets, which will tell them whether they have done too much or too little. They can then correct their mistakes. Second, in order to control asset bubbles it is not enough to control the money supply; you must also control the availability of credit. This cannot be done by using only monetary tools; you must also use credit controls. The best known tools are marginrequirements and minimum capital requirements. Currently they are fixed irrespective of the market’s mood, because markets are not supposed to have m oods. Yet they do, and the financial authorities need to vary margin and minimum capital requirements in order to control asset bubbles.Regulators may also have to invent new tools or revive ones that have fallen into disuse. For instance, in my early days in finance many years ago, central banks used to instruct commercial banks to limit their lending to a particular sector of the economy such as real estate or consumer loans because they felt that the sector was overheating. Market fundamentalists consider that crass interference with the market mechanism but they are wrong. When our central banks used to do it we had no financial crises to speak of. The Chinese authorities do it today, and they have much better control over their banking system. The deposits that commercial banks have to maintain at the central bank were increased 17 times during the boom, and when the authorities reversed course the banks obeyed them with alacrity.Or consider the internet boom. Alan Greenspan recognized it quite early when he spoke about “irrational exuberance” in 1996. But apart from his famous speech, he did nothing to avert it. He felt that reducing the money supply would have been too blunt an instrument to use, and he was right. But he could have asked the SEC to put a freeze on new share issues, because the internet boom was fueled by equity leveraging. He did not, because that would have violated his market fundamentalist beliefs.Third, since markets are potentially unstable, there are systemic risks in addition to the risks affecting individual market participants. Participants may ignore these systemic risks in the belief that they can always dispose of their positions to someone else, but regulators cannot ignore them because if too many participants are on the same side, positions cannot be liquidated without causing a discontinuity or in the worst case a collapse. They have to monitor the positions of participants in order to detect potential imbalances. That means that the positions of all major market participants, including hedge funds and sovereign wealth funds need to be monitored. Certain derivatives, like credit default swaps and knockout options, are particularly prone to create hidden imbalances; therefore they must be regulated and, if appropriate, restricted or forbidden. The issuing of synthetic securities needs to be subject to regulatory approval, just as ordinary securities are.Fourth, we must recognize that financial markets evolve in a one-directional, non-reversible manner. The financial authorities, in carrying out their duty of preventing the system from collapsing, have extended an implicit guarantee to all institutions that are too big to fail. Withdrawing that guarantee would not be credible. Therefore they must now impose regulations that will ensure that the guarantee will not be invoked. Banks that are too big to fail must use less leverage and accept various restrictions on how they invest the depositors’ money. Deposits should not be used to finance proprietary trading. But regulators have to go even further. They mustregulate the compensation packages of proprietary traders to ensure that risks and rewards are aligned. This may push proprietary traders out of banks into hedge funds where they properly belong.Just as oil tankers are compartmentalized in order to keep them stable, there ought to be firewalls between different markets. It is probably impractical to separate investment banking from commercial banking as the Glass-Steagall Act of 1933 did. But there have to be internal compartments keeping proprietary trading in various markets separate from each other. Some banks that have come to occupy quasi-monopolistic positions may have to be broken up.Finally, the Basel Accords made a mistake when they gave securities held by banks substantially lower risk ratings than regular loans: they ignored the systemic risks attached to concentrated positions in securities. This was an important factor aggravating the crisis. It has to be corrected by raising the risk ratings of securities held by banks. That will probably discourage the securitization of loans.* * *All these measures will reduce the profitability and leverage of banks. This raises an interesting question about timing. This is not the right time to enact permanent reforms. The financial system and the economy are very far from equilibrium and they cannot be brought back to near-equilibrium conditions by a straightforward corrective move, just as when a car is skidding you must first turn the wheel in the direction of the skid before you right the car. What needed to be done in the short term was almost exactly the opposite of what is needed in the long term. First the credit that evaporated had to be replaced by using the only source that has remained credible—namely, the state. That meant increasing the national debt and extending the monetary base. As the economy stabilizes you must then shrink the monetary base as fast as credit revives—otherwise, deflation will be replaced by the specter of inflation.We are still in the first phase of this delicate maneuver. The banks are in the process of earning their way out of a hole. To reduce their profitability now would be directly counterproductive. Regulatory reform has to await the second phase when the money supply needs to be brought under control, and it needs to be carefully phased in so as not to disrupt recovery.* * *I realize that my theory of financial markets is still very rudimentary and needs a lot more development. Obviously I cannot do it on my own. So I may have been premature in putting forward my theory as the new paradigm. But one thing is certain: the efficient market hypothesis has been conclusively disproved. The entire edifice of global financial markets that has been erected on the false premise that markets can beleft to their own devices has to be rebuilt from the ground up.To facilitate the process I have decided to sponsor an Institute for New Economic Thinking—INET for short. It will be a major institution fostering research, workshops and curricula that will develop an alternative to the prevailing paradigm. I hope reflexivity will be one of the concepts that will be explored, but clearly it should not be the only concept. For instance, there is a good deal of affinity between complex systems theory and my theory of reflexivity; yet reflexive phenomena need not be complex. That raises an interesting question: How do complexity and reflexivity relate to one another? How profound is the difference between human systems and inanimate ones, such as telephone networks? My tentative answer is that network systems theory can be very useful in throwing light on human networks as well; at the same time the theory of reflexivity provides insights which are exclusive to the human condition.Similarly, I have argued that behavioral economics recognizes one half of reflexivity but not the other half. So behavioral economics must have an important place in the new economic thinking. And even if reflexivity succeeded in becoming the new paradigm, we would need to continue exploring new approaches.I recognize a potential conflict between being a protagonist and a financial sponsor at the same time. To protect against it, I want to erect a Chinese wall between me and the Institute. To this end, I will not personally participate in INET, and the jury will be expressly instructed to encourage other alternatives besides the theory of reflexivity.The plan is to launch INET at a workshop on the lessons of the financial crisis at King’s College Cambridge on April 10 and 11. And I hope that the new economic thinking will find a home here at the CEU.Thank you.。
Fundamentals of Futures and Options Markets Ch 1
Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright © John C. Hull 2010
Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright © John C. Hull 2010
11
Over-the Counter Markets
The over-the counter market is an important alternative to exchanges It is a telephone and computer-linked network of dealers who do not physically meet Trades are usually between financial institutions, corporate treasurers, and fund managers
Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright © John C. Hull 2010
9
Terminology
The
party that has agreed to buy has a long position The party that has agreed to sell has a short position
Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright © John C. Hull 2010
什么是国际经济学
• 1．1720年，伊萨克·杰瓦伊斯（Issac Gervaise）首次提出了国际收支 （Balance of Payments）的一般均衡分析方法。
• 2．1752年，大卫·休谟（David Hume）在《论贸易差额》一文中，论 证了著名的“物价——铸币——流动机制”（Price-Specie-Flow Mechanism）。休谟从货币数量论的观点出发，认为，在金币本位制 条件下，可以通过货币——贵金额的输出输入来完全解决贸易不平衡问 题，即国际收支的不平衡可以通过市场的力量自动恢复平衡，而不需要 外部的人为干预。
• 从古典贸易理论起，贸易平衡一直是贸易理论的一个前提条件。因为贸 易理论不考虑货币因素，国际贸易理论所探讨的是在贸易平衡条件下 （或物物交换条件下）的贸易商品相对价格问题，即纯易货贸易条件 （The Barter Terms of Trade）问题。但在现实中，国际贸易是以货币 为媒介而进行的，因而贸易不平衡现象是一种常态。
国际贸理论的发展(2)
• 新贸易理论的出现有两大渊源： • 产业内贸易（Intra-industry Trade），即发生在同一产业类别中的双
向贸易（Two-way Trade），已成为主流。格鲁珀（H.G.Grubel）和 劳埃德（P.J.Lloyd）在1975年还构造了一种测量产业内贸易密集度的 指数方法，用于测算国际贸易中产业内贸易的重要性。G—L产业内贸 易指数，与B.Balassa提出的产业内贸易指数略有不同。 • 产业组织理论的发展。20世纪70年代中期，产业组织理论出现了一次 大的突破，特别是博弈论方法被引入到产业组织理论的研究中之后，对 不完全竞争市场结构下（主要是针对寡头市场）厂商行为的描述与研究， 取得了巨大的成功。1978年，克鲁格曼在其博士论文《收益递增、垄 断竞争与国际贸易》（Increasing Returns, Monopolistic Competition, and International Trade）中，首次将迪克西特（A.Dixit）和斯蒂格利 茨（J.Stiglitz）两人所共同提出的将差异产品和（内部）规模经济考虑 在内的垄断竞争模型（该模型又称“新张伯伦模型”）推广到开放经济 条件下，从模型上首次证明了规模经济是国际贸易的另一起因，以及差 异性产品决定了贸易形态为产业内贸易。 • 新贸易理论除了都强调规模经济的作用这一共同点外，并未形成统一的 分析框架。
ch04国际经济学课后答案与习题（萨尔瓦多）
ch04国际经济学课后答案与习题（萨尔⽡多）*CHAPTER 4(Core Chapter)THE HECKSCHER-OHLIN AND OTHER TRADE THEORIESOUTLINE4.1 Introduction4.2 Factor Endowments and the Heckscher-Ohlin Theory4.3 The Formal Heckscher-Ohlin ModelCase Study 4-1 The Revealed Comparative Advantage of Various Countries and Regions4.4 Factor-Price Equalization and Income DistributionCase Study 4-2 Has International Trade Increased U.S. Wage Inequalities?4.5 Empirical Tests of the Heckscher-Ohlin Theory4.6 Economies of Scale and International TradeCase Study 4-3 The New International Economies of Scale4.7 Trade Based on Product DifferentiationCase Study 4-4 Growth of Intra-Industry Trade4.8 Technological Gap and Product Cycle ModelsCase Study 4-5: The United States as the Most Competitive Economy in the World4.9 Transportation Costs and International Trade4.10 Environmental Standards and International TradeAppendix The Specific-Factors Model and Intra-Industry Trade ModelsA4.1 The Specific-Factors ModelA4.2 A Model of Intra-Industry TradeKey TermsInternationalofscaleeconomies pricesRelativefactorproducts Heckscher–Ohlin (H–O) theory DifferentiatedtradeIntra-industryHeckscher–Ohlintheorem(H–O)Factor-proportions or factor-endowment theory Technological gap modelcyclemodelProductFactor–price equalization theoremcostsTransportationStolper-Samuelsontheoremmodel Nontraded goods and services Specific-factorsparadox Environmental standardsLeontiefMonopolisticcompetitionscalereturnsIncreasingtoLecture Guide1. This is one of the most important and difficult chapters in the book. It is also a long chapter andrequires four lectures to cover adequately.2. In the first lecture, I would cover sections 1-3. Section 3 is one of the most important sections inthe book because it presents the H-O model. I would proceed slowly and carefully in explaining Figure 4.1 and compare it to the standard trade model of Figure 3.4.3. In the second lecture, I would cover sections 4 and 5. Section 4 on the factor-price equalizationtheorem and income distribution is a difficult section. Case Study 4-2 should be of great interest to the students and give rise to a great deal of class discussion.4. In third lecture, I would cover sections sections 6-7, paying a great deal of attention to section 7on trade in differentiated products.5. In fourth lecture, I would cover the rest of the chapter.Answers to Review Questions and Problems1. a. The Heckscher–Ohlin (H-0) theorem postulates that a nation will export those commodi- ties whose production requires the intensive use of the nation’s relatively abundant and cheap factor and import the commodities whose production requires the intensive useof the nation’s relatively scarce and expensive factor. In short, the relatively labor-richnation exports relatively labor-intensive commodities and imports the relativelycapital-intensive commodities.b. Heckscher and Ohlin identify the relative difference in factor endowments amongnations as the basic determinant of comparative advantage and international trade.c. The H-O Theory represent an extension of the standard trade model because it explains the basis for comparative advantage (classical economists, such as Ricardo had assumed it) and examines the effect of international trade on factor prices and income distribution (which classical economists had left unanswered).2. See Figure 1 on the next page.3. a. The factor–price equalization theorem postulates that international trade will bring about the equalization of the returns to homogeneous or identical factors across nations.b. The Stopler-Samuelson theorem postulates that free international trade reduces the realincome of the nation’s relatively scarce factor and increases the real income of the nation’s relatively abundant factor.Fig 4.1Fig 4.2XXb. The specific-factors model postulates that the opening of trade (1) benefits the specific factorused in the production of the nation’s export commodity, (2) harms the specific factor used in the production of the nation’s import-competing industry, and (3) leads to an ambiguouseffect (i.e., it may benefit or harm) the mobile factor.c. Trade acts as a substitute for the international mobility of factors of production in itseffect on factor prices. With perfect mobility, labor would migrate from the low-wagenation to the high-wage nation until wages in the two nations are equalized. Similarly,capital would move from the low-interest to the high-interest nation until the rate ofinterest was equalized in the two nations.4. a. The Leontief paradox refers to the original Leontief’s finding that U.S. import substituteswere more K-intensive than U.S. exports. This was the opposite of what the H-O theorempostulated.b. The Leontief paradox was resolved by including human capital into the calculations andexcluding industries based on natural resources. Recent research using data on many sectors, for many countries, over many years, and considering that countries could specialize in aparticular subset or group of commodities that were best suited to their specific factorendowments, provides strong support for the H-O theorem.c. The Hecksher-Olhin theory remains the centerpiece of modern trade theory for explaininginternational trade today. To be sure, there are other forces (such as economies of scale,product differentiation, and technological differences across countries) that provide additional reasons and explanations for some international trade not explained by the basic H-O model.These other trade theories complement the basic H-O model in explaining the pattern ofinternational trade in the world today.5. International trade with developing economies, especially newly industrializing economies (NIEs), contributed in two ways to increased wage inequalities between skilled and unskilled workers in the United States during the past two decades. Directly, by reducing the demand for unskilledworkers as a result of increased U.S. imports of labor-intensive manufactures and, indirectly, byspeeding up the introduction of labor-saving innovations, which further reduced the U.S.demand for unskilled workers. International trade, however, was only a small cause of increased wage inequalities in the United States. The most important cause was technological change.6. a. Economies of scale refer to the production situation where output grows proportionatelymore than the increase in inputs or factors of production. For example, output may morethan double with