Price Levels and the Exchange Rate in the Long Run

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M16 Chap.14 Prices and Exchange Rates Purchasing Power Parity

14-5
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Absolute PPP (cont.)
• Absolute PPP indicates that the exchange rate between two currencies is equal to the ratio of the two countries’ price indexes. • The exchange rate is a nominal value, that is, its value is dependent on current price levels. • A problem arises when the national price indexes are not comparable in terms of product coverage and base year used.
14-12
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PPP on a Monthly vs. Annual Basis
• Refer to Figure 14.1 • The exchange rates are more variable than the inflation differentials. • Deviations from PPP are more apparent for monthly than for annual data.
14-13
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国际经济学英文第七版克鲁格曼英文经济名词翻译

国际经济学英文第七版克鲁格曼英文经济名词翻译Key Terms of International EconomicsChapter3 Labor Productivity and Comparative Advantage Comparative advantage 比较优势Absolute advantage 绝对优势Opportunity cost 机会成本Production possibility frontier 生产可能性边界Unit labor requirement 单位产品劳动投入Relative price 相对价格Relative demand curve相对需求曲线Relative supply curve 相对供给曲线Relative wage 相对工资Relative quantity 相对产量Ricardian model 李嘉图模型Pauper labor argument 贫民劳动论Nontraded goods 非贸易商品Chapter 4 Resources and Trade: the Heckscher-Ohlin Model Abundant factor 丰裕要素Biased expansion of production 偏向性生产扩张Equalization of factor prices 要素价格均等化Factor abundance 要素丰裕度Factor intensity 要素密集度Scarce factor 稀缺要素Leontief paradox 里昂惕夫悖论land-intensive 土地密集型Labor-intensive劳动密集型the ratio of 2 factor prices 要素价格比Wage-rental ratio 工资-租金比Land-labor ratio ，the ratio of land to labor 土地劳动比Chapter 5 The standard Trade ModelBiased growth 偏向性增长Export-biased growth 出口偏向性增长Immiserizing growth 贫困化增长Import-biased growth 进口偏向性增长Isovalue line等价值线Marginal propensity to spend边际消费倾向Terms of trade贸易条件Transfers of income转移支付Chapter 6 Economies of Scale, Imperfect Competition, and international TradeDumping 倾销External economies of scale外部规模经济Imperfect competition 不完全竞争Interindustry trade 产业间贸易Intraindustry trade 产业内贸易Internal economies of scale内在规模经济Monopolistic competion垄断竞争Reciprocal dumping 相互倾销Increasing return 报酬递增Chapter 7 The Instruments of Trade policyad valorem tariff从价税Specific tariff从量税Consumer surplus消费者剩余Producer surplus生产者剩余Production distortion loss生产扭曲损失Consumption distortion loss消费扭曲损失Effective rate of protection有效保护率Efficiency loss效率损失Export restraint出口限制Export subsidy出口补贴Import quota进口配额Voluntary export restraint自愿出口限制Local content requirement国产化程度要求nontariff barriers非关税避垒Quota rent配额租金Chapter 8 National Income Accounting and the Balance of Payments The Balance of Payment AccountsCurrent accountFinancial accountCapital accountChapter 9 Exchange Rates and the Foreign Exchange Market:An Asset ApproachAppreciation升值Arbitrage套汇、套利Depreciation贬值Exchange rate汇率Forward exchange rate远期汇率Interest parity condition利率平价条件Rate of appreciation升值率Rate of depreciation贬值率Real rate of return实际收益率Spot exchange rate即期汇率Vehicle currency载体货币Foreign exchange外汇Chapter 10 Money, Interest Rates, and Exchange ratesMoney Supply 货币供给Money Demand 货币需求Short-Run Price Rigidity 短期价格粘性Long-run Price Flexibility 长期灵活价格permanent increase in the U.S. money supply 货币供给永久性增长overshooting 超调Chapter 11 Price Levels and the Exchange Rate in the Long Run Law of one price 一价定律Nominal exchange rate 名义汇率Nominal interest rate 名义利率Purchasing power parity 购买力平价Real appreciation实际升值Real depreciation 实际贬值Real exchange rate 实际汇率Relative PPP相对购买力平价Market rigidity市场刚性Price rigidity价格刚性Price stickiness价格粘性Chapter 12 Output and the Exchange Rate in the Short Run Aggregate demand 总需求Fiscal policy 财政政策J-curve J曲线Real exchange rate 实际汇率Real appreciation 实际升值Real depreciation 实际贬值Chapter 13 Fixed, Floating Exchange Rate and Policies Effects Sterilization冲销Sterilized foreign exchange intervention冲销性外汇干预Devaluation法定贬值Revaluation法定升值Clean float 清洁浮动Dirty float 肮脏浮动Capital flight 资本抽逃Chapter 14 The Theory of Optimum Currency Areas optimumcurrency areas 最优货币区Monetary efficiency gain 货币效率收益Economic integration 经济一体化Floating exchange rate 浮动汇率Fixed exchange rate 固定汇率。

国经lecture 11

2.Purchasing Power Parity (PPP)
•
Purchasing Power Parity states that an exchange rate between two countries should equal the ratio of the price level in one country to the price level in the other country.
%△XR
%△Pus %△Puk
For example: suppose inflation rate is 10% in the U.S. ,5% in the U.K. The R($/￡) increases 5% in the long-run.
3.Purchasing Power Parity In The Short Run And The Long Run
Big Mac index ,Jan 22nd 2009
• Helpfully, a UBS report published this week offers a handy guide to how long it takes a worker on the average net wage to earn the price of a Big Mac in 73 cities. Fast-food junkies are best off in Chicago, Toronto and Tokyo, where it takes a mere 12 minutes at work to afford a Big Mac. By contrast, employees must toil for over two hours to earn enough for a burger fix in Mexico City, Jakarta and Nairobi.

