International Finance——国际金融笔记

International Finance
CHAPTER 1
Balance of payments: the balance of payments is a record of the economic transactions between the residents of one country and the rest of the world. Nations keep record of their balance of payments over the course of a one-year period.
3 major accounts: current, capital, financial
Current account: the current account of the balance of payments refers to the monetary value of international flows associated with transactions in goods, services, income flows, and unilateral transfers.
Include:(1) merchandise trade (goods and services), (2) income receipts and payments, (3) unilateral transfers
Double-entry accounting：The arrangement of international transactions into a balance-of-payments account requires that each transaction be entered as a credit or a debit.
(+) a credit transaction is one that results in a receipt of payment from foreigners.
(-) a debit transaction is one that leads to a payment to foreigners.
CHAPTER 2
Foreign-exchange market: the foreign-exchange market refers to the organizational setting within which individuals, businesses, governments, and banks buy and sell foreign currencies and other debit instruments.
Foreign-currency options: foreign-currency options provide an options holder the right to buy or sell a fixed amount of foreign currency at a prearranged price, within a few days or a couple of years. The options holder can choose the exchange rate he or she wants to guarantee, as well as the length of the contract.
A call option gives the holder the right to buy foreign currency at a specified price.
A put option gives the holder the right to sell foreign currency at a specified price.
Exchange-rate determination 章节整体
Demand for foreign exchange
Supply of foreign exchange 易忘记混淆！！P39
Equilibrium rate of exchange
Nominal and real exchange rates
Nominal exchange rates do not reflect changes in price levels in trade partners.
Real exchange rate embodies the changes in prices in countries in the calculation.
(Both nominal exchange rate and real exchange rate are measured in units of domestic currency per unit of foreign currency)
比如美元为本国货币，汇率为
Exchange arbitrage: refers to the simultaneous purchase and sale of a currency in different foreign-exchange markets in order to profit from exchange-rate differentials in the two locations. Two-point arbitrage and Three-point arbitrage P44
The forward rate
When a currency is worth more(less) in the forward market than in the spot market, it is said to be at a premium (discount).
CHAPTER 3
Determining long-term exchange rates 简要说明
Four key factors: relative price levels, relative productivity levels, consumer preferences for domestic and foreign goods, and trade barriers.
Note that these factors underlie trade in domestic and foreign goods and thus changes in the demand for exports and imports. P74
(1)relative price levels
price level ↑in US, constant in UK.
US consumers desire relatively
low-priced UK goods.
D₀ increases to D₁
UK consumers purchase less relatively high-priced US goods.
S₀ decreases to S₁.
Dollar depreciate
(2)relative productivity levels
US productivity growth faster than UK
US goods becomes relatively low-priced
UK demands more US goods.
S₀ increases to S₂.
UK goods becomes relatively high-priced. US demands fewer
UK goods.
D₀ decreases to D₂.
Dollar appreciate
(3)consumer preferences for domestic and foreign goods
US consumers develop
stronger preferences for UK goods.
D₀ increases to D₁.
Dollar depreciate
(4)trade barriers
US government imposes
trade barriers on UK steel.
D₀ decreases to D₂
Dollar appreciate
Purchasing power parity: it says that exchange rates adjust to make goods and services cost the same everywhere and it is an application of the law of one price.
(The law of one price is applied for one good. The purchasing-power-parity theory provides an explanation of exchange rates bases on goods, it’s an application of the law of one piece to national price levels.
Going one step further, the purchasing-power-parity theory suggest that changes in relative national price levels determine changes in exchange rates over the long term.)
Price level ↑(inflation), currency depreciate
Determining short –term exchange rates: the asset-market approach 了解
According to the asset-market approach, investors consider two key factors when deciding between domestic and foreign investments: relative levels of interest and expected changes in the exchange rate itself.
Interest rate ↑, appreciation.
Expect appreciation, appreciation.
Exchange-rate overshooting: a exchange rate is said to overshoot when its short-term response (depreciation or appreciation) to change in market fundamentals is greater than its long-term response.
Forecasting foreign-exchange rates, 3 ways:
(1)Judgmental forecasts: known as subjective or common sense models, require large number of political and economic data and interpretation.
“feel for the market”
(2)Technical forecasts: use historical exchange-rate data to estimate future values.is founded on the idea that history repeats itself. Follows the market closely, to forecast exchange-rate movements in the short-term.
(3)Fundamental analysis: is the opposite of technical analysis. It involves consideration of economic variables which affect the supply and demand of a currency and thus its exchange value, uses computer-based economic models, which are statistical estimations of economic
theories.
CHAPTER 5
Marshall- Lerner condition states: P120
(1)Depreciation will improve the trade balance if the currency-depreciating nation’s demand elasticity for imports plus the foreign demand elasticity for the nation’s export exceeds one.
(2)If the sum of the demand elasticity is less than one, depreciation will worsen the trade balance.
(3)The trade balance will not change if the sum of the demand elasticity equals one.
J-curve effect
J-curve effect suggests that in the very short term, a currency depreciation will lead to a worsening of a nation’s trade balance. But as time passes, the trade balance will likely improve.
The trade balance continues to get worse for a while after depreciation (sliding down the hook of J) and then gets better (moving up the stem of the J).
J-curve effect occurs because the initial effect of depreciation is an increase in import expenditures: the home-currency price of imports has risen, but the volume is unchanged owing to prior commitments. As time passes, the quantity adjustment effect becomes relevant: import volume is depressed, whereas exports become more attractive to foreign buyers.
There tends to be a time lag between changes in exchanges and their ultimate effect on real trade.
CHAPTER 6
Exchange arrangement P136
1．放弃独立法定货币的汇率制度（exchange arrangements
with no separate legal tender）
即一国不发行自己的货币，而是使用他国货币作为本国唯一
法定货币；或者一个货币联盟中，各成员国使用共同的法定
货币。