a doubling of inputs.b. Even if two nations were identical in every respect, there is still a basis for mutually bene-ficial trade based on economies of scale. When each nation specializes in the production of one commodity, the combined total world output of both commodities will be greater thanthan without specialization when economies of scale are present. With trade, each nationthen shares in these gains.c. The new international economies of scale refers to the increase in productivity resultingfrom firms purchasing parts and components from nations where they are made cheaperand better, and by establishing production facilities abroad-26-7. a. Product differentiation refers to products that are similar, but not identical. Intra-industrytrade refers to trade in differentiated products, as opposed to inter-industry trade incompletely different products.b. Intra-industry trade arises in order to take advantage of important economies of scale inproduction. That is, with intra-industry trade each firm or plant in industrial countries canspecialize in the production of only one, or at most a few, varieties and styles of the sameproduct rather than many different varieties and styles of a product and achieve economies of scale.c. With few varieties and styles, more specialized and faster machinery can be developedfor a continuous operation and a longer production run. The nation then imports othervarieties and styles from other nations. Intra-industry trade benefits consumers because ofthe wider range of choices (i.e., the greater variety of differentiated products) available atthe lower prices made possible by economies of scale in production.8. a. According to the technological gap model, a firm exports a new product until imitators incountries take away its market. In the meantime, the innovating firm will have introduced a new product or process. b. The criticism of the technological gap model are that it does not explain the size of techno- logical gaps and does not explore the reason for technological gaps arising in the first place, or exactly how they are eliminated over time.c. The five stages of the product cycle model are: the introduction of the product, expansion of production for export, standardization and beginning of production abroad through imitation, foreign imitators underselling the nation in third markets, and foreigners underselling theinnovating firms in their home market as well.9. See Figure 2 on page 25.10. A nation with lower environmental standards can use the environment as a resource endow-ment or as a factor of production in attracting polluting firms from abroad and achieving acomparative advantage in the production of polluting goods and services. This can lead totrade disputes with nations with more stringent environmental standards.-27-Multiple-Choice Questions1. The H-O model extends the classical trade model by:a. explaining the basis for comparative advantageb. examining the effect of trade on factor prices*c. both a and bd. neither a nor b2. A nation is said to have a relative abundance of K if it has a:a. greater absolute amount of Kb. smaller absolute amount of Lc. higher L/K ratio*d. lower price of K in relation to the price of L3. A difference in relative commodity prices between nations can be based on a difference in:a. technologyb. factor endowmentsc. tastes*d. all of the above4. In the H-O model, international trade is based mostly on a difference in:a. technology*b. factor endowmentsc. economies of scaled. tastes5. According to the H-O theory, trade reduces international differences in:a. commodity pricesb. in factor prices*c. both commodity and factor pricesd. neither relative nor absolute factor prices6. According to the Stolper-Samuelson theorem, international trade leads toa. reduction in the real income of the nation’s relatively abundant factor*b. reduction in the real income of the nation’s relatively scarce factorc. increase in the real income of the nation’s relatively scarce factord. none of the above7. Which of the following is false with regard to the specific factors theorem, international trade *a. harms the immobile factors that are specific to the nation’s export commodities or sectorsb. harms the immobile factors that are specific to the nation’s import-competing commoditiesc. has an ambiguous effect on the nation’s mobile factorsd. may benefit or harm the nation’s mobile factors8. Perfect international mobility of factors of productiona. leads to a reduction in international differences in the returns to homogenous factorsb. acts as a substitute for international trade in its effects on factor pricesc. operates on the supply of factors in affecting factor prices*d. all of the above9. The Leontief paradox refers to the empirical finding that U.S.*a. import substitutes were more K-intensive than exportsb. exports were more L-intensive than importsc. exports were more K-intensive than import substitutesd. all of the above10. From empirical studies, we conclude that the H-O theory:a. must be rejectedb. must be accepted without reservations*c. can generally be acceptedd. explains all international trade11. International trade can be based on economies of scale even if both nations have identical:a. factor endowmentsb. tastesc. technology*d. all of the above12. A great deal of international trade:a. is intra-industry tradeb. involves differentiated productsc. is based on monopolistic competition*d. all of the above13. Intra-industry trade takes place:a. because products are homogeneous*b. in order to take advantage of economies of scalec. because perfect competition is the prevalent form of market organizationd. all of the above14. Which of the following statements is true with regard to the product-cycle theory?a. it depends on differences in technological changes over time among countriesb. it depends on the opening and the closing of technological gaps among countriesc. it postulates that industrial countries export more advanced products to lessadvanced countries*d. all of the above15. Transport costs:a. increase the price in the importing countryb. reduces the price in the exporting countryc. falls less heavily on the nation with the more elastic demand and supply curves of the traded commodity*d. all of the above-30-ADDITIONAL ESSAYS AND PROBLEMS FOR PART ONE1. Assume that both the United States and Germany produce beef and computer chips with the following costs: United States Germany(dollars) (marks)Unit cost of beef (B) 2 8Unit cost of computer chips (C) 1 2(a) What is the opportunity cost of beef (B) and computer chips (C) in each country?(b) In which commodity does the United States have a comparative cost advantage?What about Germany?(c) What is the range for mutually beneficial trade between the United States and Germanyfor each computer chip traded?(b) How much would the United States and Germany gain if 1 unit of beef is exchangedfor 3 chips?Answ. (a) In the United States:the opportunity cost of one unit of beef is 2 chips;the opportunity cost of one chip is 1/2 unit of beef.In Germany:the opportunity cost of one unit of beef is 4 chips;the opportunity cost of one chip is 1/4 unit of beef.(b) The United States has a comparative cost advantage in beef with respect to Germany,while Germany has a comparative cost advantage in computer chips.(c) The range for mutually beneficial trade between the United States and Germany foreach unit of beef that the United States exports is2C < 1B < 4C(d) Both the United States and Germany would gain 1 chip for each unit of beef traded.2. Given: (1) two nations (1 and 2) which have the same technology but different factor costs conditions, and (3) no transportation costs, tariffs, or other obstructions to trade.Prove geometrically that mutually advantageous trade between the two nations is possible.Note: Your answer should show the autarky (no-trade) and free-trade points of production and consumption for each nation, the gains from trade of each nation, and express the equilibrium condition that should prevail when trade stops expanding.) Ans.: See the figure below.Fig 4.3Fig 4.4Nations 1 and 2 have different production possibilities curves and different community indifference maps. With these, they will usually end up with different relative commodity prices in autarky, thus making mutually beneficial trade possible.In the figure, Nation 1 produces and consumes at point A and Px/Py=P A in autarky, while Nation 2 produces and consumes at point A' and Px/Py=P A'. Since P A < P A', Nation 1 has a comparative advantage in X and Nation 2 in Y. Specialization in production proceeds until point B in Nation 1 and point B' in Nation 2, at which P B =P B' and the quantity supplied for export of each commodity exactly equals the quantity demanded for import.Thus, Nation 1 starts at point A in production and consumption in autarky, moves to point B in production, and by exchanging BC of X for CE of Y reaches point E in consumption. E > A since it involves more of both X and Y and lies on a higher community indifference curve.Nation 2 starts at A' in production and consumption in autarky, moves to point B' in production, and by exchanging B'C' of Y for C'E' of X reaches point E'in consumption (which exceeds A').At Px/Py=P B =P B', Nation 1 wants to export BC of X for CE of Y, while Nation 2 wants to export B'C' (=CE) of Y for C'E' (=BC) of X. Thus, P B =P B' is the equilibrium relative commodity price because it clears both (the X and Y) markets.3. (a) Identify the conditions that may give rise to trade between two nations. (b) What aresome of the assumptions on which the Heckscher-Ohlin theory is based? (c) What does this theory say about the pattern of trade and effect of trade on factor prices?Ans. (a) Trade can be based on a difference in factor endowments, technology, or tastesbetween two nations. A difference either in factor endowments or technology results in a different production possibilities frontier for each nation, which, unlessneutralized by a difference in tastes, leads to a difference in relative commodity price and mutually beneficial trade. If two nations face increasing costs and have identical production possibilities frontiers but different tastes, there will also be a differencein relative commodity prices and the basis for mutually beneficial trade between the two nations. The difference in relative commodity prices is then translated into adifference in absolute commodity prices between the two nations, which is the immediate cause of trade.(b) The Heckscher-Ohlin theory (sometimes referred to as the modern theory – asopposed to the classical theory - of international trade) assumes that nations have the same tastes, use the same technology, face constant returns to scale (i.e., a givenpercentage increase in all inputs increases output by the same percentage) but differ widely in factor endowments. It also says that in the face of identical tastes or demand conditions, this difference in factor endowments will result in a difference in relative factor prices between nations, which in turn leads to a difference in relativecommodity prices and trade. Thus, in the Heckscher-Ohlin theory, the internationaldifference in supply conditions alone determines the pattern of trade. To be noted is that the two nations need not be identical in other respects in order for internationaltrade to be based primarily on the difference in their factor endowments.(c) The Heckscher-Ohlin theorem postulates that each nation will export the commodityintensive in its relatively abundant and cheap factor and import the commodityintensive in its relatively scarce and expensive factor. As an important corollary, itadds that under highly restrictive assumptions, trade will completely eliminate thepretrade relative and absolute differences in the price of homogeneous factors amongnations. Under less restrictive and more usual conditions, however, trade will reduce, but not eliminate, the pretrade differences in relative and absolute factor prices among nations. In any event, the Heckscher-Ohlin theory does say something very useful onhow trade affects factor prices and the distribution of income in each nation. Classical economists were practically silent on this point.4. Suppose that tastes change in Nation 1 (the L-abundant and L-cheap nation) so that consumers demand more of commodity X (the L-intensive commodity) and less of commodity Y (the K- intensive commodity). Suppose that Nation 1 is India, commodity X is textiles, and commodi- ty Y is food. Starting from the no-trade equilibrium position and using the Heckscher-Ohlinmodel, trace the effect of this change in tastes on India's (a) relative commodity prices anddemand for food and textiles, (b) production of both commodities and factor prices, and(c) comparative advantage and volume of trade. (d) Do you expect international trade to leadto the complete equalization of relative commodity and factor prices between India and theUnited States? Why?Ans. (a) The change in tastes can be visualized by a shift toward the textile axis in India'sindifference map in such a way that an indifference curve is tangent to the steepersegment of India's production frontier (because of increasing opportunity costs) after the increase in demand for textiles. This will cause the pretrade relative commodity price of textiles to rise in India.(b) The increase in the relative price of textiles will lead domestic producers in India toshift labor and capital from the production of food to the production of textiles. Since textiles are L-intensive in relation to food, the demand for labor and therefore the wage rate will rise in India. At the same time, as the demand for food falls, thedemand for and thus the price of capital will fall. With labor becoming relative more expensive, producers in India will substitute capital for labor in the production of both textiles and food.(c) Even with the rise in relative wages and in the relative price of textiles, India stillremains the L-abundant and low-wage nation with respect to a nation such as theUnited States. However, the pretrade difference in the relative price of textilesbetween India and the United States is now somewhat smaller than before the change in tastes in India. As a result the volume of trade required to equalize relativecommodity prices and hence factor prices is smaller than before. That is, India need now export a smaller quantity of textiles and import less food than before for therelative price of textiles in India and the United States to be equalized. Similarly, the gap between real wages and between India and the United States is now smaller and can be more quickly and easily closed (i.e., with a smaller volume of trade).(d) Since many of the assumptions required for the complete equalization of relativecommodity and factor prices do not hold in the real world, great differences can be expected and do in fact remain between real wages in India and the United States.Nevertheless, trade would tend to reduce these differences, and the H-O model does identify the forces that must be considered to analyze the effect of trade on thedifferences in the relative and absolute commodity and factor prices between Indiaand the United States.5. (a) Explain why the Heckscher-Ohlin trade model needs to be extended. (b) Indicate in what important ways the Heckscher-Ohlin trade model can be extended. (c) Explain what ismeant by differentiated products and intra-industry trade.Ans. (a) The Heckscher-Ohlin trade model needs to be extended because, while generallycorrect, it fails to explain a significant portion of international trade, particularly the trade in manufactured products among industrial nations.(b) The international trade left unexplained by the basic Heckscher-Ohlin trade model canbe explained by (1) economies of scale, (2) intra-industry trade, and (3) trade based on imitation gaps and product differentiation.(c) Differentiated products refer to similar, but not identical, products (such as cars,typewriters, cigarettes, soaps, and so on) produced by the same industry or broadproduct group. Intra-industry trade refers to the international trade in differentiated products.。
ch02 Fundamentals of Global Markets
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215
Types of financial intermediaries
(continued)
– Credit Unions -- Receive share account deposits and make consumer loans. Membership requires a common bond, such as a church or labor union.