克鲁格曼第八版国际金融下答案

Chapter 14Money, Interest Rates, and Exchange RatesChapter OrganizationMoney Defined: A Brief ReviewMoney as a Medium of ExchangeMoney as a Unit of AccountMoney as a Store of ValueWhat is Money?How the Money Supply is DeterminedThe Demand for Money by IndividualsExpected ReturnRiskLiquidityAggregate Money DemandThe Equilibrium Interest Rate: The Interaction of Money Supply and Demand Equilibrium in the Money MarketInterest Rates and the Money SupplyOutput and the Interest RateThe Money Supply and the Exchange Rate in the Short RunLinking Money, the Interest Rate, and the Exchange RateU.S. Money Supply and the Dollar/Euro Exchange RateEurope’s Money Supply and the Dollar/Euro Exchange RateMoney, the Price Level, and the Exchange Rate in the Long Run Money and Money PricesThe Long-Run Effects of Money Supply ChangesEmpirical Evidence on Money Supplies and Price LevelsMoney and the Exchange Rate in the Long RunChapter 14 Money, Interest Rates, and Exchange Rates 65Inflation and Exchange Rate DynamicsShort-Run Price Rigidity versus Long-Run Price FlexibilityBox: Money Supply Growth and Hyperinflation in BoliviaPermanent Money Supply Changes and the Exchange RateExchange Rate OvershootingCase Study: Can Higher Inflation Lead to Currency Appreciation? The Implications of Inflation Targeting SummaryChapter OverviewThis chapter combines the foreign-exchange market model of the previous chapter with an analysis of the demand for and supply of money to provide a more complete analysis of exchange rate determination in the short run. The chapter also introduces the concept of the long-run neutrality of money which allows an examination of exchange rate dynamics. These elements are brought together at the end of the chapter in a model of exchange rate overshooting.The chapter begins by reviewing the roles played by money. Money supply is determined by the central bank; for a given price level, the central bank’s choice of a nominal money supply determines the real money supply. An aggregate demand function for real money balances is motivated and presented. Money-market equilibrium—the equality of real money demand and the supply of real money balances—determines the equilibrium interest rate.A familiar diagram portraying money-market equilibrium is combined with the interest rate parity diagram presented in the previous chapter to give a simple model of monetary influences on exchange rate determination. The domestic interest rate, determined in the domestic money market, affects the exchange rate through the interest parity mechanism. Thus, an increase in domestic money supply leads to a fall in the domestic interest rate. The home currency depreciates until its expected future appreciation is large enough to equate expected returns on interest-bearing assets denominated in domestic currency and in foreign currency. A contraction in the money supply leads to an exchange rate appreciation through a similar argument. Throughout this part of the chapter the expected future exchange rate is still regarded as fixed.The analysis is then extended to incorporate the dynamics of long-run adjustment to monetary changes. The long run is defined as the equilibrium that would be maintained after all wages and prices fully adjusted to their market-clearing levels. Thus the long-run analysis is based on the long-run neutralityof money: All else equal, a permanent increase in the money supply affects only the general price level—and not interest rates, relative prices, or real output—in the long run. Money prices, including, importantly, the money prices of foreign currencies, move in the long run in proportion to any change in the money supply’s level. Thus, an increase in the money supply, for example, ultimately results in a proportional exchange rate depreciation.The combination of these long-run effects with the short-run static model allows consideration of exchange rate dynamics. In particular, the long-run results are suggestive of how long-run exchange rate expectations change after permanent money-supply changes. One dynamic result which emerges from this model is exchange rate overshooting in response to a change in the money supply. For example, a permanent money-supply expansion leads to expectations of a proportional long-run currency depreciation. Foreign-exchange market equilibrium requires an initial depreciation of the currency large enough to equate expected returns on foreign and domestic bonds. But because the domestic interest rate falls in the short run, the currency must actually depreciate beyond (and thus overshoot) its new expected long-run level in the short run to maintain interest parity. As domestic prices rise and M/P falls, the interest rate returns to its previous level and the exchange rate falls (appreciates) back to its long-run level, higher than the starting point, but not as high as the initial reaction.66 Krugman/Obstfeld •International Economics: Theory and Policy, Eighth EditionThe chapter concludes with a useful case study that helps bridge the gap between the stylized world of the model and the real world of central bank policy-making where the central bank sets the interest rate rather than money, and news about inflation may change expectations about future money supply changes when the central bank has committed to a particular level of inflation.Answers to Textbook Problems1. A reduction in real money demand has the same effects as an increase in the nominal money supply.In Figure 14.1, the reduction in money demand is depicted as a backward shift in the money demand schedule from L1 to L2. The immediate effect of this is a depreciation of the exchange rate from E1 to E2, if the reduction in money demand is temporary, or a depreciation to E3 if the reduction is permanent. The larger impact effect of a permanent reduction in money demand arises because this change also affects the future exchange rate expected in the foreign exchange market. In the long run, the price level rises to bring the real money supply into line with real money demand, leaving all relative prices, output, and the nominal interest rate the same and depreciating the domestic currency in proportion to the fall in real money demand. The long-run level of real balances is (M/P2), a level where the interest rate in the long-run equals its initial value. The dynamics of adjustment to apermanent reduction in money demand are from the initial Point 1 in the diagram, where the exchange rate is E1, immediately to Point 2, where the exchange rate is E3 and then, as the price level falls over time, to the new long-run position at Point 3, with an exchange rate of E4.2. A fall in a country’s population would reduce money demand, all else equal, since a smallerpopulation would undertake fewer transactions and thus demand less money. This effect wouldprobably be more pronounced if the fall in the population were due to a fall in the number ofhouseholds rather than a fall in the average size of a household since a fall in the average sizeof households implies a population decline due to fewer children who have a relatively smalltransactions demand for money compared to adults. The effect on the aggregate money demand function depends upon no change in income commensurate with the change in population—else, the change in income would serve as a proxy for the change in population with no effect on theaggregate money demand function.Figure 14.1Chapter 14 Money, Interest Rates, and Exchange Rates 67 3. Equation 14-4 is M s/P=L(R, Y). The velocity of money, V=Y/(M/P). Thus, when there is equilibriumin the money market such that money demand equals money supply, V=Y/L(R, Y). When R increases, L(R, Y) falls and thus velocity rises. When Y increases, L(R, Y) rises by a smaller amount (since the elasticity of aggregate money demand with respect to real output is less than one) and the fraction Y/L(R, Y) rises. Thus, velocity rises with either an increase in the interest rate or an increase inincome. Since an increase in interest rates as well as an increase in income cause the exchange rate to appreciate, an increase in velocity is associated with an appreciation of the exchange rate.4. An increase in domestic real GNP increases the demand for money at any nominal interest rate. Thisis reflected in Figure 14.2 as an outward shift in the money demand function from L1 to L2. The effect of this is to raise domestic interest rates from R1 to R2 and to cause an appreciation of the domestic currency from E1 to E2.5. Just as money simplifies economic calculations within a country, use of a vehicle currency forinternational transactions reduces calculation costs. More importantly, the more currencies used in trade, the closer the trade becomes to barter, since someone who receives payment in a currency she does not need must then sell it for a currency she needs. This process is much less costly when there is a ready market in which any nonvehicle currency can be traded against the vehicle currency, which then fulfills the role of a generally accepted medium of exchange.Figure 14.26. Currency reforms are often instituted in conjunction with other policies which attempt to bring downthe rate of inflation. There may be a psychological effect of introducing a new currency at themoment of an economic policy regime change, an effect that allows governments to begin with a ―clean slate‖ and makes people reconsider their expectations concerning inflation. Experience shows, however, that such psychological effects cannot make a stabilization plan succeed if it is not backed up by concrete policies to reduce monetary growth.7. The interest rate at the beginning and at the end of this experiment are equal. The ratio of money toprices (the level of real balances) must be higher when full employment is restored than in the initial state where there is unemployment: the money-market equilibrium condition can be satisfied only with a higher level of real balances if GNP is higher. Thus, the price level rises, but by less than twice its original level. If the interest rate were initially below its long-run level, the final result will be one with higher GNP and higher interest rates. Here, the final level of real balances may be higher or lower than the initial level, and we cannot unambiguously state whether the price level has more than doubled, less than doubled, or exactly doubled.68 Krugman/Obstfeld •International Economics: Theory and Policy, Eighth Edition8. The 1984–1985 money supply growth rate was 12.4% in the United States (100% ⨯ (641.0 –570.3)/570.3) and 334.8% in Brazil (100% ⨯ (106.1 – 24.4)/24.4). The inflation rate in the United States during this period was 3.5% and in Brazil the inflation rate was 222.6%. The change in real money balances in the United States was approximately 12.4% – 3.5% = 8.9%, while the change in real money balances in Brazil was approximately 334.8% – 222.6% = 112.2%. The small change in the U.S. price level relative to the change in its money supply as compared to Brazil may be due to greater short-run price stickiness in the United States; the change in the price level in theUnited States represents 28% of the change in the money supply ((3.5/12.4) ⨯ 100%), while inBrazil this figure is 66% ((222.6/334.8) ⨯ 100%). There are, however, large differences between the money supply growth and the growth of the price level in both countries, which casts doubt on the hypothesis of money neutrality in the short run for both countries.9. Velocity is defined as real income divided by real balances or, equivalently, nominal income dividedby nominal money balances (V=P⨯Y/M). Velocity in Brazil in 1985 was 13.4 (1418/106.1), while velocity in the United States was 6.3 (4010/641). These differences in velocity reflected the different costs of holding cruzados compared to holding dollars. These different costs were due to the high inflation rate in Brazil which quickly eroded the value of idle cruzados, while the relatively low inflation rate in the United States had a much less deleterious effect on the value of dollars.Figure 14.310. If an increase in the money supply raises real output in the short run, then the fall in the interest ratewill be reduced by an outward shift of the money demand curve caused by the temporarily higher transactions demand for money. In Figure 14.3, the increase in the money supply line from (M1/P) to (M2/P) is coupled with a shift out in the money demand schedule from L1 to L2. The interest rate falls from its initial value of R1 to R2, rather than to the lower level R3, because of the increase in output and the resulting outward shift in the money demand schedule. Because the interest rate does not fall as much when output rises, the exchange rate depreciates by less: from its initial value of E1 to E2, rather than to E3, in the diagram. In both cases we see the exchange rate appreciate backsome to E4 in the long run. The difference is the overshoot is much smaller if there is a temporary increase in Y. Note, the fact that the increase in Y is temporary means that we still move to the same IP curve, as LR prices will still shift the same amount when Y returns to normal, and we still have the same size M increase in both cases. A permanent increase in Y would involve a smaller expected price increase and a smaller shift in the IP curve.Chapter 14 Money, Interest Rates, and Exchange Rates 69 Undershooting occurs if the new short-run exchange rate is initially below its new long-run level.This happens only if the interest rate rises when the money supply rises—that is if GDP goes up so much that R does not fall, but increases. This is unlikely because the reason we tend to think that an increase in M may boost output is because of the effect of lowering interest rates, so we generally don’t think that the Y response can be so great as to increase R.11. We saw in Chapter 14 that as the interest rate falls, people prefer to hold more cash and fewerfinancial assets. If interest rates were to fall below zero, people would strictly prefer cash to financial assets as the zero return on cash would dominate any negative return. Thus, interest rates cannot fall below zero because no one would hold a financial asset with a negative rate of return when another asset at a zero rate of return (cash) exists.12. One clear complication that a zero interest rate introduces is that the central bank is ―out ofammunition.‖ It literally cannot reduce interest rates any further and thus may struggle to respond to additional shocks that hit the economy over time. The central bank is still not completely powerless, it can print more money and try to increase inflation (increasing inflation with a constant zero interest rate would mean a declining real interest rate) to stimulate the economy, but the standard toolkit is not operational. As further discussion in Chapter 17 will show, a zero interest rate may also be asymptom of a lack of responsiveness in the economy to low interest rates.13. a. If money adjusts automatically to changes in the price level, then any number of combinations ofmoney and prices could satisfy the money supply/money demand equations. There would be nounique solution.b. Yes, a rule such as this one would help anchor the price level and imply there is no longer aninfinite number of money and price combinations that could satisfy money supply and moneydemand.c. A one time permanent unexpec ted fall in ―u‖ would imply that R would have to fall until priceshave a chance to rise and balance out the equation. As prices rise, R would return to its initiallevel. The story described is essentially identical to that in Figure 14.13. The interest rate woulddrop and then rise slowly over time and the price level would start out static and then rise overtime. The exchange rate should overshoot (assuming that expectations are tied to future prices inthe same way they are described in the text).。

exchange rates and prices

Exchange Rates and Price Levels
USA
P=$60,000
Germany P*= E40,000

Importers begin buying BMWs in Germany and shipping them to the US. Profit = $60,000 – (1.40)(E40,000) = $4,000/Car Trade will continue until the profit opportunity is eliminated. (Note, in general, this will involve adjustments of all three prices)
2 1.9 1.8 1.7 1.6 1.5 1.4 1.3 1.2 1.1 1
GBP/USD
Lower Upper Actual
Jan-90
Jan-92
Jan-94
Jan-96
Jan-98
Jan-00
Jan-02
Jan-04
Non-Traded Goods: An Example

Suppose that in addition to gold, we add theatre tickets. Theatre tickets in the US cost $40 while in Britain, similar tickets cost L 30. Price Index = .3(Tickets) + .7(Gold)
PPP Implied Currency Values
PPP Implied Exchange Rates
Country Exchange Rate (12/2003) Inflation PPP implied Differential exchange (US-Foreign) rate Actual Exchange Rate (12/2004)