例如欧元区国家。

2．货币局制度（currency board arrangements）
一国或地区首先确定本币与某种外汇（通常为美元）的法定
汇率，然后按照这个法定汇率以100%的外汇储备作为保证来
发行本币，并且保持本币与该外汇的法定汇率不变。

我国的
香港地区也执行货币局制度。

3．通常的固定钉住汇率制度(conventional pegged
arrangements)
一国将其货币以一固定的汇率钉住某一外国货币或外国货币
篮子,汇率在1%的狭窄区间内波动。

4．水平波幅内的钉住汇率制度（pegged exchange rates
within horizontal bands）与第三类的区别在于,波动的幅度宽于1%的区间。

比如，丹麦实行的波幅为2.5%，塞浦路斯为2.25%，埃及为3%，匈牙利则达到15%。

5．爬行钉住汇率制度(Crawling pegged)
一国货币当局以固定的、事先宣布的值，对汇率不时进行小幅调整，或根据多指标对汇率进行小幅调整。

6．爬行波幅汇率制度(crawling band)
一国货币汇率保持在围绕中心汇率的波动区间内，但该中心汇率以固定的、事先宣布的值，或根据多指标，不时地进行调整。

如以色列的爬行波幅为22%，白俄罗斯的爬行波幅为5%，乌拉圭则为3%。

7．管理浮动汇率制度(managed floating)
一国货币当局在外汇市场进行积极干预以影响汇率。

8．独立浮动汇率制度(independently floating)
本国货币汇率由市场决定。

货币当局偶尔进行干预，这种干预旨在缓和汇率的波动、防止不适当的波动，而不是设定汇率的水平。

The impossible trinity P137
Countries/regions can adopt only two of the following three policies: free capital flows, a fixed exchange rate, and an independent monetary policy.
Key currency: a key currency is widely traded on world money markets, has demonstrated relatively stable values over time, and has been widely accepted as a means of international settlement.
Par value and official exchange rate了解：Under a fixed exchange rate system, government have assigned their currencies a par value in terms of gold or other key currencies. By comparing the par values of other currencies, we can determine their official exchange rate.
Bretton Woods system of fixed exchange rate
简化版：In 1944, delegates from 44 member nations of the United Nations met to create a new international monetary system to establish international monetary order and avoid the instability and nationalistic practices.
The Bretton woods system (lasted from1946 until 1973) adopted a semi-fixed exchange-rate system known as adjustable pegged exchange rates. Under Bretton woods system, The US dollar links with gold（fixed at $35 per ounce）and other currencies are pegged to the dollar.
The BWS has many optional problems, and it reached a climax in the early 1970s. US suspended to exchange gold for dollars at $35 per ounce in 1971. This policy abolished the tie between gold and the international value of the dollar, thus floating the dollar and permitting its exchange rate to be set by market forces.
完整版：The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states in the mid-20th century (lasted from 1946 to 1973). The Bretton Woods system was the first example of a fully
negotiated monetary order intended to govern monetary relations among independent nation-states.
Preparing to rebuild the international economic system while World War II was still raging, delegates from 44 member nations of UN met at the Bretton Woods, United States, for the United Nations Monetary and Financial Conference, also known as the Bretton Woods Conference. The delegates deliberated during 1–22 July 1944, and signed the Agreement on its final day.
Setting up a system of rules, institutions, and procedures to regulate the international monetary system, the planners at Bretton Woods established the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), which today is part of the World Bank Group. These organizations became operational in 1945 after a sufficient number of countries had ratified the agreement.
The chief features of the Bretton Woods system were （1）The US dollar links with gold（fixed at $35 per ounce）.(2) An obligation for each country to adopt a monetary policy that maintained the exchange rate by tying its currency to the U.S. dollar and the ability of the IMF to bridge temporary imbalances of payments.
The BWS has many optional problems, and it reached a climax in the early 1970s. Faced with continuing and growing balance-of-payments deficit, US suspended to exchange gold for dollars at $35 per ounce in 1971, referred to as the Nixon shock, This policy abolished the tie between gold and the international value of the dollar, thus floating the dollar and permitting its exchange rate to be set by market forces.At the same time, many fixed currencies (such as GBP, for example), also became free-floating.
Managed floating rates:is the current international financial environment in which exchange rates fluctuate from day to day, but central banks attempt to influence their countries' exchange rates by buying and selling currencies.
The crawling peg: the crawling-peg system means that a nation makes small, frequent changes in the par value of its currency to correct balance-of-payments disequilibriums.
Currency board: a currency board is a monetary authority that issues notes and coins convertible into a foreign anchor currency at a fixed exchange rate. The anchor currency is chosen for its expected stability and international acceptability.
CHAPTER 8
International reserve:
Include (1) foreign currencies (2) gold (3) special drawing rights
Special drawing rights:
Special drawing rights (SDR, also called Paper Gold) now is used as a reserve asset, and its main
function is to serve as the unit of account of the IMF.
The liquidity and confidence problems of gold exchange standard that resulted from reliance on the dollar and gold as international monies led to the creation of a new reserve asset under the auspices of the IMF in 1970, termed SDR. The objective was to introduce into the payment mechanism a new type of international money which could be transferred among participating countries in settlement of payment deficit.
The value of the SDR is defined as a basket of currencies that include the US dollar, Japanese yen, UK pound and the euro.。