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CHAPTER 10 + Lecture FOREIGN EXCHANGE MARKET
Foreign Exchange Market ,[object Object],[object Object],[object Object],[object Object]
Foreign Exchange Market ,[object Object],[object Object],[object Object],[object Object],[object Object]
Foreign Exchange Market ,[object Object],[object Object],[object Object],[object Object],[object Object]
FOREIGN EXCHANGE RATES ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
READING FOREIGN EXCHANGE QUOTATIONS Hill, 5 th  ed.
FOREIGN EXCHANGE RATES ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
TERMS: CURRENCY VALUES ,[object Object],[object Object],[object Object],[object Object],[object Object]
Foreign Exchange Market ,[object Object],[object Object],[object Object],[object Object],Dollar is weakeningYen is getting stronger Yen is  weakening Dollar is  getting  stronger
Functions of the Foreign  Exchange Market ,[object Object],[object Object],[object Object]
HOW TO CONVERT ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
CURRENCY CONVERSION ,[object Object],[object Object],[object Object]
CURRENCY CONVERSION:WHEN ,[object Object],[object Object],[object Object],[object Object],[object Object]
CURRENCY CONVERSION:WHEN ,[object Object],[object Object],[object Object],[object Object]
CURRENCY CONVERSION:WHEN ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
REDUCING RISK ,[object Object]
REDUCING RISK ,[object Object],[object Object],[object Object]
SPOT EXCHANGE RATE ,[object Object],[object Object],[object Object],[object Object]
A SPOT FX DEAL ,[object Object],[object Object],[object Object],[object Object],[object Object]
FORWARD EXCHANGE:  Insuring against foreign exchange risk ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
FORWARD EXCHANGE  ,[object Object],[object Object],[object Object],[object Object]
FORWARD EXCHANGE ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
FORWARD EXCHANGE  ,[object Object],[object Object],[object Object],[object Object]
Other Risk-Hedging Instruments ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
WHERE IS THE FOREIGN EXCHANGE MARKET? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
WHO PARTICIPATES IN FX MARKET? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Example of a Forex Trading Combinations SOURCE: Eitman, David K., Stonehill, Arthur L., Moffet, Michael H.  MULTINATIONAL BUSINESS FINANCE. Addison Westley: New York, 2001. p.101
CENTERS OF FOREX ,[object Object],São Paulo Rio de Janiero Mexico City San Francisco New York Toronto Bombay Melbourne Sydney Tokyo Hong Kong Singapore Paris Zurich Frankfurt Amsterdam Vienna Madrid Hamburg Dusseldorf Rome Brussels Chicago London Basel
THE MARKET THAT NEVER SLEEPS ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Foreign Exchange Market ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Economic Theories about How Exchange Rates are Determined ,[object Object],[object Object],[object Object]
WHAT  FACTORS INFLUENCE THE FOREIGN EXCHANGE MARKET Source:  REUTERS FORWARD EXCHANGE and MONEY  MARKET,John Wiley  & Sons, 1999.
Economic Theories about How Exchange Rates are Determined ,[object Object],[object Object],[object Object],[object Object]
Economic Theories about How Exchange Rates are Determined ,[object Object],[object Object],[object Object],[object Object],[object Object]
Economic Theories about How Exchange Rates are Determined ,[object Object],[object Object]
Forex: Supply and Demand ,[object Object],[object Object],[object Object]
ARBITRAGE: moments of opportunity which impact supply and demand for FOREX ,[object Object],[object Object],[object Object]
Currency Conversion: Transfer of Purchasing Power Foreign Exchange Market Trade in home currency for foreign currency: increases demand for foreign currency [and decreases supply]; increases supply of home currency [decreases demand] in foreign exchange market HOME CURRENCY FOREIGN CURRENCY
Forex: Supply and Demand ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Forex : Changes in Income ,[object Object],[object Object],[object Object],[object Object]
Forex : Changes in Income ,[object Object],[object Object]
Forex: Changes in Prices Basic concept: Law of One Price ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Forex: Change in Prices   Basic concept:  P urchasing  P ower  P arity ,[object Object],[object Object],[object Object],[object Object]
Forex: Change in Prices   P urchasing  P ower  P arity (PPP) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Forex: Change in Prices   P urchasing  P ower  P arity (PPP) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Big Mac Index June 2005 The Big Mac Index compares actual exchange rates with what would be the PPP exchange rate (“ideal” theoretical exchange rate  where purchasing power is equal). Hill, p. 349 Switzerland  5.05  2.06  +65
THE BIG MAC INDEX ,[object Object]
EXAMPLE: the Chinese Yuan ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Change in Prices due to Inflation Forex: Money Supply and Inflation ,[object Object],[object Object],[object Object],[object Object],[object Object]
Forex: Interest Rates ,[object Object],[object Object],[object Object],[object Object]
Forex: Interest Rates ,[object Object],[object Object],[object Object]
Forex: Interest Rates ,[object Object],[object Object]
Forex: Interest Rates ,[object Object],[object Object],[object Object]
Forex: Interest Rates ,[object Object],[object Object],[object Object]
Forex: Role of Government ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Forex: Role of Government ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Forex: Influence of People ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
EXAMPLE of Factors affecting Forex Invester’s Business Daily , Vol. 21, No 170. Friday, Dec 10, 2004 p. A1 (faster-growing economy in U.S.) San Jose Mercury News, Dec 4, 2004, p. C-1 (U.S. employment data weaker than expected)
Forex: Influence of People ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
What are Good Predictors of  Forex Rates? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
What are Good Predictors of  Forex Rates? ,[object Object],[object Object],[object Object],[object Object]
Approaches to Forecasting ,[object Object],[object Object],[object Object],[object Object],[object Object]
Special Issue: Currency Convertibility   ,[object Object],[object Object],[object Object],[object Object]
Special Issue: Currency Convertibility ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Special Issue: Currency Convertibility ,[object Object],[object Object],[object Object]
Special Issue: Currency Convertibility ,[object Object]
Counter trade – alternative to convertibility issues ,[object Object],[object Object],=
Managerial Implications ,[object Object],[object Object],[object Object]

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Mgnt 4670 Ch 10 Foreign Exchange Fall 2007)

  • 1. CHAPTER 10 + Lecture FOREIGN EXCHANGE MARKET
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  • 6. READING FOREIGN EXCHANGE QUOTATIONS Hill, 5 th ed.
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  • 27. Example of a Forex Trading Combinations SOURCE: Eitman, David K., Stonehill, Arthur L., Moffet, Michael H. MULTINATIONAL BUSINESS FINANCE. Addison Westley: New York, 2001. p.101
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  • 32. WHAT FACTORS INFLUENCE THE FOREIGN EXCHANGE MARKET Source: REUTERS FORWARD EXCHANGE and MONEY MARKET,John Wiley & Sons, 1999.
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  • 38. Currency Conversion: Transfer of Purchasing Power Foreign Exchange Market Trade in home currency for foreign currency: increases demand for foreign currency [and decreases supply]; increases supply of home currency [decreases demand] in foreign exchange market HOME CURRENCY FOREIGN CURRENCY
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  • 46. Big Mac Index June 2005 The Big Mac Index compares actual exchange rates with what would be the PPP exchange rate (“ideal” theoretical exchange rate where purchasing power is equal). Hill, p. 349 Switzerland 5.05 2.06 +65
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  • 58. EXAMPLE of Factors affecting Forex Invester’s Business Daily , Vol. 21, No 170. Friday, Dec 10, 2004 p. A1 (faster-growing economy in U.S.) San Jose Mercury News, Dec 4, 2004, p. C-1 (U.S. employment data weaker than expected)
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