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Intermediation services
Denomination Divisibility -- Issue varying sized contracts of assets and liabilities. Currency Transformation -- buying and selling financial claims denominated in various currencies. Maturity Flexibility -- Offer contracts with varying maturities to suit both DSUs and SSUs.
Copyright © 2000-2002 John Wiley & Sons, Inc.
2-8
Direct financing
DSUs and SSUs negotiate and exchange money for financial claims. DSUs issue direct financial claims; SSUs participate in direct lending. The sale of securities by an industrial firm directly to an investor (SSU or financial institution) is a private placement.
公司金融,邵学言ch04bmm5e
DF
1 (1 r ) t
Discount Factors can be used to compute the present value of any cash flow.
McGraw-Hill/Irwin
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
4- 3
Future Values
Future Value - Amount to which an investment will grow after earning interest. (at some future point in time)
Fundamentals of Corporate Finance
Fifth Edition
Chapterey
Slides by
Matthew Will
McGraw-Hill/Irwin
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Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
4- 19
PV of Multiple Cash Flows
PVs can be added together to evaluate multiple cash flows.
ch14 Fundamentals of Global Markets
Bank Liquidity -- the ability to accommodate deposit withdrawals, loan requests, and pay off other liabilities as they come due.
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ROAA
1.2%
Return on Average Assets
0.6%
0.0% 1935 1975
ROAE
1985
1995
Source: FDIC Statistics on Banking
Return on Average Equity
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Noninterest Expense Noninterest Income
1935 1945 1955 Source: FDIC Statistics on Banking.
1965
1975
1985
1995
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14-8
Copyright 2000-2002 John Wiley & Sons, Inc.
14-5
Provision for Loan Losses (19351998)
ch10 Fundamentals of Global Markets
Principal and interest Payments on a 9%, 15year, $100,000 mortgage with payments of $1,015 per month
$1,200 $1,000 $800 $600 $400 $200 $0
0 12 24 36 48 60 72 84 96 108 120 132 144 156 168
10-9
Private Mortgage Insurance
Conventional mortgage borrowers with low downpayments must usually buy private mortgage insurance (PMI). PMI premiums are added to mortgage payments until the value of the mortgage is less than 75% of the value of the house.
Initial mortgage Interest rate Maturity
$100,000 9% 30 years
Monthly payments First payment interest First payment principal
$805 $750 $55
Total payments Total interest Total principal
Month
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10-8
Conventional and Insured Mortgages
Ch28 FUNDAMENTALS OF CHEMISTRY
Manahan, Stanley E. "FUNDAMENTALS OF CHEMISTRY" Environmental ChemistryBoca Raton: CRC Press LLC,200028FUNDAMENTALS OF CHEMISTRY__________________________28.1.INTRODUCTIONThis chapter is designed to give those readers who have had little exposure to chemistry the basic knowledge needed to understand the material in the rest of the book. Although it is helpful for the reader to have had several courses in chemistry, including organic chemistry and quantitative chemical analysis, most of the material in this book can be understood with less. Indeed, a reader willing to do some inde-pendent study on the fundamentals of chemistry can understand much of the material in this book without ever having had any formal chemistry course work.Chapter 28, “Fundamentals of Chemistry,” can serve two purposes. For the reader who has had no chemistry, it provides the concepts and terms basic to general chemistry. A larger category of reader consists of those who have had at least one chemistry course, but whose chemistry background, for various reasons, is inadequate. By learning the material in this chapter, plus the subject matter of Chapter 29, “Fundamentals of Organic Chemistry,” these readers can comprehend the rest of the material in the book. For a more complete coverage of basic chemistry readers should consult one of a number of basic chemistry books, such as Fundamentals of Environmental Chemistry1 and other supplementary references listed at the end of the chapter.Chemistry is the science of matter. Therefore, it deals with all of the things that surround humankind, and with all aspects of the environment. Chemical properties and processes are central to environmental science. A vast variety of chemical reactions occur in water, for example, including acid-base reactions, precipitation reactions, and oxidation-reduction reactions largely mediated by microorganisms. Atmospheric chemical phenomena are largely determined by photochemical processes and chain reactions. A large number of organic chemical processes occur in the atmosphere. The geosphere, including soil, is the site of many chemical processes, particularly those that involve solids. The biosphere obviously is where the many biochemical processes crucial to the environment and to the toxic effects of chemicals occur.This chapter emphasizes several aspects of chemistry. It begins with a discussion of the fundamental subatomic particles that make up all matter, and explains how these are assembled to produce atoms. In turn, atoms join together to make com-pounds. Chemical reactions and chemical equations that represent them are discussed. Solution chemistry is especially important to aquatic chemistry and is addressed in a separate section. The important, vast discipline of organic chemistry is crucial to all parts of the environment and is addressed in Chapter 29.28.2.ELEMENTSAll substances are composed of only about a hundred fundamental kinds of matter called elements. Elements, themselves, may be of environmental concern. The “heavy metals,” including lead, cadmium, and mercury, are well recognized as toxic substances in the environment. Elemental forms of otherwise essential elements may be very toxic or cause environmental damage. Oxygen in the form of ozone, O3, is the agent most commonly associated with atmospheric smog pollution and is very toxic to plants and animals. Elemental white phosphorus is highly flammable and toxic.Each element is made up of very small entities called atoms; all atoms of the same element behave identically chemically. The study of chemistry, therefore, can logically begin with elements and the atoms of which they are composed. Each element is designated by an atomic number, a name, and a chemical symbol, such as carbon, C; potassium, K (for its Latin name kalium); or cadmium, Cd. Each element has a characteristic atomic mass (atomic weight), which is the average mass of all atoms of the element. Atomic numbers of the elements are integrals ranging from 1 for hydrogen, H, to somewhat more than 100 for some of the transuranic elements (those beyond uranium). Atomic number is a unique, important way of designating each element, and it is equal to the number of protons in the nuclei of each atom of the element (see discussion of subatomic particles and atoms, below). Subatomic Particles and AtomsFigure 28.1 represents an atom of deuterium, a form of hydrogen. It is seen that such an atom is made up of even smaller subatomic particles—positively charged protons, negatively charged electrons, and uncharged (neutral) neutrons. Subatomic ParticlesThe subatomic particles differ in mass and charge. Their masses are expressed by the atomic mass unit, u (also called the dalton), which is also used to express the masses of individual atoms and molecules (aggregates of atoms). The atomic mass unit is defined as a mass equal to exactly 1/12 that of an atom of carbon-12, the isotope of carbon that contains 6 protons and 6 neutrons in its nucleus.The proton, p, has a mass of 1.007277 u and a unit charge of +1. This charge is equal to 1.6022 x 10-19 coulombs, where a coulomb is the amount of electrical charge involved in a flow of electrical current of 1 ampere for 1 second. The neutron, n, has no electrical charge and a mass of 1.009665 u. The proton and neu-neutron (n). The electron (-) is in constant, rapid motion around the nucleus forming a cloud of negative electrical charge, the density of which drops off with increasing distance from the nucleus.tron each have a mass of essentially 1 u and are said to have a mass number of 1. (Mass number is a useful concept expressing the total number of protons and neutrons, as well as the approximate mass, of a nucleus or subatomic particle.) The electron, e, has a unit electrical charge of -1. It is very light, however, with a mass of only 0.00054859 u, about 1/1840 that of the proton or neutron. Its mass number is 0. The properties of protons, neutrons, and electrons are summarized in Table 28.1. Table 28.1. Properties of Protons, Neutrons, and ElectronsSubatomic Unit Massparticle Symbol charge number Mass in u Mass in grams Proton1p+11 1.007277 1.6726 x 10-24 Neutron1n01 1.008665 1.6749 x 10-24 Electron1e-100.0005499.1096 x 10-28 1The mass number and charge of each of these kinds of particles may be indicated by a supersciptand subscript, respectively, as in the symbols1p, 1n, and 0e.1-1Although it is convenient to think of the proton and neutron as having the same mass, and each is assigned a mass number of 1, it is seen in Table 28.1 that their exact masses differ slightly from each other. Furthermore, the mass of an atom is not exactly equal to the sum of the masses of subatomic particles composing the atom. This is because of the energy relationships involved in holding the subatomic particles together in atoms so that the masses of the atom’s constituent subatomic particles do not add up to exactly the mass of the atom.Atom Nucleus and Electron CloudProtons and neutrons, which have relatively high masses compared to electrons, are contained in the positively charged nucleus of the atom. The nucleus has essen-tially all of the mass, but occupies virtually none of the volume, of the atom. An uncharged atom has the same number of electrons as protons. The electrons in an atom are contained in a cloud of negative charge around the nucleus that occupies most of the volume of the atom. These concepts are emphasized in Figure 28.2. IsotopesAtoms with the same number of protons, but different numbers of neutrons in their nuclei are called isotopes. They are chemically identical atoms of the same element, but have different masses and may differ in their nuclear properties. Some isotopes are radioactive isotopes or radionuclides, which have unstable nuclei that give off charged particles and gamma rays in the form of radioactivity. Radioactivity may have detrimental, or even fatal, health effects; a number of hazardous substances are radioactive and they can cause major environmental problems. The most striking example of such contamination resulted from a massiveEach C atom has 6 protons (+) in its nucleus, so the atomic number of C is 6. The atomic mass of C is 12.Each N atom has 7 protons (+) in its nucleus, so the atomic number of N is 7. The atomic mass of N is 14.Figure 28.2. Atoms of carbon and nitrogenImportant ElementsAn abbreviated list of a few of the most important elements that the reader should learn at this point is given in Table 28.2. A complete list of elements is given on the inside back cover of the book.The Periodic TableWhen elements are considered in order of increasing atomic number, it is observed that their properties are repeated in a periodic manner.For example,ele-Table 28.2. List of Some of the More Important Common ElementsElement Symbol Atomic number Atomic mass SignificanceAluminum Al1326.9815Abundant in Earth’s crustArgon Ar1839.948Noble gasArsenic As3374.9216Toxic metalloidBromine Br3579.904Toxic halogenCadmium Cd48112.40Toxic heavy metalCalcium Ca2040.08Abundant essential element Carbon C612.011“Life element”Chlorine Cl1735.453HalogenCopper Cu2963.54Useful metalFluorine F918.998HalogenHelium He2 4.00260Lightest noble gasHydrogen H1 1.008Lightest elementIodine I53126.904HalogenIron Fe2655.847Important metalLead Pb82207.19Toxic heavy metalMagnesium Mg1224.305Light metalMercury Hg80200.59Toxic heavy metalNeon Ne1020.179Noble gasNitrogen N714.0067Important nonmetalOxygen O815.9994Abundant, essential nonmetal Phosphorus P1530.9738Essential nonmetalPotassium K1939.0983Alkali metalSilicon Si1428.0855Abundant metalloidSilver Ag47107.87Valuable, reaction-resistant metal Sulfur S1632.064Essential element,occurs in airpollutant SO2Sodium Na1122.9898Essential, abundant alkali metal Tin Sn50118.69Useful metalUranium U92238.03Fissionable metal used for nuclearfuelZinc Zn3065.37 Useful metalments with atomic numbers 2, 10, and 18 are gases that do not undergo chemical reactions and consist of individual atoms, whereas those with atomic numbers larger by 1—elements with atomic numbers 3, 11, and 19—are unstable, highly reactive metals. An arrangement of the elements in a manner that reflects this recurring behavior is known as the periodic table (Figure 28.3). The periodic table is extremely useful in understanding chemistry and predicting chemical behavior. As shown in Figure 28.3, the entry for each element in the periodic table gives the element’s atomic number, name, symbol, and atomic mass. More detailed versions of the table include other information as well.Features of the Periodic TableGroups of elements having similar chemical behavior are contained in vertical columns in the periodic table. Main group elements may be designated as A groups (1A and 2A on the left, 3A through 8A on the right). Transition elements are those between main groups 2A and 3A. Noble gases (group 8A), a group of gaseous ele-ments that are virtually chemically unreactive, are in the far right column. The chemical similarities of elements in the same group are especially pronounced for groups 1A, 2A, 7A, and 8A.Horizontal rows of elements in the periodic table are called periods, the first of which consists of only hydrogen (H) and helium (He). The second period begins with atomic number 3 (lithium) and terminates with atomic number 10 (neon), whereas the third goes from atomic number 11 (sodium) through 18 (argon). The fourth period includes the first row of transition elements, whereas lanthanides and actinides are listed separately at the bottom of the table.Electrons in AtomsAlthough a detailed discussion of the placement of electrons in atoms determines how the atoms behave chemically and, therefore, the chemical properties of each element, it is beyond the scope of this chapter to discuss electronic structure in detail. Several key points pertaining to this subject are