利息率与汇率的关系

Movement
Confounding Effects
e f (INF , INT , INC, GC, EXP) where e percentage changein thespot rate INF changein thedifferenti al between U. S. inflation and theforeign country' s inflation INT changein thedifferenti al between th e U.S. interestrate and theforeign country' s interestrate INC changein thedifferenti al between th e U.S. incomelevel and theforeign country' s incomelevel GC changein government controls EXP changein expectatio ns of future exchangerates
Relative PPP
Derivation of PPP



ef = [(1+Ih)/(1+If)] – 1 ef = % change in foreign currency Ih = Inflation of home country If = Inflation of foreign country The formula reflects the relationship between relative inflation rates and exchange rates according to PPP If Ih > If, ef is positive, foreign currency will appreciate If Ih < If, ef is negative, foreign currency will depreciate
IFE
Derivation of IFE


ef = [(1 + iH)/(1 + iF)] – 1 ef is % in the value of foreign currency denominating the security iH is home interest rate iF is foreign interest rate iH > iF, ef will be positive because the relatively low foreign interest rate reflects low inflationary expectations in the foreign country, foreign currency will appreciate (forward premium) iH < iF, ef will be negative because the relatively high foreign interest rate reflects high inflationary expectations in the foreign country, foreign currency will depreciate (forward discount)
Confounding Effects
International Fisher Effect (IFE)

Uses interest rates rather than inflation differentials to explain exchange rate But it is closely related to PPP because interest rates are often highly correlated with inflation rates Fisher’s effect state: Real interest rate = Nominal interest rate minus expected inflation rate IFE suggests that currencies with high interest rates will have high inflation rates and therefore will be expected to depreciate Refer to p.244 for e.g. and Exhibit 8.5
Relationship Between Inflation, Interest Rates and Exchange Rates
Learning Outcomes
Learning outcomes for Lecture 7:
A. Discuss the purchasing power parity (PPP) theory and its implications for exchange rate changes B. Discuss the International Fisher effect (IFE) theory and its implications for exchange rate changes C. Compare the PPP theory, the IFE theory, and the theory of interest rate parity (IRP), which was introduced in the previous chapter

IFE
Comparison
IRP
Summary
Theory IRP Key Variables Forward rate premium/discount and interest rate differentials % in spot rate and inflation differential Summary The forward rate of one currency with respect to another will contain premium or discount that is determined by interest rate differential. The spot rate of one currency with respect to another will change in reaction to inflation differential
Learning Outcomes
Purchasing Power Parity (PPP)
1. Interpretations of Purchasing Power Parity a. Absolute Form of PPP: It suggests that prices of the same basket of products in 2 different countries should be equal when measure in a common currency. Realistically, the existence of transportation costs, tariffs and quotas prevent absolute PPP b. Relative Form of PPP: State that the rate of change in the prices of the baskets should be somewhat similar when measured in a common currency, as long as transportation costs and trade barriers are unchanged
Commodities
Graphic Analysis of PPP
5. Graphic Analysis: a. PPP Line b. Purchas
PPP Line
Triangular Arbitrage
Purchasing Power Disparity
Product Life Cycle
IFE
Refer to Exhibit 8.6 p.247 for summary of IFE Refer to p.246-247 for e.g. Simplified relationship: ef = iH – iF, that is the percentage change in exchange rate over the investment horizon will equal interest rates differentials between 2 countries, approximation
PPP
IFE
% in spot rate and interest rate differential
PPP
Relative PPP
2. Rationale behind Purchasing Power Parity Theory: Exchange rate adjustment is necessary for the relative purchasing power to be the same whether buying products locally or from another country Appreciation/Depreciation of future exchange rate = Inflation differential Refer to e.g. in p.234
Derivation
Derivation of PPP
4. Using PPP to Estimate Exchange Rate Effects: Refer to p.235-236 for e.g. a. Using a Simplified PPP Relationship, whereby, ef = Ih – If b. Exhibit 8.1 p.237 summarizes PPP

IFE
IFE
Graphic Analysis of the International Fisher Effect (IFE) a. Points on the IFE Line b. Points below the IFE Line c. Points above the IFE Line
IFE
Illustration of IFE Line (When Exchange Rate Changes Perfectly Offset Interest Rates Differentials)
IFE Line
IFE
Why the international Fisher Effect Does Not Occur: (a) In reality currency with high interest rates might strengthen due to inflow of fund (b) Investors might not believe that high interest rate is due to higher expected inflation rate (c) Central bank increase interest rate to cool down economy or attract inflow of funds (d) Depends on the country’s foreign reserves: China