国际金融(双语)chap-6

宁波工程学院国商教研室蒋力编
5-5
Covered Interest Rate Arbitrage
Consider the following set of foreign and domestic interest rates and spot and forward exchange rates.
宁波工程学院国商教研室蒋力编
5-4
• In addition to the attraction of the interest rate difference, speculators are moving “hot money” into China because of the general expectation that the RMB will continue appreciate in value against the U.S. dollar and other currencies. Since July 21, 2005, through July 15, 2008, the RMB has appreciated in value by 21.6%. Most analysts expect the Chinese government to continue the RMB’s appreciation.
宁波工程学院国商教研室蒋力编
5-3
• In 2007-2008, interest rates in China and the United States have been moving in opposite directions. The U.S. Federal Reserve lowered the federal funds rate nine times from a high of 5.25% in June 2007 to 2.00%. Over the same time period, the People’s Bank of China raised its benchmark one-year interest rate on deposits from 2.52% to 4.14%.
• Hot and bothered
• Despite strict capital controls, China is being flooded by the biggest wave of speculative capital ever to hit an emerging economy. Jun 26th 2008 | BEIJING
$1,000÷$1.25/£) invest £800 at i£ = 10% for one
year to achieve £880. Translate £880 back into
dollars at F360($/£) = $1.30/£, the £880 will be
exactly $1,144.
Moreover at the money market, more and more people would borrow money from US dollar market
and lend it to the Pound market, then i$ would increase and i£ would decrease respectively.
• Fisher Equation: Exchange Rates, Interest Rates, and Inflation
• Expected ExБайду номын сангаасhange Rate and the Term Structure of Interest Rate
宁波工程学院国商教研室蒋力编
5-2
News from the Economist
Chapter 6
Exchange Rates, Interest Rates, and Interest Rate Parity
宁波工程学院国商教研室蒋力编
Topics to be Covered
• Interest Rate Parity: Exchange rate, Interest rate
A trader with $1,000 to invest could invest in the U.S, in one year his investment will be worth $1,050
= $1,000(1+ i$) = $1,000(1.05)
Alternatively, this trader could exchange $1,000 for £800 at the prevailing spot rate, (note that £800 =
So What would happen if everyone recognize the
arbitrage opportunity?
5-7
宁波工程学院国商教研室蒋力编
More and more people would exchange $ to £ at the spot market, so the spot exchange rate of Pound would appreciate. At the same time, More and more people would exchange £ to $ at the forward market, thus the forward exchange rate of Pound would depreciate.
Spot exchange rate 360-day forward rate U.S. discount rate British discount rate
S($/£) = $1.25 F360($/£) = $1.30
i$ = 5% i£ = 10%
宁波工程学院国商教研室蒋力编
5-6
Covered Interest Rate Arbitrage