国际金融chapter 1

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Note:
1.the second method is the reciprocal of the former; 2.when talking about a rise or fall in the exchange rate the meaning will be very different depending upon which definition is used.
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1.3.2 Participants
1.retail clients:be made up of businesses, international investors, multinational corporations and the like; not directly purchase or sell, rather placing buy/sell orders with the commercial banks.
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The teaching contents Teaching hour: 6×8=48 1,2,3,4,6,10 Self-study: 11,12,13,14,15,16,17
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The reference-book
1.Giancarlo Gandolfo,International Finance and Open-economy Macroeconomics, Springer,2002; 2.Thomas A. Pugel: International finance (Twelfth edition),中国人民大学出版社,2005 (1); 3.Joseph P. Daniels, David D. VanHoose: International monetary and financial economics(Third edition), 高等教育出版社, 2005(1);
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If actual rate: 1=1.50>1.4462, sell and buy depreciate and appreciate 1=(1.50+1.4462)/2=1.4731
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How to calculate the cross rate? Example 1: Suppose:￡1=$1.8440/80 1=￡0.8020/60 Please calculate $/. Solution: 1=$0.8020×1.8440/0.8060×1.8480 =$1.4789/1.4895
1.It is concerned with the monetary and macroeconomic relations between countries; 2.It is constantly evolving subject that deals very much with real world issues such as BOP problems and policy, the causes of exchangerate movements and the implications of macroeconomic linkages between economies.
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1.3 Characteristics and Participants of the Foreign Exchange Market 1.3.1 Characteristics 1.is a worldwide market; 2.is made up primarily of commercial banks,foreign exchange brokers and other authorized agents; 3. the most heavily traded currency is the US dollar-vehicle currency.
国际金融南开大学出版社2002年11月第一版
International Finance
Keith Pilbeam City University, London Palgrave(2006)
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The structure of the book Three parts: Part 1 The Balance of payments and macroeconomic policy in an open economy—1~5. Part 2 Exchange-rate determination: theory, evidence and policy—6~10. Part 3 The postwar international monetary system—11~17.
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1.3.3 Bulls and bears in the foreign exchange market
Speculators: bulls:expect a currency to appreciate in the future (bullish), and take a long position on the currency(buy long); bears:expect a currency depreciate in thห้องสมุดไป่ตู้ future(bearish),and take a short position on the currency(sell short).
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Table 1.2 Exchange rate quotations at close of business, 4 January 2005 (closing mid-points)
Foreign currency Per Euro zone 1.4169 United states United kingdom 1.8834 1.0000 Foreign currency Per $ 0.7522 1.0000 0.5310 Foreign currency Per 1.0000 1.3293 0.7058
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1.4 Arbitrage in the Foreign Exchange Market
Arbitrage:the exploitation of price differentials for riskless guaranteed profits. 1.Financial centre arbitrage: this type of arbitrage ensures that the exchange rate quoted in all the foreign exchange markets will be the same. Example: N:1=$1.89 L:1=$1.87 1=$1.88
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Part one
The Balance of payments and macroeconomic policy in an open economy
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Chapter 1
The foreign exchange market
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1.1 Introduction
The main contents of this chapter: 1.exchange-rate definitions→1.2; 2.various participants and the basic forces in the market 1.3~1.4; market→1.3~1.4; 3.various exchange-rate definitions and economic significance→1.5~1.6; 4.the determination of spot rate→1.7~1.8; 5.the determination of forward rate→1.9~1.10.
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1.2 Exchange-Rate Definitions
1.2.1 Exchange rate: the price of one currency in terms of another. 1.2.2 Two methods of expressing it: 1.Direct quotation system:domestic currency units per unit of foreign currency 2.Indirect quotation system:foreign currency units per unit of domestic currency
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mercial banks:buy/sell currencies on behalf of their customers or on their own account (proprietary trading). 3.foreign exchange brokers:often banks do not trade directly with one another, rather deal through foreign exchange brokers. 4.central banks: they normally buy and sell currency in the foreign exchange market to keep the external value of their currency stable.
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4.钱荣堃,陈平,马君潞:《国际金融》,南开 大学出版社,2002年11月第一版; 5.姜波克:《国际金融学》,高教出版社,1999 (1); 6.劳伦斯S科普兰:《汇率与国际金融》,中国 金融出版社,2002(3);
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The subject matter of International Finance
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1.2.3 The bid rate and the offer rate
The bid rate:the rate at which a bank will buy sterling. The offer rate:the rate at which the bank will sell sterling in exchange for dollars. The bid-offer spread:the difference between the bid rate and the offer rate.
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2.Cross currency arbitrage: this type of arbitrage ensures that there is no exchange rate differentials between the cross rate and the actual rate. Example: 1=$1.88,1=$1.30 cross rate: 1=1.88/1.30=1.4462
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Question: The us$/￡ quotation is ￡1=us$1.86601.8680. In this quotation, which one is the bid rate and which one is the offer rate? How many points is the bid-offer spread? If a export wants to exchange ￡1 into us$, how many us$ can he obtain?
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Example 2: Suppose:￡1=$1.8440/80 1=$1.4720/60 Please calculate ￡/. Solution: 1=￡1.4720÷1.8480/1.4760÷1.8440 =￡0.7965/0.8004
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How to arbitrage? Example 1: Suppose: N:1=$1.8920/80, L:1=$1.8720/80. One arbitrager trade with 1million￡, how much can he earn? Solution: $1.8920 1.8920/1.8780=1.0075 He can earn 7500.