英文版国际金融第六章-笔记翻译

Chapter 6 International Parity Conditions 国际平价（汇率的决定因素）PART ONE 学习准备：（一）学习目标1. Examine how price levels and price level changes (inflation) in countries determine the exchange rate at which their currencies are traded.看看国家中价格水平和价格水平的变化(通货膨胀)如何决定通货贸易中本国货币的汇率2. Show how interest rates reflect inflationary forces within each country and currency说明利率如何反映每个国家通胀压力和货币3. Explain how forward markets for currencies reflect expectations held by market participants about the future spot rate解释远期市场的货币如何反映市场参与者对未来即期汇率的预期4. Analyze how, in equilibrium, the spot and forward currency markets are aligned with interest differentials分析如何现货和远期外汇市场如何在平衡中与利益差异并列。

引言：将汇率、价格水平和利率联系在一起的经济理论被称为国际平价条件。

很多人认为，这些国际平价条件组成了国际金融界特有的金融理论的核心部分。

这些理论可能并不总是 “真正的”相比起学生和从业者在现实世界中观察到的。

但错的并不是理论本身，而是现实中的使用方式。

全章共五个部分第一部分 Prices and Exchange Rates 价格与汇率如果同质的商品或服务在两个不同的市场上出售，不限制该商品在市场间的销售，且转运商品无运输成本，则两个市场中该商品的价格应该相等。

国际会计第七版英文版课后答案(第六章)