mentioned here.Electrons in atoms are present in orbitals in which the electrons have different energies, orientations in space, and average distances from the nucleus. Each orbital may contain a maximum of 2 electrons. The placement of electrons in their orbitals determines the chemical behavior of an atom; in this respect the outermost orbitals and the electrons contained in them are the most important. These outer electrons are the ones beyond those of the immediately preceding noble gas in the periodic table. They are of particular importance because they become involved in the sharing and transfer of electrons through which chemical bonding occurs that results in the formation of huge numbers of different substances from only a few elements.Much of environmental chemistry is concerned with electrons in atoms. In Chapters 9 and 13 are discussed examples in which the absorption of electro-magnetic radiation promotes electrons to higher energy levels, forming reactive excited species and reactive free radicals with unpaired electrons. Atomic absorption and emission methods of elemental analysis involve transitions of electrons between energy levels.Lewis Structures and Symbols of AtomsOuter electrons are called valence electrons and are represented by dots in Lewis symbols , as shown for carbon and argon in Figure 28.4, below:Lewis symbol of argon........::C Ar Lewis symbol of carbonFigure 28.4. Lewis symbols of carbon and argon.The four electrons shown for the carbon atom are those added beyond the electrons possessed by the noble gas that immediately precedes carbon in the periodic table (helium, atomic number 2). Eight electrons are shown around the symbol of argon. This is an especially stable electron configuration for noble gases known as an octet . (Helium is the exception among noble gases in that it has a stable shell of only two electrons.) When atoms interact through the sharing, loss, or gain of electrons to form molecules and chemical compounds (see Section 28.3) many attain an octet of outer shell electrons. This tendency is the basis of the octet rule of chemical bonding. (Two or three of the lightest elements, most notably hydrogen,attain stable helium-like electron configurations containing two electrons when they become chemically bonded.)Metals, Nonmetals, and MetalloidsElements are divided between metals and nonmetals; a few elements with intermediate character are called metalloids. Metals are elements that are generally solid, shiny in appearance, electrically conducting, and malleable—that is, they can be pounded into flat sheets without disintegrating. They tend to have only 1–3 outer electrons, which they may lose in forming chemical compounds. Examples of metals are iron, copper, and silver. Most metallic objects that are commonly encountered are not composed of just one kind of elemental metal, but are alloys consisting of homogeneous mixtures of two or more metals. Nonmetals often have a dull appearance, are not at all malleable, and frequently occur as gases or liquids. Color-less oxygen gas, green chlorine gas (transported and stored as a liquid under pressure), and brown bromine liquid are common nonmetals. Nonmetals tend to have close to a full octet of outer-shell electrons, and in forming chemical compounds they gain or share electrons. Metalloids , such as silicon or arsenic, are elements with properties intermediate between those of metals and nonmetals. Under some conditions, a metalloid may exhibit properties of metals, and under other conditions, properties of nonmetals.28.3. CHEMICAL BONDINGOnly a few elements, particularly the noble gases, exist as individual atoms;most atoms are joined by chemical bonds to other atoms. For example, elementalhydrogen exists as molecules , each consisting of 2 H atoms linked by a chemical bond as shown in Figure 28.5. Because hydrogen molecules contain 2 H atoms, they are said to be diatomic and are denoted by the chemical formula , H 2. The H atoms in the H 2 molecule are held together by a covalent bond made up of 2 electrons,each contributed by one of the H atoms, and shared between the atoms. (Bonds formed by transferring electrons between atoms are described later in this section.)The shared electrons in the covalent bonds holding the H 2 molecule together are represented by two dots between the H atoms in Figure 28.5. By analogy with Lewis symbols defined in the preceding section, such a representation of molecules showing outer-shell and bonding electrons as dots is called a Lewis formula .H H H H ..H HLewis structure of H 2The H atoms in ele-mental hydrogen are held together by chem-ical bonds in moleculesThat have the chemical formula H 2.H 2+.H H Figure 28.5. Molecule and Lewis formula of H 2.Chemical CompoundsMost substances consist of two or more elements joined by chemical bonds. As an example consider the chemical combination of hydrogen and oxygen shown in Figure 28.6. Oxygen, chemical symbol O, has an atomic number of 8 and an atomic mass of 16.00, and it exists in the elemental form as diatomic molecules of O 2.Hydrogen atoms combine with oxygen atoms to form molecules in which 2 H atoms are bonded to 1 O atom in a substance with a chemical formula of H 2O (water). A substance such as H 2O that consists of a chemically bonded combination of two or more elements is called a chemical compound . In the chemical formula for water the letters H and O are the chemical symbols of the two elements in the compound and the subscript 2 indicates that there are 2 H atoms per O atom. (The absence of a subscript after the O denotes the presence of just 1 O atom in the molecule.).As shown in Figure 28.6, each of the hydrogen atoms in the water molecule is connected to the oxygen atom by a chemical bond composed of two electrons shared between the hydrogen and oxygen atoms. For each bond one electron is contributed by the hydrogen and one by oxygen.The two dots located between each H and O in the Lewis formula of H 2O represent the two electrons in the covalent bond joining these atoms. Four of the electrons in the octet of electrons surrounding O are involved in H-O bonds and are called bonding electrons. The other four electrons shown around the oxygen that are not shared with H are nonbonding outer electrons.Molecular StructureAs implied by the representations of the water molecule in Figure 28.6, the atoms and bonds in H 2O form an angle somewhat greater than 90 degrees. Theshapes of molecules are referred to as their molecular geometry , which is crucial in determining the chemical and toxicological activity of a compound and structure-activity relationships.H 2O O O HH H H ........O H H Lewis structure of waterHydrogen atoms and oxygen atoms bond together The chemical formula of the product, water,is H 2O.to form molecules in which 2 H atoms are attached to 1 O atom.Figure 28.6. Formation and Lewis formula of a chemical compound, water.Ionic BondsAs shown in Figure 28.7, the transfer of electrons from one atom to another produces charged species called ions . Positively charged ions are called cations and negatively charged ions are called anions . Ions that make up a solid compound are held together by ionic bonds in a crystalline lattice consisting of an ordered arrangement of the ions in which each cation is largely surrounded by anions and each anion by cations. The attracting forces of the oppositely charged ions in the crystalline lattice constitute ionic bonds in the compound.e -e -1010Mg 12+O 8+MgO The transfer of 2 electrons from amagnesium atom to an oxygen atom Mg 2+...........O 2-Formation of ionic MgO as shown by Lewis structures and symbols. In MgO, Mg has lost 2 electrons and is in the +2 oxidation state {Mg(II)}and O has gained 2 electrons and is in the -2 oxidation state.yields Mg 2+ and O 2- ions that are bonded together by ionic bonds in the compound MgO.Mg 2+ ion O 2- ion Figure 28.7. Ionic bonds are formed by the transfer of electrons and the mutual attraction of oppositely charged ions in a crystalline lattice.The formation of magnesium oxide is shown in Figure 28.7. In naming this compound, the cation is simply given the name of the element from which it was formed, magnesium. However, the ending of the name of the anion, ox ide , is different from that of the element from which it was formed, ox ygen .Rather than individual atoms that have lost or gained electrons, many ions are groups of atoms bonded together covalently and having a net charge. A common example of such an ion is the ammonium ion, NH 4+,:....:H N H H H +Lewis formula of the ammonium ionwhich consists of 4 hydrogen atoms covalently bonded to a single nitrogen (N) atom and having a net electrical charge of +1 for the whole cation, as shown by its Lewis formula above.Summary of Chemical Compounds and the Ionic BondThe preceding several pages have just covered some material on chemical com-pounds and bonds that are essential to understand chemistry. To summarize, these are the following:•Atoms of two or more different elements can form chemical bonds with each other to yield a product that is entirely different from the elements.•Such a substance is called a chemical compound .•The formula of a chemical compound gives the symbols of the elements and uses subscripts to show the relative numbers of atoms of each element in the compound.•Molecules of some compounds are held together by covalent bonds consisting of shared electrons.•Another kind of compound consists of ions composed of electrically charged atoms or groups of atoms held together by ionic bonds that exist because of the mutual attraction of oppositely charged ions.Molecular MassThe average mass of all molecules of a compound is its molecular mass (formerly called molecular weight). The molecular mass of a compound is calculated by multiplying the atomic mass of each element by the relative number of atoms of the element, then adding all the values obtained for each element in the compound.For example, the molecular mass of NH 3 is 14.0 + 3 x 1.0 = 17.0. As another example consider the following calculation of the molecular mass of ethylene, C 2H 4.1.The chemical formula of the compound is C 2H 4.2.Each molecule of C 2H 4 consists of 2 C atoms and 4 H atoms.3.From the periodic table or Table 28.2, the atomic mass of C is 12.0 andthat of H is 1.0.4.Therefore, the molecular mass of C2H4 is12.0 + 12.0 + 1.0 + 1.0 + 1.0 + 1.0 = 28.0.From 2 C atoms From 4 H atomsOxidation StateThe loss of two electrons from the magnesium atom as shown in Figure 28.7 is an example of oxidation, and the Mg2+ ion product is said to be in the +2 oxidation state. (A positive oxidation state or oxidation number is conventionally denoted by a Roman numeral in parentheses following the name or symbol of an element as in magnesium(II) and Mg(II)). In gaining 2 negatively charged electrons in the reaction that produces magnesium oxide, the oxygen atom is reduced and is in the -2 oxidation state. (Unlike positive oxidation numbers, negative ones are not conventionally shown by Roman numerals in parentheses.) In chemical terms an oxidizer is a species that takes electrons from a reducing agent in a chemical reaction. Many hazardous waste substances are oxidizers or strong reducers and oxidation/reduction is the driving force behind many dangerous chemical reactions. For example, the reducing tendencies of the carbon and hydrogen atoms in propane cause it to burn violently or explode in the presence of oxidizing oxygen in air. The oxidizing ability of concentrated nitric acid, HNO3, enables it to react destructively with organic matter, such as cellulose or skin.Covalently bonded atoms that have not actually lost or gained electrons to produce ions are also assigned oxidation states. This can be done because in covalent compounds electrons are not shared equally. Therefore, an atom of an element with a greater tendency to attract electrons is assigned a negative oxidation number compared to the positive oxidation number assigned to an element with a lesser tendency to attract electrons. For example, Cl atoms attract electrons more strongly than do H atoms so that in hydrogen chloride gas, HCl, the Cl atom is in the -1 oxidation state and the H atoms are in the +1 oxidation state. Electronegativity values are assigned to elements on the basis of their tendencies to attract electrons.The oxidation state (oxidation number) of an element in a compound may have a strong influence on the hazards posed by the compound. For example, chromium from which each atom has lost 3 electrons to form a chemical compound, designated as chromium(III) or Cr(III), is not toxic, whereas chromium in the +6 oxidation state (CrO42-, chromate) is regarded as a cancer-causing chemical when inhaled.28.4. CHEMICAL REACTIONS AND EQUATIONSChemical reactions occur when substances are changed to other substances through the breaking and formation of chemical bonds. For example, water is produced by the chemical reaction of hydrogen and oxygen:Hydrogen plus oxygen yields waterChemical reactions are written as chemical equations. The chemical reaction between hydrogen and water is written as the balanced chemical equation2H2 + O2→ 2H2O(28.4.1)in which the arrow is read as “yields” and separates the hydrogen and oxygen reactants from the water product. Note that because elemental hydrogen and elemental oxygen occur as diatomic molecules of H2 and O2, respectively, it is necessary to write the equation in a way that reflects these correct chemical formulas of the elemental form. All correctly written chemical equations are balanced in that the same number of each kind of atom must be shown on both sides of the equation. The equation above is balanced because of the following:On the left•There are 2 H2molecules each containing 2 H atoms for a total of 4 Hatoms on the left.