The
foreign exchange
The foreign exchange and the exchange rate The foreign exchange market
• Participants: banks, government, enterprises, individuals • Spot market and forward market • Trades: forwards, futures, options and swaps
12
Definition of foreign exchange
narrow : foreign exchange is the way of payment and assets used to the international settlement(国际结算), which is denominated in foreign currency. --it includes: the foreign currency (money) credit instruments securities others: e.g. contract
Test (70%) Presentation(including papers) (20%) Exercises (10%)
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Chapter 1 The foreign exchange market
Spot
foreign exchange market Spot rates Arbitrages Intradaily activity Central bank Black markets and parallel markets
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Foreign exchange market
• • •
Foreign exchange (外汇) Foreign exchange trading Foreign exchange market
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The construction of BOP Equilibrium and adjustment International reserves Determinants of BOP Macroeconomic policy in the open economy
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Foreign exchange market
Foreign exchange market refers to large commercial banks in financial centers that trade foreign-currencydenominated deposits with each other. In a word, the FEM is the place where the foreign exchange trading proceeds.
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Foreign exchange trading
Foreign exchange trading: refers to trading one country’s money for that of another country. To meet the need: tourism goods trading investment
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References

国际金融学 刘军善 东北财大出版社 国际金融 钱荣堃 四川人民出版社 Internet: 中国人民银行网站 中国外汇管理局 美联储官方网站 www. ……
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Arrangement of lectures
Main
way: teaching Presentation and discussion: hot topic (20-25min) Exercises: in classes and homework Final score:

Yafei Xing,School of Finance 20
Foreign exchange market(cont.)
Computers transmit information rapidly and have integrated markets. The integration of markets implies that there is no significant arbitrage between markets. Material 1
6
Structure (cont.)
International
capital flows
International investment Multinational firm International banking– Eurocurrency market Determination of International capital flows
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To this book
Chapters
1 through 8 identify the key institutions and relationships of the international monetary system Chapters 9 through 10 cover the determinants of BOP and exchange rates Chapters 11 through 13 focus on the topics of interest to the international financial managers The last one is devoted to the macroeconomic issues
International Money & Finance
Michael Melvin 7th Edition
Lecturer: Yafei Xing 邢雅菲 E-mail: xingfinance1@
密码:xing123
Yafei Xing,School of Finance 1
Three questions
1.
2.
3.
Why did I choose this book? How to study? What does International Finance talk about?
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2
Preparation

Байду номын сангаас
Macroeconomics Microeconomics The theory of Money and Banking
外汇≠外币
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Definition of Foreign exchange(cont.)
2.
3.
A broad definition: foreign exchange refers to all of the foreign claims(对外债 权) used to international settlement. (e.g.IMFs) Dynamic definition: foreign exchange refers to the currency exchange among countries.
Non-bank financial institutions (pension funds, insurance funds) may buy/sell foreign assets.
2.
3.
Private firms: conduct foreign currency transactions to buy/sell goods, assets or services.
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Foreign exchange market(cont.)
4. 5. 6.
foreign exchange brokers: often banks deal through foreign exchange brokers. Central banks: conduct official international reserves transactions. Individual/household: tourism

in 1989 the daily volume of trading was $600 billion, in 2001 the daily volume of trading was $1.2 trillion.
About 90% of transactions in 2001 involved US dollars. Table 1.4 , Table 1.5 (P16-17 )&Table 1B.1(P22)
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Structure
The
foreign exchange The balance of payments International capital flows