Chapter 6Foreign Currency TranslationDiscussion Questions Solutions1.Foreign currency translation is the process of restating a foreign account balance from onecurrency to another. Foreign currency conversion is the process of physically exchanging onecurrency for another.2.In the foreign exchange spot market, currencies bought and sold must be delivered immediately,normally within 2 business days. Thus a Singaporean tourist buying U.S. dollars at the airportbefore boarding a plane for New York would hand over Singapore dollars and immediatelyreceive the equivalent amount in U.S. dollars. The forward market handles agreements toexchange a fixed amount of one currency for another on an agreed date in the future. Forexample, a French manufacturer exporting goods invoiced in euros to a Japanese importer on 60- day credit terms would buy a forward contract to sell yen for euros 2 months in the future.Transactions in the swap market involve the simultaneous purchase (or sale) of one currency in the spot market and the sale (or purchase) of the same currency in the forward market. Thus, a Canadian investor wishing to take advantage of higher interest rates on 6-month Treasury bills in the United States would buy U.S. dollars with Canadian dollars in the spot market and invest in the United States. To guard against a fall in the value of the U.S. dollar before maturity (when the U.S. dollar proceeds are converted back to Canadian dollars), the Canadian investor would simultaneously enter into a forward contract to sell U.S. dollars for Canadian dollars 6 months in the future at today s forward exchange rate.3.The question refers to alternative exchange rates that are used to translate foreign financialstatements. The current rate is the exchange rate at the financial statement date. It issometimes called the year-end or closing rate. The historical rate is the exchange rate at the time of the underlying transaction. The average rate is the average of various exchange rates during a fiscal period. Since the average rate normally is used to translate income statement items, it isoften weighted to reflect any seasonal changes in the volume of transactions during the period.Translation gains and losses do not occur if exchange rates do not change. However, if exchange rates change, the use of current and average rates causes translation gains and losses.These do not occur when the historical rate is used because the same (constant) rate is used each period.4. In this example, the Mexican Affiliate s Canadian dollar loan is denominated in Canadian dollars.However, because the Mexican affiliate’s functional currency is U.S. dollars, the peso equivalent of the Canadian dollar borrowing would be remeasured in U.S. dollars prior to consolidation. If the Mexican affiliate’s functional currency were the peso, the Canadian dollar loan would beremeasured in pesos before being translated to U.S. dollars.5. A transaction gain or loss occurs when a foreign currency transaction, e.g., a foreign currencyborrowing, is settled at a different exchange rate than that which prevailed when the transaction was originally incurred. In this case there is an exchange of one currency for another. Atranslation gain or loss, on the other hand, is simply the result of a restatement process. There isno physical exchange of currencies involved.6. It is not possible to combine, add, or subtract accounting measurements expressed in differentcurrencies; thus, it is necessary to translate those accounts that are measured or denominated in a foreign currency into a single reporting currency. Foreign currency translation can involverestatement or remeasurement. In restatement, the local (functional) currency is kept as the unit of measure; that is, the translation process multiplies the financial results and relationships in the local currency accounts by a constant, the current rate. In contrast, remeasurement translateslocal currency results as if the underlying transactions had taken place in the reporting(functional) currency of the parent company; for example, it changes the unit of measure of aforeign subsidiary from its local (foreign) currency to the U.S. dollar.7. Major advantages and limitations of each of the major translation methods follow.Current Rate MethodAdvantages:a. Retains the initial relationships in the foreign currency statements.b. Simple to apply.Limitations:a. Violates the basic purpose of consolidation, which is to present the results of a parent and its subsidiaries as if they were a single entity.b. Inconsistent with historical cost.c. Presumes that all local assets and liabilities are subject to exchange risk.d. While stockholders equity adjustments shield an MNC s bottom line from translation gains and losses, such adjustments could distort certain financial ratios and be confusing.Current-noncurrent MethodAdvantages:a. Distortions in translated gross margins are reduced as inventories and translated at the current rate.b. Reported earnings are shielded from the distorting effects of currency fluctuations as excess translation gains are deferred and used to offset future translation losses.Limitations:a. Uses balance sheet classification as basis for translation.b. Assumes all current assets are exposed to exchange risk regardless of their form.c. Assumes long-term debt is sheltered from exchange rate risk.Monetary-nonmonetary MethodAdvantages:a. Reflects changes in domestic currency equivalent of long-term debt on a timely basis. Limitations:a. Assumes that only monetary assets and liabilities are subject to exchange rate risk.b. Exchange rate changes distort profit margins as sales transacted at current prices are matched against cost of sales measured at historical prices.c. Uses balance sheet classification as basis for translation.d. Nonmonetary items stated at current market values are translated at historical rates.Temporal MethodAdvantages:a. Theoretically valid: compatible with any accounting measurement method.b. Has the effect of translating foreign subsidiaries operations as if they were originally transacted in the home currency, which is desirable for foreign operations that are extensions of the parent’s activities. Limitation:a. A company increases its earnings volatility by recognizing translation gains and losses currently.In arguing for one translation method over another, your students should eventually realize that, in the present state of the art, there is probably no one translation method that is appropriate for all circumstances in which translations occur and for all purposes thattranslation serves. It is probably more fruitful to have students identify circumstances in which they think one translation method is more appropriate than another.8.The current rate method is appropriate when the foreign entity being consolidated is largelyindependent of the parent company. Conditions which would justify this methodology is when the foreign affiliate tends to generate and expend cash flows in the local currency, sells a product locally so that its selling price is largely insulated from exchange rate changes, incurs expenses locally, finances its self locally and does not have very many transactions with the parentcompany. In contrast, the temporal method seems appropriate in those instances when theforeign affiliate’s operations are integrally related to the parent company. Conditions whichwould justify use of the temporal method are when the foreign affiliate transacts business in the parent currency and remits such cash flows to the parent company, sells a product largely in the parent country and whose selling price is sensitive to exchange rate changes, sources its factorinputs from the parent company, receives most of its financing from the parent and has a largetwo way flow of transactions with it.9.The history of foreign currency translation in the United States suggests that the development ofaccounting principles does not depend on theoretical considerations so much as on political, institutional, and economic influences that affect accounting standard setting. It may be morerealistic to recognize that theoretically sound solutions are impossible as long as policyprescriptions are evaluated on practical grounds. Without specific choice criteria derived from investor decision models, it is fruitless to argue the conceptual merits of competing accounting treatments. It is far more productive to admit that foreign currency translation choices are simply arbitrary.Readers of consolidated financial statements should know that the foreign currency translation method used is one of several alternatives, and this should be disclosed. This approach is more open and reduces the chance that readers will draw misleading inferences.10.Foreign inflation, in particular, the differential rate of inflation between the country in which asubsidiary is located and the country of its parent determines foreign exchange rates. Theserates, in turn, are used to translate foreign currency balances to parent currency.11.In the United Kingdom, financial statements of affiliates domiciled in hyperinflationaryenvironments must first be adjusted to current price levels and then translated using the current rate; in the United States, the temporal method would be employed. The second part of thisquestion is designed to get students from abroad to find out what companies in their homecountries are doing and thereby be in a position to share their new found knowledge with theirclassmates. They need simply get on the internet and read the footnotes of a major multinational company in their home country.12.Under FAS No. 52, the parent currency is designated as the functional currency for an affiliate,whose operations are considered to be an integral part of the parent company’s operations.Accordingly, anything that affects consolidated earnings, including foreign currency translation gains and losses, is relevant to parent company shareholders and is included in reported earnings.In contrast, when a foreign affiliate s operations are independent of the parent s, the localcurrency is designated as its functional currency. Since the focus is on the affiliate s localperformance, translation gains and losses that arise solely from consolidation are irrelevant and, therefore, are not included in consolidated income.Exercises Solutions1.¥250,000,000 X .008557 = $2,139,250.¥250,000,000 ÷ ¥116.86 = $2, 139,312The difference is due to rounding.2.Since £1 = US$1.9590 and €1 = US$1.3256, £1 = US$1.9590/US$1.3256 = €1.4778.Alternatively, €1 = US$1.3256/US$1.9590 = £.6767.3.Single Transaction Perspective:4/1 Purchases (¥32,500,000/¥116.91) $277,992Cash $27,800A/P(¥32,500,000 - ¥3,250,000)/¥116.91 250,192(Credit purchase)7/1 Purchases[(¥29,250,000/¥116.91) – (¥29,250,000/¥115.47) 3,120A/P 3,120(To record increase in purchases due to yen appreciation)7/1 Interest expense(¥29,250,000 X .08 X 3/12)/¥115.47 5,066A/P(¥29,250,000/¥115.47) 253,312Cash 258,378(To record settlement)Two Transactions Perspective:4/1 Purchases $277,992Cash $27,800A/P 250,1927/1 Transaction loss 3,120A/P 3,1207/1 Interest expense 5,066A/P 253,312Cash 258,3784. a. MXN 1,750,000/MXN10.3 = C$169,903.b. The Canadian dollar equivalent of the Mexican inventory account would not change if the functional currencywas the Canadian dollar as the temporal method translates inventory, a nonmonetary asset, at the exchange rate that preserves its original measurement basis. Since inventory is being carried at its net realizable value, it would be translated at the current rate. Had inventory been carried at historical cosuld have been translated at the historical rate or MXN3,750,000/MXN9.3 = C$403,226.5. Baht is the functional currency:B 2,500,000/20 years = B 125,000B 125,000/B37 = 3,378B 5,000,000/20 years = B 250,000B 250,000/B37 = 6,757U.S. dollar is the functional currency:B 2,500,000/20 years = B 125,000B 125,000/B40 = 3,125B 5,000,000/20 years = B 250,000B 250,000/B38 = 6,579Total depreciation $ 9,7046. If the euro is the German subsidiary’s functional currency, its accounts would be t ranslated into Australian dollarsusing the current rate method. In this case the translation gain of AUD4,545,455 would appear in consolidated equity.Thus the only item affecting current income would be the transaction loss(loss on an unsettled transaction) ofAUD1,514,515 on the euro borrowing.If the Australian dollar is deemed to be the functional currency, then the transaction loss andtranslation gain would both appear in reported earnings as follows:AUD(1,514,515) transaction lossAUD4,545,455 translation gainAUD3,030,940 net foreign exchange gain7.U.S. Dollar U.S. Dollar U.S. DollarBefore CNY After CNY After CNYAppreciation Appreciation DepreciationCNY Balance Sheet ($.12=CNY1) ($.15 = CNY1) ($0.09 = CNY1)Assets Amount Current Monetary Current MonetaryNoncurrent Nonmonetary Noncurrent NonmonetaryCash NT5,000 $600 $ 750 $ 750 $ 450 $ 450Accts. Receivable 14,000 1,680 2,100 2,100 1,260 1,260Inventories(cost=24,000) 22,000 2,640 3,300 2,640 1,980 2,640Fixed assets, net 39,000 4,680 4,680 4,680 4,680 4,680Total CNY 80,000 $9,600 $10,830 $10,170 $8,370 $9,030Liabilities & Owners EquityAccts. Payable CNY21,000 $2,520 $ 3,150 $ 3,150 $1,890 $1,890Long-term debt 27,000 3,240 3,240 4,050 3,240 2,430Stockholders equity 32,000 3,840 4,440 2,970 3,240 4,710Total CNY 80,000 $9,600 $10,830 $10,170 $8,370 $9,030Accounting exposure CNY20,000 (29,000) 20,000 (29,000)Translation gain (loss) US$ 600 (870) (600) 8708.U.S. Dollar U.S. Dollar U.S. DollarBefore CNY After CNY After CNYAppreciation Appreciation DepreciationCNY Balance Sheet ($.12=CNY1) ($.15 = CNY1) ($.09 = CNY1)Assets Amount Temporal Current Temporal CurrentCash CNY5,000 $ 600 $ 750 $ 750 $ 450 $ 450Accts. Receivable 14,000 1,680 2,100 2,100 1,260 1,260Inventories(cost=24,000) 22,000 2,640 3,300 3,300 1,980 1,980Fixed assets, net 39,000 3,600 3,600 5,850 3,600 3,510Total CNY 80,000 $8,520 $9,750 $12,000 $11,700 $7,200Liabilities & Owners EquityAccts. Payable CNY21,000 $2,520 $3,150 $3,150 $1,890 $1,890Long-term debt 27,000 3,240 4,050 4,050 2,430 2,430Stockholders equity 32,000 2,760 2,550 4,800 7,380 2,880Total NT$ 80,000 $8,520 $9,750 $12,000 $11,700 $7,200Accounting exposure NT$ (7,000) 32,000 (7,000) 32,000Translation gain (loss) US$ (210) 960 210 (960)c. Students will quickly discover that each translation method has its advantages and disadvantages. After some discussion, the question of translation objectives will arise. Currency translation objectives are based on how foreign operations are viewed. If foreign operations are considered extensions of the parent, a case can be made for a historical rate method: current-noncurrent, monetary-nonmonetary, or temporal. If foreign operations are viewed from a local company perspective, a case can be made for the current rate method. Given the complexity of multinational business activities, one could argue that a single translation method will not serve all purposes for which translations are done. As long as the objectives of foreign currency translation differ among specific reporting entities, a practical solution is to insist on full disclosure of the translation procedures used so that users have a basis for reconciling any differences that exist.9.Company A (Country A)(Reporting Currency = Apeso)Beginning of Year End of YearAssets: Exchange Rate Translated Exchange Rate TranslatedApeso 100 Apeso 100 Apeso 100Bol 100 Apeso 1 = Bol 1.25 Apeso 80 Apeso 1 = Bol 2 Apeso 50Apeso 180 Apeso 150Translation loss = A$ 30Company B (Country B)(Reporting Currency = Bol)Beginning of Year End of YearAssets: Exchange Rate Translated Exchange Rate TranslatedApeso 100 Apeso 1 = Bol 1.25 Bol 125 Apeso 1 = Bol 2 Bol 200Bol 100 Bol 100 Bol 100Bol 225 Bol 300Translation gain = Bol 75b. This exercise demonstrates the effect of the reporting currency on foreign currency translation results when the current rate method is used. Both companies are in seemingly identical situations, yet one reports a translation loss while the other reports a translation gain. One company reports shrinking assets while the other reports increasing assets. Nothing has actually happened but an exchange rate change. Also, despite a stronger Apeso, Company A reports a loss. Conversely, the Bol weakened, yet Company B reports a gain. It appears that a strengthening currency is not always good news, nor is a weakening currency always bad news.If the intention is to repatriate the funds invested in the foreign country (Country B from Company A’s perspective, Country A from Company B’s perspective), the scenario makes sense. After all, CompanyA will be repatriating fewer Apesos than originally invested and CompanyB will be repatriating moreB ol’s than originally invested. Fluctuating exchange rates have changed each company s command over a foreign currency. Assuming the company intends to repatriate the currency, it makes sense toinclude the respective gain or loss in income for the current year. On the other hand it can be argued that the gain or loss should be excluded from income if the company intends to keep the foreign assets invested permanently..10.Translation RateLocal Currency is Dollar isFunctional Currency Functional CurrencyCash Current CurrentMarketable securities (cost)Current Historical aAccounts receivable Current CurrentInventory (market) Current CurrentEquipment Current HistoricalAccumulated depreciation Current HistoricalPrepaid expenses Current HistoricalGoodwill Current HistoricalAccounts payable Current CurrentDue to parent (denominated in dollars) Current CurrentBonds payable Current CurrentIncome taxes payable Current CurrentDeferred income taxes Current CurrentCommon stock Historical HistoricalPremium on common stock Historical HistoricalRetained Earnings Balancing Residual Balancing ResidualSales Average AveragePurchases Average AverageCost of Sales Average HistoricalGeneral and administrative expenses Average AverageSelling expenses Average HistoricalDepreciation Average HistoricalAmortization of goodwill Average HistoricalIncome tax expense Average AverageInter-company interest expense Average Average__________________________________________________________________________________________________________________________a Fixed income securities intended to be held to maturity.11. a. Before riyal depreciation:Cash SAR 60,000,000 ÷ SAR3.75 = $ 16,000,000Inventory 120,000,000 ÷ SAR3.75 = 32,000,000Fixed Assets 750,000,000 ÷ SAR3.75 = 200,000,000Total $248,000,000After riyal depreciation:Cash SAR 60,000,000 ÷ SAR4.125 = $ 14,545,455Inventory 120,000,000 ÷ SAR3.75 = 32,000,000Fixed Assets 750,000,000 ÷ SAR3.75 = 200,000,000Total $246,545,455Translation loss $(1,454,455)b.The translation loss has no effect on MSC’s cash flows as it is the result of a restatement process.c.On a pre-tax basis, an analyst would back out the translation gain from reported earnings and add it to consolidatedequity. However, in addition inventory and fixed assets would be translated at the current rate, as opposed to thehistorical rate, and the resulting translation loss would also be taken to consolidated equity. This would result in a different earnings number as well as asset measures.Before riyal depreciation:Cash SAR 60,000,000 ÷ SAR3.75 = $ 16,000,000Inventory 120,000,000 ÷ SAR3.75 = 32,000,000Fixed Assets 750,000,000 ÷ SAR3.75 = 200,000,000Total $248,000,000After riyal depreciation:Cash SAR 60,000,000 ÷ SAR4.125 = $ 14,545,455Inventory 120,000,000 ÷ SAR4.125 = 29,090,909Fixed Assets 750,000,000 ÷ SAR4.125 = 181,818,182Total $225,454,546Translation adjustnment reflected in equity $(22,545,454)Students could also be probed and asked how the adjusted numbers would impact certain ratios such as ROA or ROE, Debt to Equity, and asset turnover.12. a. The currency effects in the first and third paragraphs have an impact on Alcan’s cash flows. IN the firstparagraph, echange rate changes affect Alcan’s future revenues and costs and directly affect cash receipts andpayments. The third paragraph involves settling foreign currency transactions at a different echange rate than when the transaction were entered into.b.Alcan appears to be employing the monetary-nonmonetary method.c. Many analysts back out translation gains and losses from reported earnings as these are largely non-cash itemsthat simply result from a restatement process. This would especially be the case if Alcan were being compared to a company employing the current rate method. Disregarding translation gains and losses would have the following effect on reported earnings:20X5 20X4 20X3With translation G/L $129m $258m $64mTranslation G/L (86) (153) (326)Without Translation G/L $215m $411m $390mThe impact on the pattern of earnings would change significantly. The year to year changes in earnings both before and after abstracting from currency translation effects are:20X5/20X3 20X5/20X4 20X4/20X3With translation G/L 102% -50% 303%Without Translation G/L 45% -48% 5%Case 6-1 Regents CorporationThe nature of Regents’s operation is such that choice of an appropriate functional currency is ultimately a judgement call. Students can argue for either currency and should be evaluated on the strength of their analysis. A major lesson of this case is that the functional currency choice is important since the currency designation dictates which translation method, (current or temporal) is ultimately used. The financial statement effects can be very different. Thus it is important for a reader of financial statements to understand how the differing measurement options affect the balance sheet and income statement and be prepared to adjust from one framework to the other, even if only crudely.TEMPORAL METHOD(U.S. DOLLAR IS THE FUNCTIONAL CURRENCY)Balance Sheet Accounts, 12/31/X7 Foreign Currency Exchange Rate Dollar EquivalentCash £ 1,060 1.80 $ 1,908Accounts receivable 2,890 1.90 5,491Inventory 3,040 1.78 5,411Fixed assets 4,400 1.70 7,480 Accumulated depreciation (420) 1.70 (714)Patent ----- -----Total £10,970 $19,576Accounts payable £ 1,610 1.80 $ 2,898Due to parent 1,800 1.80 3,240Long-term debt 4,500 1.80 8,100Deferred taxes 80 1.80 144Common stock 1,500 1.70 2,550Retained earnings 1,480 residual 2,644£10,970 $19,576Income Statement, 12/31/X8 Foreign Currency Exchange Rate Dollar Equivalent Sales £ 16,700 1.86 $ 31,062Cost of sales a (11,300) (20,706)General and administrative (1,600) 1.86 (2,976) Depreciation (280) 1.70 (476)(20) 1.82 (36)Interest (480) 1.86 (893) Transaction gain 125 1.86 233Aggregate translation adjustment b (368)Taxes:Current (670) 1.86 (1,246 )Deferred (40) 1.86 (74)Net income £ 2,435 $ 4,520Retained earnings, 12/31X7 1,480 2,644Dividends (300) 1.86 (558)Retained earnings, 12/31X8 £ 3,615 $ 6,606a Beginning inventory £ 3,040 1.78 $ 5,411 Purchases 11,690 1.86 21,743Ending inventory 3,430 1.88 6,448 Cost of Sales £ 11,300 $20,706b Aggregate translation adjustment:1. Monetary assets, 12/31/X7 £ 3,950Monetary liabilities, 12/31/X7 7,990(£ 4,040) x (1.90 - 1.80) = ($404)2. Change in negative exposure:12/31/X7 (£ 4,040)12/31/X8 (2,565 )£ 1,475Composition of decrease:Sources of monetary items:Net income £2,435Depreciation 300 £2,735Uses of monetary items:Inventory increase £(390)Addition to fixed assets (500)Purchase of patent (70)Dividends (300 ) (1,260 )£1,4753. Sources of monetary items x difference in year-end rate and rate used to translate income statement =£2,345 x (1.90 - 1.86) = $94300 x (1.90 – 1.86) = 12 $1094. Uses of monetary items x difference in year-end rate and rate used to translate those items =£(390) x (1.90 – 1.86) = $(15)(300) x (1.90 - 1.86) = (12)(500) x (1.90 - 1.82) = (40)(70) x (1.90 - 1.82) = (6 ) (73)Aggregate translation adjustment = ($404)109(73 )($368)Balance Sheet, 12/31/X8 Foreign Currency Exchange Rate Dollar EquivalentCash £ 1,150 1.90 $2,185 Accounts receivable 3,100 1.90 5,890 Inventory 3,430 1.88 6,448Fixed assets a 4,900 8,390 Accumulated depreciation b (720) (1,226)Patent 70 1.82 127Total £11,930 $21,814 Accounts payable £ 1,385 1.90 $ 2,632Due to parent 1,310 1.90 2,489Long-term debt 4,000 1.90 7,600 Deferred taxes 120 1.90 228 Common stock 1,500 1.70 2,550 Retained earnings 3,615 6,309Total £11,930 $21,814___________________________________________________________________________a Original assets £ 4,400 1.70 $ 7,480New assets 500 1.82 910$ 8,390b Original assets £ 700 1.70New assets 20 1.82 36$ 1,226 CURRENT RATE METHOD(LOCAL CURRENCY IS THE FUNCTIONAL CURRENCY)Balance Sheet Accounts, 12/31/X7 Foreign Currency Exchange Rate Dollar Equivalent Cash £ 1,060 1.80 $ 1,908 Accounts receivable 2,890 1.80 5,202 Inventory 3,040 1.80 5,472Fixed assets 4,400 1.80 7,920 Accumulated depreciation (420) 1.80 (756)Patent --- ---Total £10,970 $19,746Accounts payable £ 1,610 1.80 $ 2,898Due to parent 1,800 1.80 3,240Long-term debt 4,500 1.80 8,100Deferred taxes 80 1.80 144Common stock 1,500 1.70 2,550Retained earnings 1,480 2,355 Cumulative translation adjustment --- 459(given)Total £ 10,970 $19,746Income Statement, 12/31/X8 Foreign Currency Exchange Rate Dollar Equivalent Sales £16,700 1.86 $31,062Cost of sales (11,300) 1.86 (21,018)General and administrative (1,600) 1.86 (2,976) Depreciation (300) 1.86 (558)Interest (480) 1.86 (893) Transaction gain 125 1.86 232Taxes:Current (670) 1.86 (1,246)Deferred (40) 1.86 (74)Net income £ 2,435 $ 4,529Retained earnings, 12/31X7 1,480 2,355Dividends (300) 1.86 (558)Retained earnings, 12/31X8 £ 3,615 $ 6,326Balance Sheet, 12/31/X8 Foreign Currency Exchange Rate Dollar EquivalentCash £ 1,150 1.90 $ 2,185Accounts receivable 3,100 1.90 5,890Inventory 3,430 1.90 6,517Fixed assets 4,900 1.90 9,310Accumulated depreciation (720) 1.90 (1,368)Patent 70 1.90 133Total £ 11,930 $22,667Accounts payable £ 1,385 1.90 $ 2,632Due to parent 1,310 1.90 2,489Long-term debt 4,000 1.90 7,600Deferred taxes 120 1.90 228Common stock 1,500 1.70 2,550Retained earnings 3,615 6,326Cumulative translation adj. ----- 842aTotal £11,930 $22,667a Cumulative translation adjustment:1. Net exposed assets, 12/31/X7, x change in current rate = £2.980 x (1.90 - 1.80) = $2982. Change in net assets x difference between year-end and average rate = £2.135 x (1.90 - 1.86) = 853. Cumulative translation adjustment 12/31/X7 4594. Cumulative translation adjustment, 12/31/X8 $842。