•There is 1 O2molecule containing 2 O atoms for a total of 2 O atoms onthe left.On the right•There are 2 H2O molecules each containing 2 H atoms and 1 O atom fora total of 4 H atoms and 2 O atoms on the right.Reaction RatesMost chemical reactions give off heat and are classified as exothermic reactions. The rate of a reaction may be calculated by the Arrhenius equation, which contains absolute temperature (K = ˚C + 273) in an exponential term. As a general rule the speed of a reaction doubles for each 10˚C increase in temperature. Reaction rate factors are important factors in fires or explosions involving hazardous chemicals.28.5. SOLUTIONSA liquid solution is formed when a substance in contact with a liquid becomes dispersed homogeneously throughout the liquid in a molecular form. The substance, called a solute, is said to dissolve. The liquid is called a solvent. There may be no readily visible evidence that a solute is present in the solvent; for example, a deadly poisonous solution of sodium cyanide in water looks like pure water. The solution may have a strong color, as is the case for intensely purple solutions of potassium permanganate, KMnO4. It may have a strong odor, such as that of ammonia, NH3, dissolved in water. Solutions may consist of solids, liquids, or gases dissolved in a solvent. Technically, it is even possible to have solutions in which a solid is a solvent, although such solutions are not discussed in this book.Solution ConcentrationThe quantity of solute relative to that of solvent or solution is called the solution concentration . Concentrations are expressed in numerous ways. Very high concen-trations are often given as percent by weight. For example, commercial concentrated hydrochloric acid is 36% HCl, meaning that 36% of the weight has come from dissolved HCl and 64% from water solvent. Concentrations of very dilute solutions,such as those of hazardous waste leachate containing low levels of contaminants, are expressed as weight of solute per unit volume of solution. Common units are milli-grams per liter (mg/L) or micrograms per liter (µg/L). Since a liter of water weighs essentially 1,000 grams, a concentration of 1 mg/L is equal to 1 part per million (ppm) and a concentration of 1 µg/L is equal to l part per billion (ppb).Chemists often express concentrations in moles per liter, or molarity , M. Molar-ity is given by the relationshipM = Number of moles of solute (28.5.1)Number of liters of solution The number of moles of a substance is its mass in grams divided by its molar mass.For example, the molecular mass of ammonia, NH 3, is 14 + 1 + 1 +1, so a mole of ammonia has a mass of 17 g. Therefore, 17 g of NH 3 in 1 L of solution has a value of M equal to 1 mole/L.Water as a SolventMost liquid wastes are solutions or suspensions of waste materials in water.Water has some unique properties as a solvent which arise from its molecular structure as represented by the Lewis structure of water below:(-)(+)HH O ........The H atoms are not on opposite sides of the O atom and the two H–O bonds form an angle of 105˚. Furthermore, the O atom (-2 oxidation state) is able to attract electrons more strongly than the 2 H atoms (each in the +1 oxidation state) so that the molecule is polar , with the O atom having a partial negative charge and the end of the molecule with the 2 H atoms having a partial positive charge. This means that water molecules can cluster around ions with the positive ends of the water molecules attracted to negatively charged anions and the negative end to positively charged cations. This kind of interaction is part of the general phenomenon of solvation . It is specifically called hydration when water is the solvent and is partially responsible for water’s excellent ability to dissolve ionic compounds including acids, bases, and salts.Water molecules form a special kind of bond called a hydrogen bond with each other and with solute molecules that contain O, N, or S atoms. As its name implies, a hydrogen bond involves a hydrogen atom held between two other atoms of O, N, or S. Hydrogen bonding is partly responsible for water’s ability to solvate and dissolve chemical compounds capable of hydrogen bonding.。
Ch04Hedging Strategies Using Futures(期权,期货和其他衍生物-第五版)
4.12
Reasons for Hed be out of the market for a short period of time. (Hedging may be cheaper than selling the portfolio and buying it back.) • Desire to hedge systematic risk (Appropriate when you feel that you have picked stocks that will outpeform the market.)
Fundamentals of Futures and Options Markets, 4th edition © 2001 by John C. Hull
4.14
Changing Beta
• What position is necessary to reduce the beta of the portfolio to 0.75? • What position is necessary to increase the beta of the portfolio to 2.0?
b A
• where P is the value of the portfolio, b is its beta, and A is the value of the assets underlying one futures contract
Fundamentals of Futures and Options Markets, 4th edition © 2001 by John C. Hull
Fundamentals of Futures and Options Markets, 4th edition © 2001 by John C. Hull
HullOFOD9eSolutionsCh04第九版期权、期货及其他衍生品课后答案
CHAPTER 4 Interest RatesPractice QuestionsProblem 4.1.A bank quotes you an interest rate of 14% per annum with quarterly compounding. What is the equivalent rate with (a) continuous compounding and (b) annual compounding?(a) The rate with continuous compounding is0144ln 1013764.⎛⎫+=. ⎪⎝⎭or 13.76% per annum.(b) The rate with annual compounding is401411014754.⎛⎫+-=. ⎪⎝⎭or 14.75% per annum.Problem 4.2.What is meant by LIBOR and LIBID. Which is higher?LIBOR is the London InterBank Offered Rate. It is calculated daily by the British Bankers Association and is the rate a AA-rated bank requires on deposits it places with other banks. LIBID is the London InterBank Bid rate. It is the rate a bank is prepared to pay on deposits from other AA-rated banks. LIBOR is greater than LIBID.Problem 4.3.The six-month and one-year zero rates are both 10% per annum. For a bond that has a life of 18 months and pays a coupon of 8% per annum (with semiannual payments and one having just been made), the y ield is 10.4% per annum. What is the bond’s price? What is the 18-month zero rate? All rates are quoted with semiannual compounding.Suppose the bond has a face value of $100. Its price is obtained by discounting the cash flows at 10.4%. The price is23441049674105210521052++=....If the 18-month zero rate is R , we must have23441049674105105(12)R ++=...+/ which gives 1042R =.%.Problem 4.4.An investor receives $1,100 in one year in return for an investment of $1,000 now. Calculate the percentage return per annum with a) annual compounding, b) semiannual compounding, c) monthly compounding and d) continuous compounding.(a) With annual compounding the return is11001011000-=.or 10% per annum.(b) With semi-annual compounding the return is R where21000111002R ⎛⎫+= ⎪⎝⎭i.e.,1104882R+==. so that 00976R =.. The percentage return is therefore 9.76% per annum.(c) With monthly compounding the return is R where1210001110012R ⎛⎫+= ⎪⎝⎭i.e.1110079712R ⎛⎫+==. ⎪⎝⎭so that 00957R =.. The percentage return is therefore 9.57% per annum.(d) With continuous compounding the return is R where: 10001100R e =i.e., 11R e =.so that ln1100953R =.=.. The percentage return is therefore 9.53% per annum.Problem 4.5.Suppose that zero interest rates with continuous compounding are as follows:Calculate forward interest rates for the second, third, fourth, fifth, and sixth quarters.The forward rates with continuous compounding are as follows toProblem 4.6.Assume that a bank can borrow or lend at the rates in Problem 4.5. what is the value of an FRA where it will earn 9.5% for a three-month period starting in one year on a principal of $1,000,000? The interest rate is expressed with quarterly compounding.The forward rate is 9.0% with continuous compounding or 9.102% with quarterly compounding. From equation (4.9), the value of the FRA is therefore 0086125[1000000025(0095009102)]89356e -.⨯.,,⨯.⨯.-.=. or $893.56.Problem 4.7.The term structure of interest rates is upward sloping. Put the following in order of magnitude:(a) The five-year zero rate(b) The yield on a five-year coupon-bearing bond(c) The forward rate corresponding to the period between 4.75 and 5 years inthe futureWhat is the answer to this question when the term structure of interest rates is downward sloping?When the term structure is upward sloping, c a b >>. When it is downward sloping, b a c >>.Problem 4.8.What does duration tell you about the sensitivity of a bond portfolio to interest rates? What are the limitations of the duration measure?Duration provides information about the effect of a small parallel shift in the yield curve on the value of a bond portfolio. The percentage decrease in the value of the portfolio equals the duration of the portfolio multiplied by the amount by which interest rates are increased in the small parallel shift. The duration measure has the following limitation. It applies only to parallel shifts in the yield curve that are small.Problem 4.9.What rate of interest with continuous compounding is equivalent to 15% per annum with monthly compounding?The rate of interest is R where:12015112Re .⎛⎫=+ ⎪⎝⎭i.e.,01512ln 112R .⎛⎫=+ ⎪⎝⎭01491=.The rate of interest is therefore 14.91% per annum.Problem 4.10.A deposit account pays 12% per annum with continuous compounding, but interest is actually paid quarterly. How much interest will be paid each quarter on a $10,000 deposit?The equivalent rate of interest with quarterly compounding is R where401214R e .⎛⎫=+ ⎪⎝⎭or 0034(1)01218R e .=-=.The amount of interest paid each quarter is therefore:0121810000304554.,⨯=.or $304.55.Problem 4.11.Suppose that 6-month, 12-month, 18-month, 24-month, and 30-month zero rates are 4%,4.2%, 4.4%, 4.6%, and 4.8% per annum with continuous compounding respectively. Estimate the cash price of a bond with a face value of 100 that will mature in 30 months and pays a coupon of 4% per annum semiannually.The bond pays $2 in 6, 12, 18, and 24 months, and $102 in 30 months. The cash price is 004050042100044150046200482522221029804e e e e e -.⨯.-.⨯.-.⨯.-.⨯-.⨯.++++=.Problem 4.12.A three-year bond provides a coupon of 8% semiannually and has a cash price of 104. What is the bond’s yield?The bond pays $4 in 6, 12, 18, 24, and 30 months, and $104 in 36 months. The bond yield is the value of y that solves 05101520253044444104104y y y y y y e e e e e e -.-.-.-.-.-.+++++= Using the Solver or Goal Seek tool in Excel, 006407y =. or 6.407%.Problem 4.13.Suppose that the 6-month, 12-month, 18-month, and 24-month zero rates are 5%, 6%, 6.5%, and 7% respectively. What is the two-year par yield?Using the notation in the text, 2m =, 007208694d e -.⨯==.. Also 00505006100065150072036935A e e e e -.⨯.-.⨯.-.⨯.-.⨯.=+++=. The formula in the text gives the par yield as(10010008694)2707236935-⨯.⨯=..To verify that this is correct we calculate the value of a bond that pays a coupon of 7.072% per year (that is 3.5365 every six months). The value is 0050500610006515007203536353653536103536100e e e e -.⨯.-.⨯.-.⨯.-.⨯..+.+.+.= verifying that 7.072% is the par yield.Problem 4.14.Suppose that zero interest rates with continuous compounding are as follows:Calculate forward interest rates for the second, third, fourth, and fifth years.The forward rates with continuous compounding are as follows: Year 2: 4.0% Year 3: 5.1% Year 4: 5.7% Year 5: 5.7%Problem 4.15.Suppose that the 9-month and 12-month LIBOR rates are 2% and 2.3%, respectively. What is the forward LIBOR rate for the period between 9 months and 12 months? What is the value of an FRA where 3% is received and LIBOR is paid on $10 million for the period? All rates are quarterly compounded. Assume that LIBOR is used as the risk-free discount rate.The 9 month and 12 month rates are 0.5% per quarter and 0.575% per quarter. If the forward LIBOR rate is R with quarterly compounding we must have (1.0053)×(1+R /4)=1.005754 so that R =3.201%. We value the FRA by assuming that the forward LIBOR will be realized. The value of the FRA is 10,000,000×(0.03−0.03201)×0.25/(1.00575)4 = −$4,919.47Problem 4.16.A 10-year, 8% coupon bond currently sells for $90. A 10-year, 4% coupon bond currently sells for $80. What is the 10-year zero rate? (Hint: Consider taking a long position in two of the 4% coupon bonds and a short position in one of the 8% coupon bonds.)Taking a long position in two of the 4% coupon bonds and a short position in one of the 8% coupon bonds leads to the following cash flowsYear 09028070Year 10200100100:-⨯=-:-=because the coupons cancel out. $100 in 10 years time is equivalent to $70 today. The 10-year rate,R , (continuously compounded) is therefore given by 1010070R e =The rate is1100=.ln003571070or 3.57% per annum.Problem 4.17.Explain carefully why liquidity preference theory is consistent with the observation that the term structure of interest rates tends to be upward sloping more often than it is downward sloping.If long-term rates were simply a reflection of expected future short-term rates, we would expect the term structure to be downward sloping as often as it is upward sloping. (This is based on the assumption that half of the time investors expect rates to increase and half of the time investors expect rates to decrease). Liquidity preference theory argues that long term rates are high relative to expected future short-term rates. This means that the term structure should be upward sloping more often than it is downward sloping.Problem 4.18.“When the zero curve is upward sl oping, the zero rate for a particular maturity is greater than the par yield for that maturity. When the zero curve is downward sloping, the reverse is true.” Explain why this is so.The par yield is the yield on a coupon-bearing bond. The zero rate is the yield on azero-coupon bond. When the yield curve is upward sloping, the yield on an N-year coupon-bearing bond is less than the yield on an N-year zero-coupon bond. This is because the coupons are discounted at a lower rate than the N-year rate and drag the yield down below this rate. Similarly, when the yield curve is downward sloping, the yield on anN-year coupon bearing bond is higher than the yield on an N-year zero-coupon bond.Problem 4.19.Why are US Treasury rates significantly lower than other rates that are close to risk free?There are three reasons (see Business Snapshot 9.1).1.Treasury bills and Treasury bonds must be purchased by financial institutions to fulfill avariety of regulatory requirements. This increases demand for these Treasury instruments driving the price up and the yield down.2.The amount of capital a bank is required to hold to support an investment in Treasurybills and bonds is substantially smaller than the capital required to support a similarinvestment in other very-low-risk instruments.3.In the United States, Treasury instruments are given a favorable tax treatment comparedwith most other fixed-income investments because they are not taxed at the state level.Problem 4.20.Why does a loan in the repo market involve very little credit risk?A repo is a contract where an investment dealer who owns securities agrees to sell them to another company now and buy them back later at a slightly higher price. The other company is providing a loan to the investment dealer. This loan involves very little credit risk. If the borrower does not honor the agreement, the lending company simply keeps the securities. If the lending company does not keep to its side of the agreement, the original owner of thesecurities keeps the cash.Problem 4.21.Explain why an FRA is equivalent to the exchange of a floating rate of interest for a fixed rate of interest?A FRA is an agreement that a certain specified interest rate, K R , will apply to a certainprincipal, L , for a certain specified future time period. Suppose that the rate observed in the market for the future time period at the beginning of the time period proves to be M R . If the FRA is an agreement that K R will apply when the principal is invested, the holder of the FRA can borrow the principal at M R and then invest it at K R . The net cash flow at the end of the period is then an inflow of K R L and an outflow of M R L . If the FRA is an agreement that K R will apply when the principal is borrowed, the holder of the FRA can invest the borrowed principal at M R . The net cash flow at the end of the period is then an inflow of M R L and an outflow of K R L . In either case we see that the FRA involves the exchange of a fixed rate of interest on the principal of L for a floating rate of interest on the principal.Problem 4.22.A five-year bond with a yield of 11% (continuously compounded) pays an 8% coupon at the end of each year.a) What is the bond’s price? b) What is the bond’s duration?c) Use the duration to calculate the effect on the bond’s price of a 0.2% decrease in its yield.d) Recalculate the bond’s price on the basis of a 10.8% per annum yield and verify that the result is in agreement with your answer to (c).a) The bond’s price is 011011201130114011588881088680e e e e e -.