公司理财Chap020

¥
£
Credit Agricole
S¥/£(0) = 85
20-12
Triangular Arbitrage
Sell $100,000 for £at S£(0) = 1.50 receive £150,000
Sell our £150,000 for ¥at S¥/£(0) = 85 receive ¥12,750,000
currencies, e.g., the exchange rate between £ and
¥ Euro (€): the single currency of the European
Monetary Union which was adopted by Member States on 1 January 1999. Eurobonds: bonds denominated in a particular currency (usually the issuer’s home currency) and issued simultaneously in the bond markets of several countries
◦ Spot rate – the exchange rate for an immediate trade
Forward trade – agree today to exchange currency at some future date and some specified price (also called a forward contract)
20-3
Terminology
Eurocurrency: money deposited in a financial center outside the home country. Eurodollars are dollar deposits held outside the U.S.; Euroyen are yen denominated deposits held outside Japan.
20-11
Triangular Arbitrage
As easy as 1 – 2 – 3:
Barclays S¥(0) =120
1. Sell our $ for £,
$
Credit Lyonnais
S£(0) = 1.50
2. Sell our £for ¥, 3. Sell those ¥for $.
rate most international banks charge one another for loans of Eurodollars overnight in the London market
20-4
20.2 Foreign Exchange Markets and Exchange Rates
20-2
20.1 Terminology
American Depository Receipt (ADR): a security issued in the U.S. to represent shares of a foreign stock
Cross rate: the exchange rate between two foreign
公司理财Chap020
Key Concepts and Skills
Interpret exchange rate quotes and describe their meaning
Differentiate between spot and forward rates
Specify the distinction between purchasing power parity and interest rate parity, and the implications for changes in exchange rates
Articulate the basics of international capital budgeting
Describe the impact of political risk on international business investing
20-1
Chapter Outline
Suppose we observe these banks posting these exchange rates.
Barclays S¥(0) = 120
$
Credit Lyonnais
S£(0) = 1.50
First calculate the implied cross rates to see if an arbitrage exists.
◦ Exchange rate = 45.851 rupees per dollar ◦ Cost = 1,000 / 45.851 = $21.81
20-8
Cross Rates
Suppose that SDM(0) = .50
◦ i.e., $1 = 2 DM in the spot market
Most of the trading takes place in a few currencies:
◦ U.S. dollar ($) ◦ British pound sterling (£ ) ◦ Japanese yen (¥ ) ◦ Euro (€)
20-5
FOREX Market Participants
◦ The two numbers are reciprocals of each other (1/1.1.29167 = .77419)
20-7
Example
Suppose you have $10,000. Based on the rates in Figure 20.1, how many Swiss Francs can you buy?
◦ Forward rate – the exchange rate specified in the forward contract
◦ If the forward rate is higher than the spot rate, the foreign currency is selling at a premium (when quoted as $ equivalents).
do not carry inventory and FX specialists.
◦ Client Market (Retail)
Market participants include international banks, their customers, nonbank dealers, FOREX brokers, and central banks.
Foreign bonds: bonds issued in another nation’s capital market by a foreign borrower
Gilts: British and Irish government securities LIBOR: the London Interbank Offer Rate is the
and that S¥(0) = 100
◦ i.e., $1 = ¥ 100
What must the DM/¥ cross rate be?
sincD e M$DM, ¥ ¥$
DM $1 DM 2DM 1 ¥ ?00 $1 ?0
SDM /¥(0).0o2rDM?10
20-9
Triangular Arbitrage
◦ If the forward rate is lower than the spot rate, the foreign currency is selling at a discount.
20-14
Absolute Purchasing Power Parity
Price of an item is the same regardless of the currency used to purchase it.
◦ Euro
1.29167 .77419
◦ The first number (1.29167 ) is how many U.S. dollars it takes to buy 1 Euro
◦ The second number (.77419) is how many Euros it takes to buy $1
20-6
Exchange Rates
The price of one country’s currency in terms
of another.
Most currency is quoted in terms of dollars.
Consider the following quote:
S£(0) = 1.50
Credit Agricole has
posted a quote of S(¥/£)=85, so there is an arbitrage
¥
£
Credit Agricole
opportunity.
S¥/£(0) = 85
So, how can we make money?
Sell ¥12,750,000 for $ at S¥(0) = 120 receive $106,250
profit per round trip = $ 106,250 – $100,000 = $6,250
20-13
Types of Transactions
Spot trade – exchange currency immediately
◦ Exchange rate = 1.1181 Francs per dollar ◦ Buy 10,000(1.0441) = 10,441 Francs
Suppose you are visiting Bombay and you want to buy a souvenir that costs 1,000 Indian Rupees. How much does it cost in U.S. dollars?
¥
£
Credit Agricole
S¥/£(0) = 85
20-10
Triangular Arbitrage
The implied S(¥/£) cross rate is S(¥/£) = 80
£1.50 × $1
£1 =
$1 ¥120 ¥80
Barclays S¥(0) = 120
$
Credit Lyonnais
20.1 Terminology 20.2 Foreign Exchange Markets and
Exchange Rates 20.3 Purchasing Power Parity 20.4 Interest Rate Parity, Unbiased Forward
Rates, and the International Fisher Effect 20.5 International Capital Budgeting 20.6 Exchange Rate Risk 20.7 Political Risk
The FOREX market is a two-tiered market:
◦ Interbank Market (Wholesale)
About 700 banks worldwide stand ready to make a market in Foreign exchange.
Nonbank dealers account for abouห้องสมุดไป่ตู้ 20% of the market. There are FX brokers who match buy and sell orders but
Without a doubt, the foreign exchange market is the world’s largest financial market.
In this market, one country’s currency is traded for another’s.