国际经济学中英名词解释

国际经济学中英名词解释Absolute advantage: The greater efficiency that one nation may have over another in the production of a commodity. This was the basis for trade for Adam Smith.绝对优势：一国在生产一种产品上比另一国家有更大的有效性。

这是亚当·斯密自由贸易理论的基础。

Absolute purchasing-power parity theory: Postulates that the equilibrium exchange rate is equal to the ratio of the price levels in the two nations. This version of the PPP theory can be very misleading. 绝对购买力平价理论：假设平衡汇率等于两国的价格水平之比，这一购买力平价理论的解释是不被接受的。

Ad valorem tariff: A tariff expressed as a fixed percentage of the value of a traded commodity.从价税：一种表示为贸易商品价值的一个固定百分比的税。

Arbitrage: The purchase of a currency in the monetary center where it is cheaper for immediate resale in the monetary center where it is more expensive in order to make a profit.套利：在某货币较便宜的货币中心购买该货币，立即在另一较贵的货币中心卖掉此货币以谋利的行为。

Price Levels and the Exchange Rate in the Long Run

It uses the absolute version of PPP.
It predicts that levels of average prices across countries adjust so that the quantity of real monetary assets supplied will equal the quantity of real monetary assets demanded:
Because prices are allowed to change, they will influence interest rates and exchange rates in the long run models.
Copyright © 20096 Pearson Addison-Wesley. All rights reserved.
• The exchange rate is determined in the long run by prices, which are determined by the relative supply and demand of real monetary assets in money markets across countries.
PUS = (EUS$/Eur) x (PEU)
PUS = price level of goods and services in the US
PEU= price level of goods and services in EU
EUS$/Eur= US dollar/Eur exchange rate
Copyright © 20096 Pearson Addison-Wesley. All rights reserved.