-.⨯-.⨯-.⨯-.⨯++++=.b) The bond’s duration is01101120113011401151828384851088680e e e e e -.-.⨯-.⨯-.⨯-.⨯⎡⎤⎢⎥⎣⎦+⨯+⨯+⨯+⨯. 4256years =.c) Since, with the notation in the chapter B BD y ∆=-∆the effect on the bond’s price of a 0.2% decrease in its yield is868042560002074.⨯.⨯.=. The bond’s price should increase from 86.80 to 87.54.d) With a 10.8% yield the bond’s price is 01080108201083010840108588881088754e e e e e -.-.⨯-.⨯-.⨯-.⨯++++=.This is consistent with the answer in (c).Problem 4.23.The cash prices of six-month and one-year Treasury bills are 94.0 and 89.0. A 1.5-year bond that will pay coupons of $4 every six months currently sells for $94.84. A two-year bond that will pay coupons of $5 every six months currently sells for $97.12. Calculate the six-month, one-year, 1.5-year, and two-year zero rates.The 6-month Treasury bill provides a return of 6946383%/=. in six months. This is 2638312766%⨯.=. per annum with semiannual compounding or 2ln(106383)1238%.=. per annum with continuous compounding. The 12-month rate is 118912360%/=. with annual compounding or ln(11236)1165%.=. with continuous compounding. For the 112 year bond we must have012380501165115441049484R e e e -.⨯.-.⨯-.++=. where R is the 112year zero rate. It follows that15153763561049484084150115R R e e R -.-..+.+=.=.=.or 11.5%. For the 2-year bond we must have 012380501165101151525551059712R e e e e -.⨯.-.⨯-.⨯.-+++=. where R is the 2-year zero rate. It follows that2079770113R e R -=.=.or 11.3%.Problem 4.24.“An interest rate swap where six -month LIBOR is exchanged for a fixed rate 5% on aprincipal of $100 million for five years is a portfolio of nine FRAs.” Explain this statement.Each exchange of payments is an FRA where interest at 5% is exchanged for interest atLIBOR on a principal of $100 million. Interest rate swaps are discussed further in Chapter 7.Further QuestionsProblem 4.25.When compounded annually an interest rate is 11%. What is the rate when expressed with (a) semiannual compounding, (b) quarterly compounding, (c) monthly compounding, (d) weekly compounding, and (e) daily compounding.We must solve 1.11=(1+R /n )n where R is the required rate and the number of times per year the rate is compounded. The answers are a) 10.71%, b) 10.57%, c) 10.48%, d) 10.45%, e) 10.44%Problem 4.26.The following table gives Treasury zero rates and cash flows on a Treasury bond:Zero rates are continuously compounded(a) What is the bond’s theoretical price?(b) What is the bond’s yield?The bond’s theoretical price is20×e-0.02×0.5+20×e-0.023×1+20×e-0.027×1.5+1020×e-0.032×2 = 1015.32The bond’s yield assuming that it sells for its theoretical price is obtained by solving20×e-y×0.5+20×e-y×1+20×e-y×1.5+1020×e-y×2 = 1015.32It is 3.18%.Problem 4.27. (Excel file)A five-year bond provides a coupon of 5% per annum payable semiannually. Its price is 104. What is the bond's yield? You may find Excel's Solver useful.The answer (with continuous compounding) is 4.07%Problem 4.28. (Excel file)Suppose that LIBOR rates for maturities of one month, two months, three months, four months, five months and six months are 2.6%, 2.9%, 3.1%, 3.2%, 3.25%, and 3.3% with continuous compounding. What are the forward rates for future one month periods?The forward rates for the second, third, fourth, fifth and sixth months are (see spreadsheet) 3.2%, 3.5%, 3.5%, 3.45%, 3.55%, respectively with continuous compounding.Problem 4.29.A bank can borrow or lend at LIBOR. The two-month LIBOR rate is 0.28% per annum with continuous compounding. Assuming that interest rates cannot be negative, what is the arbitrage opportunity if the three-month LIBOR rate is 0.1% per year with continuous compounding? How low can the three-month LIBOR rate become without an arbitrage opportunity being created?The forward rate for the third month is 0.001×3 − 0.0028×2 = − 0.0026 or − 0.26%. If we assume that the rate for the third month will not be negative we can borrow for three months, lend for two months and lend at the market rate for the third month. The lowest level for the three-month rate that does not permit this arbitrage is 0.0028×2/3 = 0.001867 or 0.1867%. Problem 4.30.A bank can borrow or lend at LIBOR. Suppose that the six-month rate is 5% and thenine-month rate is 6%. The rate that can be locked in for the period between six months and nine months using an FRA is 7%. What arbitrage opportunities are open to the bank? All rates are continuously compounded.The forward rate is08.025.050.005.075.006.0=⨯-⨯or 8%. The FRA rate is 7%. A profit can therefore be made by borrowing for six months at 5%, entering into an FRA to borrow for the period between 6 and 9 months for 7% and lending for nine months at 6%.Problem 4.31.An interest rate is quoted as 5% per annum with semiannual compounding. What is theequivalent rate with (a) annual compounding, (b) monthly compounding, and (c) continuous compounding?a) With annual compounding the rate is 2102510050625.-=. or 5.0625%b) With monthly compounding the rate is 1612(10251)004949/⨯.-=. or 4.949%. c) With continuous compounding the rate is 2ln1025004939⨯.=.or 4.939%.Problem 4.32.The 6-month, 12-month. 18-month, and 24-month zero rates are 4%, 4.5%, 4.75%, and 5% with semiannual compounding.a) What are the rates with continuous compounding?b) What is the forward rate for the six-month period beginning in 18 monthsc) What is the value of an FRA that promises to pay you 6% (compounded semiannually) on a principal of $1 million for the six-month period starting in 18 months?a) With continuous compounding the 6-month rate is 2ln1020039605.=. or 3.961%. The 12-month rate is 2ln102250044501.=. or 4.4501%. The 18-month rate is2ln1023750046945.=. or 4.6945%. The 24-month rate is 2ln10250049385.=. or 4.9385%.b) The forward rate (expressed with continuous compounding) is from equation (4.5)493852469451505.⨯-.⨯..or 5.6707%. When expressed with semiannual compounding this is 0056707052(1)0057518e .⨯.-=. or 5.7518%.c) The value of an FRA that promises to pay 6% for the six month period starting in 18 months is from equation (4.9) 004938521000000(0060057518)051124e -.⨯,,⨯.-.⨯.=, or $1,124.Problem 4.33.What is the two-year par yield when the zero rates are as in Problem 4.32? What is the yield on a two-year bond that pays a coupon equal to the par yield?The value, A of an annuity paying off $1 every six months is 003960505004450110046945150049385237748e e e e -.⨯.-.⨯-.⨯.-.⨯+++=.The present value of $1 received in two years,d , is 00493852090595e -.⨯=.. From the formula in Section 4.4 the par yield is(100100090595)2498337748-⨯.⨯=..or 4.983%. By definition this is also the yield on a two-year bond that pays a coupon equal tothe par yield.Problem 4.34.The following table gives the prices of bonds*Half the stated coupon is paid every six monthsa) Calculate zero rates for maturities of 6 months, 12 months, 18 months, and 24 months.b) What are the forward rates for the periods: 6 months to 12 months, 12 months to 18 months, 18 months to 24 months?c) What are the 6-month, 12-month, 18-month, and 24-month par yields for bonds that provide semiannual coupon payments?d)Estimate the price and yield of a two-year bond providing a semiannual coupon of 7% per annum.a) The zero rate for a maturity of six months, expressed with continuous compounding is 2ln(1298)40405%+/=.. The zero rate for a maturity of one year, expressed with continuous compounding is ln(1595)51293+/=.. The 1.5-year rate is R where 004040505005129311531311031101R e e e -.⨯.-.⨯-⨯..+.+.=The solution to this equation is 0054429R =.. The 2.0-year rate is R where 004040505005129310054429152444104104R e e e e -.⨯.-.⨯-.⨯.-⨯+++=The solution to this equation is 0058085R =.. These results are shown in the table belowb) The continuously compounded forward rates calculated using equation (4.5) are shown in the third column of the tablec) The par yield, expressed with semiannual compounding, can be calculated from the formula in Section 4.4. It is shown in the fourth column of the table. In the fifth column of the table it is converted to continuous compoundingd) The price of the bond is 0040405050051293100544291500580852353535103510213e e e e -.⨯.-.⨯-.⨯.-.⨯.+.+.+.=. The yield on the bond, y satisfies05101520353535103510213y y y y e e e e -⨯.-⨯.-⨯.-⨯..+.+.+.=.The solution to this equation is 0057723y =.. The bond yield is therefore 5.7723%.Problem 4.35.Portfolio A consists of a one-year zero-coupon bond with a face value of $2,000 and a 10-year zero-coupon bond with a face value of $6,000. Portfolio B consists of a 5.95-year zero-coupon bond with a face value of $5,000. The current yield on all bonds is 10% per annum.(a) Show that both portfolios have the same duration.(b) Show that the percentage changes in the values of the two portfolios for a 0.1% per annum increase in yields are the same.(c) What are the percentage changes in the values of the two portfolios for a 5% per annum increase in yields?a) The duration of Portfolio A is011011001101101200010600059520006000e e e e -.⨯-.⨯-.⨯-.⨯⨯+⨯=.+ Since this is also the duration of Portfolio B, the two portfolios do have the same duration.b) The value of Portfolio A is 01011020006000401695e e -.-.⨯+=. When yields increase by 10 basis points its value becomes 010101011020006000399318e e -.-.⨯+=. The percentage decrease in value is2377100059401695%.⨯=..The value of Portfolio B is 015955000275781e -.⨯.=.When yields increase by 10 basis points its value becomes 01015955000274145e -.⨯.=. The percentage decrease in value is1636100059275781%.⨯=..The percentage changes in the values of the two portfolios for a 10 basis point increase in yields are therefore the same.c) When yields increase by 5% the value of Portfolio A becomes 0150151020006000306020e e -.-.⨯+=. and the value of Portfolio B becomes 0155955000204815e -.⨯.=.The percentage reductions in the values of the two portfolios are:95675Portfolio A 100238240169570966Portfolio B 1002573275781.:⨯=...:⨯=..Since the percentage decline in value of Portfolio A is less than that of Portfolio B, Portfolio A has a greater convexity.Problem 4.36.Verify that DerivaGem 3.00 agrees with the price of the bond in Section 4.4. Test how well DV01 predicts the effect of a one-basis point increase in all rates. Estimate the duration of the bond from DV01. Use DV01 and Gamma to predict the effect of a 200 basis point increase in all rates. Use Gamma to estimate the bond's convexity. (Hint: In DerivaGem DV01 is dB/dy, where B is the price of the bond and y is the yield measured in basis points, and Gamma is d 2B/dy 2where y is measured in percent.)In the Bond_and_Swap_Price worksheet we input a principal of 100, a life of 2 years a coupon rate of 6% and semiannual settlement. The yield curve data from Table 4.2 is also input. The bond price is 98.38506. The DV01 is −0.018819. When the term structure rates are increased to 5.01, 5.81, 6.41, and 6.81 the bond price decreases to 98.36625. This is a reduction of 0.01881 which corresponds to the DV01. (The DV01 is actually calculated in DerivaGem by averaging the impact of a one-basis-point increase and a one-basis-point decrease.). The bond duration satisfiesy D BB∆-=∆ In this case ∆B = −0.01882, B = 98.38506, and ∆y = 0.0001 so that the duration is 10000×0.01882/98.38506 = 1.91 years.The impact of increasing all rates by 2% is to reduce the bond price by 3.691 to 94.694. The effect on price predicted by the DV01 is 200×−0.01881 or -3.7638. The gamma is 0.036931 per % per %.. In this case the change is 2%. From equation (4.18) the convexity correction gamma is therefore 0.5×0.036931×22= 0.0739The price change estimated using DV01 and gamma is therefore −3.7638+0.0739=3.690 which is very close to the actual change.The gamma is 0.036931 per % per %. Because 1% is 0.01, gamma is 10,000×0.036931. The convexity is gamma divided the bond price. This is 10,000×0.036931/98.38506 = 3.75.。
Ch02HullFundamentals9thEd
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Fundamentals of Futures and Options Markets, 9th Ed, Ch 2, Copyright © John C. Hull 2016
Settled daily
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Fundamentals of Futures and Options Markets, 9th Ed, Ch 2, Copyright © John C. Hull 2016
Convergence of Futures to Spot (Figure
2.1, page 28)
379,797 39,663 54,902 20,212 3,087
Fundamentals of Futures and Options Markets, 9th Ed, Ch 2, Copyright © John C. Hull 2016
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Delivery
If a futures contract is not closed out before maturity, it is usually settled by delivering the assets underlying the contract. When there are alternatives about what is delivered, where it is delivered, and when it is delivered, the party with the short position chooses. A few contracts (for example, those on stock indices and Eurodollars) are settled in cash When there is cash settlement contracts are traded until a predetermined time. All are then declared to be closed out.