Multinational Finance (7)

7-4
Prices and Exchange Rates
• Conversely, if the prices were stated in local currencies, and markets were efficient, the exchange rate could be deduced from the relative local product prices
– PPP holds up well over the very long term but is poor for short term estimates – The theory holds better for countries with relatively high rates of inflation and underdeveloped capital markets
7-9
Exhibit 7.1 Selected Rates from the Big Mac Index
7-10
Relative Purchasing Power Parity
• If the assumptions of absolute PPP theory are relaxed, we observe relative purchasing power parity
7-14
Exchange Rate Indices: Real and Nominal
• The real effective exchange rate index indicates how the weighted average purchasing power of the currency has changed relative to some arbitrarily selected base period

国际经济学的国际金融部分的选择题练习

国际经济学的国际金融部分的选择题练习C h a p t e r13:T h e B a l a n c e o f P a y m e n t sMultiple-choice Questions:1. Which of the following is false?A. A credit transaction leads to a payment from foreignersB. A debit transaction leads to a payment to foreigners*C. A credit transaction is entered with a negative signD. Double-entry bookkeeping refers to each transaction entered twice.2. Which of the following is a debit?A. The export of goodsB. The export of services*C. Unilateral transfers given to foreignersD. Capital inflows3. Capital inflows:A. refer to an increase in foreign assets in the nationB. refer to a reduction in the nation's assets abroadC. lead to a payment from foreigners*D. all of the above4. When a U.S. firm imports goods to be paid in three months the U.S. credits:A. the current accountB. unilateral transfers*C. capitalD. official reserves5. The receipt of an interest payment on a loan made by a U.S. commercial bank to a foreign resident is entered in the U.S. balance of payments as a:A. credit in the capital account*B. credit in the current accountC. credit in official reservesD. debit in unilateral transfers6. The payment of a dividend by an American company to a foreign stockholder represents:A. a debit in the U.S. capital accountB. a credit in the U.S. capital accountC. a credit in the U.S. official reserve account*D. a debit in the U.S. current account7. When a U.S. firm imports a good from England a pays for it by drawing on its poundsterling balances in a London Bank, the U.S. debits its current account and credits its:A. official reserve accountB. unilateral transfers accountC. services in its current account*D. capital account8. When the U.S. ships food aid to a developing nation, the U.S. debits:*A. unilateral transfersB. servicesC. capitalD. official reserves9. When the resident of a foreign nation (1) sells a U.S. stock and (2) deposits the proceeds in a U.S. bank, the U.S.:A. credits capital for (1) and debits capital for (2)B. credits the current account and debits capitalC. debits capital and credits official reserves*D. debits capital for (1) and credits capital for (2)10. When a U.S. resident (1) purchases foreign treasury billsand pays by (2) drawing down his bank balances abroad, the U.S.:A. debits short-term capital and credits official reserves*B. debits capital for (1) and credits capital for (2)C. debits official reserves and credits capitalD. credits short-term capital and debits official reserves11. From the U.S. point of view, drawing on (reducing) foreign bank balances in a New York bank represents a:A. capital inflow*B. capital outflowC. outflow of official reservesD. debit in the current account12. Which is not an official reserve asset of the U.S.?A. U.S. holdings of Special Drawing RightsB. The U.S. reserve position in the International Monetary Fund*C. Foreign official holdings of U.S. dollarsD. Official holdings of foreign currencies by U.S. monetary authorities13. The capital account of the U.S. includes:A. the change in U.S. assets abroad and foreign assets in the U.S.*B. the change in U.S. assets abroad and foreign assets in the U.S., other than official reserve assetsC. all financial assetsD. all but current account transactions14. Accommodating items are:A. transactions in official reserve assetsB. the items below the lineC. needed to balance international transactions*D. all of the above15. Which of the following is false?*A. a net debit balance in the current and capital accounts measures the surplus in the nation's balance of paymentsB. a balance of payments deficit must be settled by a net credit in the official reserve accountC. a deficit in the balance of payments can be measured by the excess of credits over debits in the official reserve accountD. a net debit balance in the official reserve account refers to a surplus思考题：以2009年中美两国国际收支平衡表为例，分析两国国际经济交易呈现出哪些不同特征？战后美国出现大的贸易失衡，其原因和影响是什么？中国的外汇储备量世界第一，其原因是？有何利弊？Chapter 14: Foreign Exchange Markets and Exchange Rates Multiple-choice Questions:1. Which is not a function of the foreign exchange market?A. to transfer funds from one nation to anotherB. to finance trade*C. to diversify risksD. to provide the facilities for hedging2. An increase in the pound price of the dollar represents:*A. an appreciation of the dollarB. a depreciation of the dollarC. an appreciation of the poundD. a devaluation of the dollar3. A change from $1=€1 to $2=€1 represents*A. depreciation of the dollarB. an appreciation of the dollarC. a depreciation of the poundD. none of the above4. A shortage of pounds under a flexible exchange rate system results in:A. a depreciation of the pound*B. a depreciation of the dollarC. an appreciation of the dollarD. no change in the exchange rate5. An effective exchange rate is a:A. spot rateB. forward rateC. flexible exchange rates*D. weighted average of the exchange rates between the domestic currency and the nation's most important trade partners6. The exchange rate is kept within narrow limits in different monetary centers by:A. hedging*B. exchange arbitrageC. interest arbitrageD. speculation7. If SR=$1/€1 and the three-month FR=$0.99/€1:*A. the euro is at a three-month forward discount of 1%B. the euro is at a forward discount of 1% per yearC. the euro is at a three-month forward premium of 1%D. the dollar is at a three-month forward discount of 1%8. Hedging refers to:A. the acceptance of a foreign exchange risk*B. the covering of a foreign exchange riskC. foreign exchange speculationD. foreign exchange arbitrage9. A U.S. importer scheduled to make a payment of €100,000 in three months can hedgehis foreign exchange risk by:A. purchasing $100,000 in the forward market for delivery in three monthsB. selling €100,000 in the spot market fo r delivery in three months*C. purchasing €100,000 in the forward market for delivery in three monthsD. selling €100,000 in the spot market for delivery in three months10. If the three-month FR=$1/€1 and a speculator anticipates that SR=$1.02/€1 in thre emonths, he can earn a profit by:A. selling euros forward*B. purchasing euros forwardC. selling dollars forwardD. purchasing dollars forward11. Destabilizing speculation refers to the:*A. sale of the foreign currency when the exchange rate falls or is lowB. purchase of the foreign currency when the exchange rate falls or is lowC. sale of the foreign currency when the exchange rate rises or is highD. all of the above12. A capital outflow from New York to Frankfurt under covered interest arbitrage can take place if the interest differential in favor of Frankfurt is:A. smaller than the forward discount on the euroB. equal to the forward discount on the euro*C. larger than the forward discount on the euroD. none of the above.13. According to the theory of covered interest arbitrage, if the interest differential in favor of the foreign country exceeds the forward discount on the foreign currency, there will be a:A. capital inflow under covered interest arbitrage*B. capital outflow under covered interest arbitrageC. no capital flow under a covered interest arbitrageD. any of the above14. When the interest differential in favor of the foreign country is equal to the forwardpremium on the foreign currency, we:A. are at covered interest arbitrage parity*B. are not at covered interest arbitrage parityC. may or may not be at covered interest arbitrage parityD. we cannot say without additional information15. The currency of the nation with the lower interest rate is usually at a*A. forward premiumB. forward discountC. covered interest arbitrage parityD. any of the above思考题：1. 我国外汇市场与美国等发达国家的外汇市场相比有什么不同？为什么？2. 为什么在浮动汇率之下国际收支逆差或顺差的测度并不是十分适当的？3. 如何看待以美国为首的国家要求人民币升值问题？4. 如何看待人民币国际化的前景？Chapter 15: Exchange Rate DeterminationMultiple-choice Questions:1. Which is correct with respect to the absolute PPP theory?A. It postulates that the exchange rate between two currencies is equal to the ratio of the price levels in the two nationsB. it does not take into consideration transportation costs or other obstructions to the flow of international tradeC. can be very misleading*D. all of the above2. The relative purchasing power-parity theory postulates that:A. The equilibrium exchange rate is equal to the ratio of the price level in the two nations*B. the change in the exchange rate over a period of time should be proportional to the relative change in the price level in the two nations over the same time periodC. the change in the exchange rate over a period of time should be proportional to the absolute change in the price level in the two nations over the same time periodD. the exchange rate at a period of time should be proportional to the relative prices in the two nations3. The relative PPP theory gives better results:*A. in the long run than in the short runB. when structural changes take placeC. the greater is the level of commodity aggregationD. in tests including developed and developing countries4. The monetary approach to the balance of payments:A. views the balance of payments as an essentially monetary phenomenonB. rests on the purchasing power-parity theoryC. postulates that money plays the crucial role in the long run both as a disturbance and adjustment in the nation's balance of payments*D. all of the above5. If a nation's money GDP is 100 and the velocity of circulation of money is 4, the quantity demanded of money in the nation is:A. 20*B. 25C. 50D. 1006. The monetary base of the nation refers to the:A. domestic credit created by the nation's monetary authorities or the domestic a ssets backing of the nation's money supplyB. international reserves of the nation*C. domestic credit created by the nation's monetary authorities or the domestic assets backing of the nation's money supply plus the international reserves of the nationD. legal reserve requirements in the nation7. If the legal reserve requirement of the nation is 25%, the money multiplier in the nation is:A. 2*B. 4C. 5D. 68. According to the monetary approach to the balance of payments, a deficit in the nation's balance of payments results from:*A. an excess in the nation's stock of money supply that is not eliminated or corrected by the nation's monetary authoritiesB. an excess in the stock of money demanded in the nation that is not satisfied by domestic monetary authoritiesC. an excess in the stock of money demanded in the other nation that is not satisfied by the other nation's monetary authoritiesD. an excess of imports over exports in the nation9. If the increase in a nation's money supply grows less rapidly than its GNP, the nation will face a:A. once-and-for-all balance of payments deficitB. once-and-for-all balance of payments surplusC. continuous balance of payments deficit*D. continuous balance of payments surplus10. According to the monetary approach to the balance of payments a non-reserve currency nation: *A. has no control over its money supply in the long-run under fixed exchange ratesB. has no control over its money supply in the short-run under fixed exchange ratesC. has no control over its money supply in the long-run under flexible exchange ratesD. retains complete control over its money supply in the long-run11. According to the monetary approach to the balance of payments, a surplus nation will have to give up in the long-run its goal of:A. price stabilityB. fixed exchange rate*C. price stability or fixed exchange rateD. price stability and fixed exchange rate12. Which of the following statements is true with respect to the monetary approach to the balance of payments:A. the interest differential in favor of the dollar equals the expected rate of appreciation of the euroB. the interest differential in favor of the dollar equals the expected rate of depreciation of the dollarC. the interest differential in favor of the pound equals the expected rate of depreciation of the pound*D. all of the above13. The monetary approach assumes that the following assumption holds:*A. domestic and foreign bonds are perfect substitutesB. covered interest arbitrage holdsC. expectations do not affect the future spot exchange rate.D. the risk premium is positive14. The portfolio balance approach:A. can be regarded as an extension of the monetary approachB. deals with money and other domestic and foreign financial assetsC. can more readily be extended than the monetary approach to deals with the real sector*D. all of the above15. According to the portfolio balance approach, an increase in the expected appreciation of the foreign currency leads domestic residents to increase:A. the demand for domestic moneyB. the demand for the domestic bond*C. the demand for the foreign bondD. the risk premium16. According to the portfolio balance approach, a reduction in the risk premium on the foreign bond leads domestic residents to increase the demand for the:A. domestic moneyB. domestic bond*C. foreign bondD. all of the above17. According to the portfolio balance approach, an increase in domestic real income or GDP leads domestic residents to increase the demand for the:*A. domestic moneyB. domestic bondC. foreign bondD. all of the above18. According to the portfolio balance approach, an increase in domestic wealth leads domestic residents to increase the demand for the:A. domestic moneyB. domestic bondC. foreign bond*D. all of the above19. Which of the following is false with regard to exchange rate dynamics:A. seeks to explain exchange rate fluctuations over time*B. results because the real sector adjusts instantaneously to disturbancesC. in the short run, the exchange rate overshoots its long-run equilibriumD. results from the stock adjustment in financial assets20. An unexpected increase in the U.S. money supply leadsto:A. an immediate reduction in the U.S. interest rateB. an immediate larger dollar depreciationC. a gradual appreciation of the dollar over time*D. all of the above思考题：现代汇率理论和传统汇率理论格式什么？他们有何区别？每一种理论的实质是什么？他们之间的关系如何？什么是购买力平价理论？它包括哪两种形式？各有何作用？如何对它们进行经验检验？结果如何？根据货币分析法，在辅导汇率替下下，什么决定了汇率的至极其变得？从货币分析法的观点出发，与浮动汇率体系和固定汇率体系相比，有管理的浮动汇率体系有何特点？资产市场分析法与货币分析法有何不同？两者是怎样解释在当今外汇市场中经常出现的汇率超调的？经验检验是支持还是拒绝者两种观点？我们还需要做哪些理论和经验的工作？在可预见的将来，这种工作的成果将是什么？PART FOUR:OPEN ECONOMY MACROECONOMICS AND THE INTERNATIONAL MONETARY SYSTEMChapter 16: The Price Adjustment Mechanisms with Flexible and Fixed Exchange RatesMultiple-choice Questions:1. The more elastic is a nation's demand and supply of foreign exchange the:A. larger is the devaluation or depreciation required to correct a deficit of a given size in the nation's balance of payments*B. smaller is the devaluation or depreciation required to correct a deficit of a given size in the nation's balance of paymentsC. less feasible is a flexible exchange rate systemD. less feasible is a devaluation as a policy to correct a deficit in the nation's balance of payments2. A nation's demand curve for foreign exchange is derived from the:A. foreign demand curve for the nations' exportsB. nation's supply curve of exports*C. domestic demand curve for imports and the foreign supply curve for the nation's importsD. foreign demand curve and the domestic supply curve for the nation's exports3. A depreciation of a nation's currency shifts:A. down its supply curve of imports in terms of the foreign currencyB. up its demand curve of imports in terms of the foreign currency*C. down its demand curve of imports in terms of the foreign currencyD. down its demand curve of imports in terms of the domestic currency4. When a nation's demand curve for imports in terms of the foreign currency is vertical: *A. the nation's demand curve for the foreign currency has zero elasticityB. the nation's demand for the currency is elasticC. the nation's supply of the currency is verticalD. the other nation's demand for the nation's currency has zero elasticity5. A depreciation of a nation's currency shifts:A. down its supply curve of exports in terms of the domestic currency*B. down its supply curve of exports in terms of the foreign currencyC. down its demand curve for exports in terms of the foreign currencyD. up its supply curve of imports in terms of the foreign currency6. When a nation's demand curve for exports in terms of the foreign currency is inelastic: *A. the nation's supply curve of the foreign currency is negatively inclinedB. the nation's supply curve of the foreign currency is verticalC. the nation's demand curve for the foreign currency is negatively inclinedD. the other nation's supply curve of the nation's currency is negatively inclined7. For a small nation:A. the foreign supply of exports is horizontalB. the domestic demand for imports is horizontal*C. the foreign demand for its exports is horizontalD. the foreign supply of exports is vertical8. A depreciation of the nation's currency causes its terms of trade to:A. deteriorateB. improveC. remain unchanged*D. any of the above9. A depreciation of a nation's currency is:*A. inflationary for the nationB. deflationary for the nationC. deflationary for the trade partnerD. any of the above10. The foreign exchange market is stable when:A. The demand curve of foreign exchange is negatively inclined and the supply curve of foreign exchange is positively inclinedB. the supply curve of foreign exchange is negatively inclined and less elastic than the demand curveC. the sum of the absolute values of the elasticity of the nation's demand of imports and the foreign demand for the nation's exports is greater than one*D. all of the above11. The United States has a trade problem with Japan because the U.S. trade deficit with Japan:A. is very largeB. has persisted for a long timeC. did not seem to decline when the dollar depreciated sharply with respect to the yen*D. all of the above12. The mint parity refers to the:A. gold export pointB. gold import pointC. equilibrium exchange rate*D. ratio of the price of a unit of gold in terms of the currency of two nations13. Under the gold standard:A. each nations defines the price of gold in terms of its currency and then stands ready to buy and sell any amount of gold at that priceB. there is a fixed relationship between any two currencies called the mint parityC. the exchange rate is determined by demand and supplybetween the gold points and is prevented from moving outside the gold points by gold shipmentsD. all of the above14. Which of the following statements is not true with regard to the price-specie-flow mechanism:A. relies on the quantity theory of moneyB. requires that nations allow their money supply to rise when the nation has a surplus in its balance of payments and to fall when the nation has a deficit*C. requires that the price elasticity of demand for imports and exports be equal to zeroD. it was introduced by David Hume to show the futility of the mercantilists' prescription that a nation should attempt to continuously accumulate gold15. A currency board refers to the case where:A. the central bank sterilizes changes in the money supply resulting from balance of payments disequilibria*B. the money supply of the nation is backed by 100 percent international reservesC. the nation operates under flexible exchange ratesD. the nation retains firm control over its money supply思考题：贬值为什么会带来通货膨胀趋势？为的外汇市场的马歇尔-勒纳条件是什么？贬值能否不改变国际收支状况？弹性悲观主义背着注意的含义是？它是怎么产生的？为什么不合理？针对外汇市场的稳定性以及外汇供求曲线的弹性，目前普遍的官邸时什么？什么是货币传递？它与国际竞争有什么关系？Chapter 17: The Income Adjustment Mechanism andSynthesis of Automatic AdjustmentsMultiple-choice Questions:1. In order to isolate the income adjustment mechanism, we assume that:A. the nation operates under a fixed exchange rate systemB. all prices, wages, and interest rates are constantC. the nation operates at less than full employment*D. all of the above2. The marginal propensity to consume measures:A. the ratio of imports to incomeB. the ratio of income to imports*C. the change in imports over the change in incomeD. the change in income over the change in imports3. The income elasticity of imports is given by:A. the percentage change in income over the percentage change in importsB. the change in imports over the change in income*C. the marginal propensity to import over the average propensity to importD. the average propensity to import over the marginal propensity to import4. The equilibrium level of national income in an open economy is given by:A. I + X = S + MB. X - M = S - IC. I + (X-M) = S*D. all of the above5. If MPS=0.2 and MPM=0.3, the foreign trade multiplier is:A. 5B. 3.3C. 3*D. 26. When S exceeds I, an open economy has a trade balance:*A. surplusB. deficitC. equilibriumD. any of the above7. The S-I function rises because:A. rising I are subtracted from constant S*B. constant I are subtracted from rising SC. rising I are subtracted from rising SD. constant I are added to falling S8. An autonomous fall in M from a condition of equilibrium in national income and in thetrade balance results in the nation's income:A. rising and its trade balance turning to deficitB. falling and its trade balance turning into surplus*C. rising and its trade balance turning into surplusD. rising and the trade balance remaining in equilibrium9. An autonomous increase in S from a condition of equilibrium in national income and in thetrade balance results in the nation's income:A. rising and its trade balance turning into surplus*B. falling and its trade balance turning into surplusC. falling and its trade balance turning into deficitD. rising and its trade balance turning into deficit10. The foreign trade multiplier of nation 1 is largest:A. when there are no foreign repercussionsB. with foreign repercussions for an autonomous increase in nation 1's X that replace domestic production in nation 2*C. with foreign repercussions for an autonomous increase in I in nation 1D. with foreign repercussions for an autonomous increase inI in nation 211. By itself, the automatic income adjustment mechanism is likely to bring about:*A. incomplete adjustmentB. complete adjustmentC. perverse adjustmentD. any of the above12. A depreciation of a deficit nation's currency from a condition of full employment:*A. may improve the nation's trade balanceB. will improve the nation's trade balanceC. will leave the nation's trade balance unchangedD. will cause a deterioration in the nation's trade balance13. The improvement in a nation's balance of trade and payments resulting from a depreciationof its currency is:A. reinforced by the induced fall in imports*B. partly neutralized by the induced rise in importsC. partly neutralized by the induced fall in importsD. any of the above.14. In the real world, the automatic income, price, and interest adjustment mechanisms, ifallowed to operate, are likely to:A. reinforce each other but still result in incomplete adjustment*B. reinforce each other and result in complete adjustmentC. work at cross purposes from each other and result inincomplete adjustmentD. work at cross purposes from each other and result in perverse adjustment15. A benefit of automatic adjustment mechanisms is that they:A. avoid the possibility of policy mistakesB. avoid the time lags associated with adjustment policiesC. begin to operate as soon as balance of payments disequilibria develop*D. all of the above思考题：自动收入调节机制怎样调节一国的国际收支？为单独分析该机制，我们假定哪些变量不变？怎样理解自动收入调节机制带来贸易差额的不完全调节？什么是弹性法与吸收法？吸收法如何把自动价格与收入调节机制综合起来？从充分就业开始，如果允许逆差国货币贬值，其贸易差额将会怎样？实际国内吸收如何才能减少？什么事自动货币调节？他们如何帮助调节国际收支失衡？在固定或有管理的汇率制度下，如果一国处于非充分就业，所有的自动调节机制如何共同调节其国际收支逆差？每种自动调节机制的缺点是什么？Chapter 18: Open Economy Macroeconomics: Adjustment PoliciesMultiple-choice Questions:1. The most important economic objective of industrial nations is:A. external balance*B. internal balanceC. a reasonable rate of growthD. an equitable distribution of income2. In order to achieve internal and external balance simultaneously, a nation must usually use at least:A. one policy*B. two policiesC. three policiesD. cannot say3. Points below internal balance line YY in the Swan diagram indicate:A. a balance of payments deficitB. a balance of payments surplus*C. unemploymentD. inflation4. To correct a balance of payments deficit and unemployment a nation requires a:A. devaluation and expansionary fiscal and monetary policiesB. devaluation and contractionary fiscal and monetary policies*C. devaluation and either expansionary or contractionary fiscal and monetary policiesD. revaluation and either expansionary or contractionary fiscal and monetary policies5. To correct a balance of payments deficit and inflation a nation requires a:A. devaluation and expansionary fiscal and monetary policiesB. devaluation and contractionary fiscal and monetary policies*C. devaluation or revaluation and contractionary fiscal and monetary policiesD. revaluation and either expansionary or contractionaryfiscal and monetary policies6. To correct a balance of payments surplus and unemployment a nation requires a:A. devaluation and expansionary fiscal and monetary policiesB. devaluation and contractionary fiscal and monetary policies*C. devaluation or revaluation and expansionary fiscal and monetary policiesD. revaluation and either expansionary or contractionary fiscal and monetary policies7. To correct a balance of payments surplus and inflation a nation requires a:A. devaluation and expansionary fiscal and monetary policiesB. devaluation and contractionary fiscal and monetary policies*C. devaluation and either expansionary or contractionary fiscal and monetary policiesD. revaluation and either expansionary or contractionary fiscal and monetary policies8. The IS curve is negatively inclined because:A. the higher is the rate of interest the smaller is the quantity of money demanded for speculative purposesB. higher rates of interest lead to greater capital flows*C. at lower interest rates the levels of investment and national income are higherD. at lower interest rates the level of national income is lower9. If the BP curve is above the point of intersection of the IS and LM curves, the nation will: *A. have a balance of payments deficit at that level of incomeB. have a balance of payments surplus at that level of income。

P为消费者物价指数

Copyright © 2003 Pearson Education, Inc.
Slide 15-3
The Law of One Price
Law of one price
• Identical goods sold in different countries must sell for
the same price when their prices are expressed in terms of the same currency.
Monetary approach to the exchange rate
• A theory of how exchange rates and monetary factors
interact in the long run.
The ental Equation of the Monetary
Copyright © 2003 Pearson Education, Inc.
Slide 15-1
Chapter Organization
Beyond Purchasing Power Parity: A General Model
of Long-Run Exchange Rates
International Interest Rate Differences and the Real
– Output levels
– A rise in U.S. (European) output causes an appreciation
Copyright © 2003 Pearson Education, Inc.
Slide 15-4
The Law of One Price

Chapter 15 Price Levels and the Exchange Rate in the Long Run 国际财务管理课件

Relative PPP between the United States and Europe would be:
(E$/€,t - E$/€, t –1)/E$/€, t –1 = US, t - E, t
where:
t = inflation rate
(15-2)
7
Exercise
Suppose U.S. inflation rate is 10 percent over one year , but the inflation rate in European is only 5 percent. According to relative PPP, what should happen over the year to the U.S.’s dollar exchange rate against the euro?
The Fundamental Equation of the Monetary Approach
– Price levels can be expressed in terms of domestic money demand and supplies:
In the United States:
13
Figure 15-1: Long-Run Time Paths of U.S. Economic Variables after a Permanent Increase in the Growth Rate of the U.S. Money Supply
(a) U.S. money supply, MUS
Empirical Evidence on PPP and the Law of One Price

Chapter 16 Price Levels and the Exchange Rate in the Long Run

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall
16 – 11
◦ Absolute PPP assumes an identical market basket of tradable goods in both countries ◦ This requires market baskets have identical weights of identical goods---not the case ◦ Comparisons are still valid as long as the factors that cause the price levels to change in each country are similar
Pus E$ / £ Puk Or Pus E$ / £ Puk
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 16 – 4
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall
16 – 19

3) Barriers or market conditions may allow prices to diverge between countries

If the ER does not exactly match the price level ratio, the difference will have an important implication for a country’s trade flows

Lecture09PRICES and EXCHANGE RATES(国际经济学)

2
PPP
PPP rate of £ in terms of $ ($/£) = (PP of £)/(PP of $) = (1/ PUK)/(1/PUS) = PUS/PUK
According to the PPP theory, the equilibrium exchange rate is determined by the ratio of the domestic and foreign price levels.
5
How well does PPP hold? PPP is a reasonable approximation in: a. long-term relationship b. high inflation countries In the short run data, PPP does not hold well. Deviations from PPP are frequent and persistent. For currencies of industrial countries with low inflation, PPP does not hold well especially in the short run.
b.
c.
Long-term deviations PPP may not hold even in the long run in certain cases. The real exchange rate may not be constant.
11
10
How to explain deviations from PPP? (Why PPP does not hold?)
a. Tariffs, transport costs and other barriers to trade Wedge to the Law of One Price Goods prices are sticky while asset prices are not

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In this chapter, we develop 2 more models, building on the long run approach from last chapter.
Long run means that prices of goods and services and factors of production that build those goods and services adjust to supply and demand conditions so that their markets and the money market are in equilibrium.
• The law of one price says that the price of the same pizza (using a common currency to measure the price) in the two cities must be the same if markets are competitive and transportation costs and barriers between markets are not important.
➢ People would have an incentive to adjust their behavior and prices would tend to adjust until one price is achieved across markets (across restaurants).
Copyright © 2009 Pearson Addison-Wesley. All rights reserved.
15-7
Law of One Price (cont.)
• Consider a pizza restaurant in Seattle one across the border in Vancouver.
15-6
Law of One Price (cont.)
➢ Due to the price difference, entrepreneurs would have an incentive to buy pizza at the cheap location and sell it at the expensive location for an easy profit.
➢ Due to strong demand and decreased supply, the price of the $20 pizza would tend to increase.
➢ Due to weak demand and increased supply, the price of the $40 pizza would tend to decrease.
PpizzaUS = (EUS$/C$) x (PpizzaCanada)
PpizzaUS = price of pizza in Seattle
➢What do you predict to happen?
➢Many people would buy the $20 pizza, few would buy the $40 one.
Copyright © 2009 Pearson Addison-Wesley. All rights reserved.
Preview
• Law of one price
• Purchasing power parity
• Long run model of exchange rates: monetary approach
• Relationship between interest rates and inflation: Fisher effect
15-2
The Behavior of Exchange Rates
• What models can predict how exchange rates behave?
In last chapter we developed a short run model and a long run model that used movements in the money supply.
Because prices are allowed to change, they will influence interest rates and exchange rates in the long run models.

Copyright © 20096 Pearson Addison-Wesley. All rights reserved.
• Shortcomings of purchasing power parity
• Long run model of exchange rates: real exchange rate approach
• Real interest rates
Copyright © 2009 Pearson Addison-Wesley. All rights reserved.
Chapter 15
Price Levels and the Exchange Rate in the Long Run
Slides prepared by Thomas Bishop
Copyright © 2009 Pearson Addison-Wesley. All rights reserved.
15-3
➢Why? Suppose the price of pizza at one restaurant is $20, while the price of the same pizza at an identical restaurant across the street is $40.

Price Levels and the Exchange Rate in the Long Run

M16 Chap.14 Prices and Exchange Rates Purchasing Power Parity

国际经济学英文第七版克鲁格曼英文经济名词翻译

国经lecture 11

克鲁格曼第八版 国际金融下答案

exchange rates and prices

英文版国际金融第六章-笔记翻译

国际会计第七版英文版课后答案(第六章)

国际经济学 中英名词解释

Price Levels and the Exchange Rate in the Long Run

Multinational Finance (7)

国际经济学的国际金融部分的选择题练习

P为消费者物价指数

Chapter 15 Price Levels and the Exchange Rate in the Long Run 国际财务管理课件

Chapter 16 Price Levels and the Exchange Rate in the Long Run

Lecture09PRICES and EXCHANGE RATES(国际经济学)

克鲁格曼第八版国际金融下答案

国际经济学中英名词解释