跨国金融原理(第三版)题库 ch05
Fundamentals of Multinational Finance, 3e (Moffett)Chapter 5 The Foreign Exchange Market5.1 Multiple Choice and True/False Questions1) W hich of the following is NOT true regarding the market for foreign exchange?A) T he market provides the physical and institutional structure through which the moneyof one country is exchanged for another.B) T he rate of exchange is determined in the market.C) F oreign exchange transactions are physically completed in the foreign exchangemarket.D) A ll of the above are true.Answer: DTopic: I ntroduction to the Foreign Exchange MarketSkill: R ecognition2) A/An ________ is an agreement between a buyer and seller that a fixed amount of onecurrency will be delivered at a specified rate for some other currency.A) E urodollar transactionB) i mport/export exchangeC) f oreign exchange transactionD) i nterbank market transactionAnswer: CTopic: I ntroduction to the Foreign Exchange MarketSkill: R ecognition3) W hile trading in foreign exchange takes place worldwide, the major currency trading centersare located inA) L ondon, New York, and Tokyo.B) N ew York, Zurich, and Bahrain.C) P aris, Frankfurt, and London.D) L os Angeles, New York, and London.Answer: ATopic: I ntroduction to the Foreign Exchange MarketSkill: R ecognition4) B ecause the market for foreign exchange is worldwide, the volume of foreign exchangecurrency transactions is level throughout the 24-hour day.Answer: FALSETopic: I ntroduction to the Foreign Exchange MarketSkill: R ecognition5) W hich of the following is NOT a motivation identified by the authors as a function of theforeign exchange market?A) T he transfer of purchasing power between countries.B) O btaining or providing credit for international trade transactions.C) M inimizing the risks of exchange rate changes.D) A ll of the above were identified as functions of the foreign exchange market.Answer: DTopic: F oreign Exchange Market FunctionsSkill: R ecognition6) T he authors identify two tiers of foreign exchange markets:A) b ank and nonbank foreign exchange.B) c ommercial and investment transactions.C) i nterbank and client markets.D) c lient and retail market.Answer: CTopic: F oreign Exchange Market TiersSkill: R ecognition7) T he foreign exchange market is NOT efficient becauseA) m arket participants do not compete with one another due to the fact that exchangetakes place around the world and not in a single centralized location.B) d ealers have ask prices that are higher than bid prices.C) c entral governments dominate the foreign exchange market and everybody knows thatby definition, central governments are inefficient.D) n one of the reasons listed are accurate because the foreign exchange market is efficient.Answer: DTopic: F oreign Exchange Market EfficiencySkill: C onceptual8) D ealers in foreign exchange departments at large international banks act as market makersand maintain inventories of the securities in which they specialize.Answer: TRUETopic: F oreign Exchange Market Dealers and BrokersSkill: R ecognition9) C urrency trading lacks profitability for large commercial and investment banks but ismaintained as a service for corporate and institutional customers.Answer: FALSETopic: F oreign Exchange Market ProfitabilitySkill: R ecognition10) I t is characteristic of foreign exchange dealers toA) b ring buyers and sellers of currencies together but never to buy and hold an inventoryof currency for resale.B) a ct as market makers, willing to buy and sell the currencies in which they specialize.C) t rade only with clients in the retail market and never operate in the wholesale marketfor foreign exchange.D) A ll of the above are characteristics of foreign exchange dealers.Answer: BTopic: F oreign Exchange Market DealersSkill: R ecognition11) W hich of the following may be participants in the foreign exchange markets?A) b ank and nonbank foreign exchange dealersB) c entral banks and treasuriesC) s peculators and arbitragersD) A ll of the above.Answer: DTopic: F oreign Exchange (FX) Market ParticipantsSkill: R ecognition12) ________ seek to profit from trading in the market itself rather than having the foreignexchange transaction being incidental to the execution of a commercial or investmenttransaction.A) S peculators and arbitragersB) F oreign exchange brokersC) C entral banksD) T reasuriesAnswer: ATopic: F oreign Exchange (FX) Market ParticipantsSkill: R ecognition13) I n the foreign exchange market, ________ seek all of their profit from exchange rate changeswhile ________ seek to profit from simultaneous exchange rate differences in different markets.A) w holesalers; retailersB) c entral banks; treasuriesC) s peculators; arbitragersD) d ealers; brokersAnswer: CTopic: F oreign Exchange (FX) Market ParticipantsSkill: R ecognition14) F oreign exchange ________ earn a profit by a bid-ask spread on currencies they purchaseand sell. Foreign exchange ________, on the other hand, earn a profit by bringing together buyers and sellers of foreign currencies and earning a commission on each sale andpurchase.A) c entral banks; treasuriesB) d ealers; brokersC) b rokers; dealersD) s peculators; arbitragersAnswer: BTopic: F oreign Exchange (FX) Market ParticipantsSkill: R ecognition15) T he primary motive of foreign exchange activities by most central banks is profit.Answer: FALSETopic: F oreign Exchange (FX) Market ParticipantsSkill: R ecognition16) D ealers sometimes use brokers in the foreign exchange market because the dealers desireA) s peed.B) a ccuracy.C) t o remain anonymous.D) a ll of the above.Answer: DTopic: F oreign Exchange (FX) Market ParticipantsSkill: R ecognition17) D aily trading volume in the foreign exchange market was about ________ per ________ in2007.A) $3,200 billion; monthB) $1,000 billion; monthC) $3,200 billion; dayD) $1,000 billion; dayAnswer: CTopic: F X Trading VolumeSkill: R ecognition18) D aily trading volume of foreign exchange had actually decreased in 2004 from the levelsreported in 2001.Answer: FALSETopic: F X Trading VolumeSkill: R ecognition19) ________ are NOT one of the three categories reported for foreign exchange.A) S pot transactionsB) S wap transactionsC) S trip transactionsD) F utures transactionsAnswer: CTopic: F X Trading VolumeSkill: R ecognition20) F oreign exchange swaps were larger in 1998 than in 2001. The Bank for InternationalSettlements attributes this toA) t he introduction of the euro.B) g rowing electronic brokering in the spot interbank market.C) c onsolidation in general.D) a ll of the above.Answer: DTopic: F X Trading VolumeSkill: R ecognition21) T he greatest amount of foreign exchange trading takes place in the following three cities:A) N ew York, London, and Tokyo.B) N ew York, Singapore, and Zurich.C) L ondon, Frankfurt, and Paris.D) L ondon, Tokyo, and Zurich.Answer: ATopic: F oreign Exchange Market LocationsSkill: R ecognition22) T he four currencies that constitute about 80% of all foreign exchange trading areA) U.K pound, Chinese yuan, euro, and Japanese yen.B) U.S. dollar, euro, Chinese yuan, and U.K. pound.C) U.S. dollar, Japanese yen, euro, and U.K. pound.D) U.S. dollar, U.K. pound, yen, and Chinese yuan.Answer: CTopic: F oreign Exchange Market CurrenciesSkill: R ecognition23) A ________ transaction in the foreign exchange market requires an almost immediatedelivery of foreign exchange.A) s potB) f orwardC) f uturesD) n one of the aboveAnswer: ATopic: F oreign Exchange Market TransactionsSkill: R ecognition24) A ________ transaction in the foreign exchange market requires delivery of foreign exchangeat some future date.A) s potB) f orwardC) s wapD) c urrencyAnswer: BTopic: F oreign Exchange Market TransactionsSkill: R ecognition25) A spot transaction in the interbank market for foreign exchange would typically involve atwo-day delay in the actual delivery of the currencies, while such a transaction between a bank and its commercial customer would not necessarily involve a two-day wait.Answer: TRUETopic: F oreign Exchange Market Spot TransactionsSkill: R ecognition26) A forward contract to deliver British pounds for U.S. dollars could be described either as________ or ________.A) b uying dollars forward; buying pounds forwardB) s elling pounds forward; selling dollars forwardC) s elling pounds forward; buying dollars forwardD) s elling dollars forward; buying pounds forwardAnswer: CTopic: F oreign Exchange Market Forward TransactionsSkill: R ecognition27) A common type of swap transaction in the foreign exchange market is the ________ wherethe dealer buys the currency in the spot market and sells the same amount back to the same bank in the forward market.A) ʺforward against spotʺB) ʺforspotʺC) ʺrepurchase agreementʺD) ʺspot against forwardʺAnswer: DTopic: F oreign Exchange Market SwapsSkill: R ecognition28) S wap and forward transactions account for an insignificant portion of the foreign exchangemarket.Answer: FALSETopic: F oreign Exchange Market SwapsSkill: R ecognition29) T he ________ is a derivative forward contract that was created in the 1990s. It has the samecharacteristics and documentation requirements as traditional forward contracts except that they are only settled in U.S. dollars and the foreign currency involved in the transaction is not delivered.A) n ondeliverable forwardB) d ollar only forwardC) v irtual forwardD) i nternet forwardAnswer: ATopic: F oreign Exchange Market DerivativesSkill: R ecognition30) W hich of the following is NOT true regarding nondeliverable forward (NDF) contracts?A) N DFs are used primarily for emerging market currencies.B) P ricing of NDFs reflects basic interest rate differentials plus an additional premiumcharged for dollar settlement.C) N DFs can only be traded by central banks.D) A ll of the above are true.Answer: CTopic: F oreign Exchange Market NDFsSkill: C onceptual31) A foreign exchange ________ is the price of one currency expressed in terms of anothercurrency. A foreign exchange ________ is a willingness to buy or sell at the announced rate.A) q uote; rateB) q uote; quoteC) r ate; quoteD) r ate; rateAnswer: CTopic: F oreign Exchange Market Rates and QuotesSkill: R ecognition32) M ost foreign exchange transactions are through the U.S. dollar. If the transaction isexpressed as the foreign currency per dollar this known as ________ whereas ________ are expressed as dollars per foreign unit.A) E uropean terms; indirectB) A merican terms; directC) A merican terms; European termsD) E uropean terms; American termsAnswer: DTopic: F oreign Exchange Market TermsSkill: R ecognition33) T he following is an example of an American term foreign exchange quote:A) $20/£.B) 0.85 euro/$.C) 100¥/euro.D) N one of the above.Answer: ATopic: F oreign Exchange Market TermsSkill: R ecognition34) T he European and American terms for foreign currency exchange are square roots of oneanother.Answer: FALSETopic: F oreign Exchange Market TermsSkill: R ecognition35) W ith several exceptions, most interbank quotes are stated in European terms (meaningforeign currency unit per U.S. dollar).Answer: TRUETopic: F oreign Exchange Market TermsSkill: R ecognition36) A merican and British meanings differ for the word billion. Therefore, when traders refer toan American billion, they call it a/an ________.A) K iwiB) L oonyC) U ncle SamD) Y ardAnswer: DTopic: B illionSkill: R ecognition37) M ajor exceptions to using European terms in foreign exchange includeA) t rading yen and euros.B) p ounds and euros.C) M exican Pesos and euros.D) a ll of the above.Answer: BTopic: F oreign Exchange TermsSkill: R ecognition38) F rom the viewpoint of a British investor, which of the following would be a direct quote inthe foreign exchange market?A) S F2.40/£B) $1.50/£C) £0.55/euroD) $0.90/euroAnswer: CTopic: D irect QuoteSkill: R ecognition39) A/an ________ quote in the United States would be foreign units per dollar, while a/an________ quote would be in dollars per foreign currency unit.A) d irect; directB) d irect; indirectC) i ndirect; indirectD) i ndirect; directAnswer: DTopic: D irect and Indirect QuotesSkill: R ecognition40) I f the direct quote for a U.S. investor for British pounds is $1.43/£, then the indirect quote forthe U.S. investor would be ________ and the direct quote for the British investor would be ________.A) £0.699/$; £0.699/$B) $0.699/£; £0.699/$C) £1.43/£; £0.699/$D) £0.699/$; $1.43/£Answer: ATopic: D irect QuoteSkill: A nalytical41) ________ make money on currency exchanges by the difference between the ________ price,or the price they offer to pay, and the ________ price, or the price at which they offer to sell the currency.A) D ealers; ask; bidB) D ealers; bid; askC) B rokers; ask; bidD) B rokers; bid; askAnswer: BTopic: D ealersSkill: R ecognitionTABLE 6.1Use the table to answer following question(s).42) R efer to Table 6.1. The current spot rate of dollars per pound as quoted in a newspaper is________ or ________.A) £1.4484/$; $0.6904/£B) $1.4481/£; £0.6906/$C) $1.4484/£; £0.6904/$D) £1.4487/$; $0.6903/£Answer: CTopic: S pot Rate CalculationSkill: A nalytical43) R efer to Table 6.1. The one-month forward bid price for dollars as denominated in Japaneseyen is ________.A) -¥20B) -¥18C) ¥129.74/$D) ¥129.62/$Answer: DTopic: F orward RateSkill: A nalytical44) R efer to Table 6.1. The ask price for the two-year swap for a British pound is ________.A) $1.4250/£B) $1.4257/£C) -$230D) -$238Answer: BTopic: S wap RatesSkill: A nalytical45) R efer to Table 6.1. According to the information provided in the table, the 6-month yen isselling at a forward ________ of approximately ________ per annum. (Use the mid rates to make your calculations.)A) d iscount; 2.09%B) d iscount; 2.06%C) p remium; 2.09%D) p remium; 2.06%Answer: CTopic: F orward Premium CalculationSkill: A nalytical46) R efer to Table 6.1. Cross ratesA) a re often reported in the form of a matrix in the financial newspapers.B) c an be used to check on opportunities for intermarket arbitrage.C) f or the spot market in the table are ⁵188.10/³ (using the mid rates).D) a re all of the above.Answer: DTopic: C ross RatesSkill: R ecognition47) G iven the following exchange rates, which of the multiple-choice choices represents apotentially profitable intermarket arbitrage opportunity?¥129.87/$euro 1.1226/$euro 0.00864/¥A) ¥115.69/euroB) ¥114.96/euroC) $0.8908/euroD) $0.0077/¥Answer: BTopic: C urrency ArbitrageSkill: A nalytical48) F or arbitrage opportunities to be practical,A) p articipants must have instant access to quotes.B) p articipants must have instant access to executions.C) b ank traders must be able to execute the arbitrage trades without an initial sum ofmoney relying on their bankʹs credit standing.D) a ll of the above must be true.Answer: DTopic: C urrency ArbitrageSkill: C onceptual49) T he U.S. dollar suddenly changes in value against the euro moving from an exchange rate of$0.8909/euro to $0.08709/euro. Thus, the dollar has ________ by ________.A) a ppreciated; 2.30%B) d epreciated; 2.30%C) a ppreciated; 2.24%D) d epreciated; 2.24%Answer: ATopic: F oreign ExchangeSkill: A nalytical50) W hen the cross rate for currencies offered by two banks differs from the exchange rateoffered by a third bank, a triangular arbitrage opportunity exists.Answer: TRUETopic: T riangular ArbitrageSkill: R ecognition51) M ost transactions in the interbank foreign exchange trading are primarily conducted viatelecommunication techniques and little is conducted face-to-face.Answer: TRUETopic: I nterbank Foreign ExchangeSkill: R ecognition52) G lobal daily foreign exchange turnover (combined swaps, spot, and forward transactions)has declined from roughly $1,500 billion in 2001, to $1,200 in 2004, to $1,000 in 2007.Answer: FALSETopic: D aily Foreign ExchangeSkill: R ecognition53) G iven the following pair wise exchange rates, estimate the cross-rate of pounds per euro.$0.8410/£ $1.2223/euroA) £1.000/euroB) £1.5062/euroC) £0.6639/euroD) e uro 1.5062/£Answer: CTopic: C ross RatesSkill: A nalytical54) G iven the following quotations (where the dollar is the home currency), what is theannualized forward premium (discount) on the U.S. dollar?Spot rate: $1.305/euro 6-month forward rate: $1.335/euroA) p remium; 4.4944%B) p remium; 4.5977%C) d iscount; 4.4944%D) d iscount; 4.5977%Answer: DTopic: C ross RatesSkill: A nalytical55) T he article in the text about an internʹs first day on the job as a currency trader relates howwhat he/she had learned in business school had very little to do with how trading decisionswere made on the floor of the exchange.Answer: TRUETopic: F oreign ExchangeSkill: R ecognition56) T he Continuous Linked Settlement system (CLS) links with the Real-Time Gross Settlement(RTGS) systems and is expected to eventually result in same-day settlement rather than thecurrent two-day settlement required for foreign exchange spot market transactions.Answer: TRUETopic: F oreign ExchangeSkill: R ecognition57) C urrency trading increased tremendously between 2004 and 2007 with daily trading volumejumping from $1.9 trillion to $3.2 trillion. Which of the following do experts think was amajor driving force behind the increased daily volume?A) i ncreased activity by specialized investment groups such as hedge fundsB) i nstitutional investors holding more internationally diversified portfolios thusrequiring more currency transactionsC) i ncreased use of technical computer-based tradingD) a ll of the aboveAnswer: DTopic: F oreign ExchangeSkill: R ecognition58) N ew York City has the greatest volume of foreign exchange activity in the world.Answer: FALSETopic: F oreign ExchangeSkill: R ecognition5.2 Essay Questions1) W hat are some of the reasons central banks and treasuries enter the foreign exchangemarkets, and in what important ways are they different from other foreign exchangeparticipants?Answer: Central banks and treasuries enter the foreign exchange market to acquire/spend their own foreign exchange reserves and to influence the price at which their own currencyis traded. Unlike other market participants, they are not profit oriented. Instead, theymay willingly take a loss if they think it is in their best national interest.2) D efine spot, forward, and swap transactions in the foreign exchange market and give an example of how each could be used.Answer: Spot transactions are exchanging one currency for another right now. Spot transactions are typically entered into because the parties need to exchange foreigncurrencies that they have received into their domestic currency, or because they havean obligation that requires them to obtain foreign currency.Forward foreign exchange transactions are agreements entered into today toexchange currencies at a particular price at some point in the future. Forwards may bespeculative or a hedge against unexpected changes in the price of the other currency.Swaps are the simultaneous purchase and sale of a given amount of a foreignexchange for two different dates. Both transactions are conducted with the samecounterparty. A swap may be considered a technique for borrowing another currencyon a fully collateralized basis.。
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Copyright 2000-2002 John Wiley & Sons, Inc.
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Present Value
The value today (at present) of a sum received at a future date discounted at the required rate of return.
PV = FV
1 (1 + i)
n
1 / (1+ i)n is the IFPV PV = FV x IFPV Given the time value of money, one is indifferent between the present value today or the future value received in the future.
1 1 1 i n PB C i F 1 i n
4-
Copyright 2000-2002 John Wiley & Sons, Inc.
Pricing Zero Coupon Bonds
Bonds that do not pay periodic interest payments are called zero-coupon bonds. Zero coupon bonds trade at a discount. The value of the "zero" bond is
Copyright 2000-2002 John Wiley & Sons, Inc.
4-11
Bond Yields
Bond yields are related to several risks.
– Credit or default risk is the chance that some part or all of the interest or principal payments will be delayed or not paid. – Reinvestment risk is the potential variability of market interest rates affecting the reinvestment rate of the periodic interest received resulting in an actual, realized rate different from the expected yield to maturity. – Price risk relates to the potential variability of the market price of the bond caused by a change in market interest rates.
» The estimates include the timing and size of each cash flow.
– An appropriate discount rate.
» The discount rate must reflect the risk of the asset.
Copyright 2000-2002 John Wiley & Sons, Inc.
Copyright 2000-2002 John Wiley & Sons, Inc.
4-9
Basic Bond Pricing Formula
The stream of coupon payments on a fixed rate bond is an annuity which allows the pricing of a bond with the following formula: PB = $Int (IFPVa) + $M (IFPV) Note: $M is the same as face value (F) $Int is the same as C
PB = Fn n (1 + i)
Fn is the maturity (face) value There is no reinvestment of coupon payments with zeros and thus, no reinvestment risk. The yield to maturity, i, is the actual yield received if held to maturity.
Copyright 2000-2002 John Wiley & Sons, Inc.
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Bond Yields (continued)
The yield to maturity is the investor's expected or promised yield if the bond is held to maturity and the cash flows are reinvested at the yield to maturity. Bond yields-to-maturity vary inversely with bond prices.
Copyright 2000-2002 John Wiley & Sons, Inc.
4-6
Valuing a Financial Asset
There are two necessary ingredients for valuing financial assets.
– Estimates of future cash flows.
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The Mechanics of Bond Pricing
A fixed-rate bond is a contract detailing the par value, the coupon rate, and maturity date. The coupon rate is close to the market rate of interest on similar bonds at the time of issuance. In a fixed-rate bond, the interest income remains fixed throughout the term (to maturity).
Copyright 2000-2002 John Wiley & Sons, Inc.
4-2
Time Value of Money (concluded)
With a positive time preference for consumption, investment means giving up consumption (opportunity cost). The opportunity cost of giving up consumption is known as the time value of money. It is the minimum rate of return required on a risk-free investment.
Copyright 2000-2002 John Wiley & Sons, Inc.
4-5
Present Value (concluded)
With risk present, a premium return may be added to the risk-free time value of money. The higher the risk or higher the interest rate, the lower the present value.
C1 C2 CN + F N PB = + + ... 1 2 N (1 + i) (1 + i) (1 + i)
– Ci is the coupon payment and Fn is the face value of the bond. – Cash flows are assumed to flow at the end of the period and are assumed to be reinvested at i. Bonds typically pay interest semiannually. – Increasing i decreases the price of the bond (PB).
Copyright 2000-2002 John Wilenics of Bond Pricing
(concluded)
The value of a bond is the present value of future contractual cash flows discounted at the market rate of interest.
Copyright 2000-2002 John Wiley & Sons, Inc.
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Bond Yields (continued)
Bond yields are market rates of return which equate the market price of the bond with the discounted expected cash flows of the bond. A bond yield measure should reflect all three cash flows from the bond and their timing: