A credit item (measured with a positive sign) is an item for which the country mustbe paid. 贷（资金流入） surplus 顺差 deficit 逆差A debit item （measured with a negative sign ） is an item for which the countrymust pay. 借 （资金流出）A us resident increasing his holding of a foreign financial asset. Debit -A foreign resident increasing her holding of a us financial asset. Credit+A us resident decreasing her holding of a foreign financial asset. Credit+A foreign resident decreasing his holding of a us financial asset.Debit-The spot exchange rate is the price for “immediate ”change. 基期汇率The forward exchange rate is the price set now for an exchange that will take placesometime in the future.远期汇率 Bandwagon 从众效应The trading done with customers is called the retail part of the market . 与客户交易的零售市场The trading done between the banks active in the market is called theinterbank part of the market .银行间交易的银行市场The expected uncovered interest differential （EUD ）EUD=)1(/*)1(us ex U K i e e i +-+ EUD=Expected appreciation+)(us uk i i -Fixed exchange-rate system 固定汇率（can declare a narrow band 允许小浮动）Arbitrage,the process of buying and selling to make a nearly riskless (几乎没风险)pure profit,ensures that rates in different locations are essentially the same,and thatrates and cross0rates are related and consistent among themselves. （无风险）套利Hedging a position exposed to rate risk ,here exchange-rate risk ,is the act of reducingor eliminating a net asset or net liability position in the foreign currency .对冲Speculating ,is the act of taking a net asset position ”long ” or a net liability position…short ‟ in some asset class ,here a foreign currency.投机Do not confuse the forward rate with the future spot rate,the spot rate that ends upprevailing 90days from now.远期汇率与未来基期汇率不同In financial jargon,hedging means reducing both kinds of …open ‟positions in a foreigncurrency_both long positions and s hort positions .对冲包括买入过多和卖出过多Absolute purchasing power parity 绝对购买力评价P=e ·Pf e=P/PfRelative purchasing power parity 相对购买力评价 difference between changesover time in product-price levels in two countries will be offset by the change in the exchange rate over this time. ⎪⎪⎭⎫ ⎝⎛=⎪⎪⎭⎫ ⎝⎛0,,0101//f t f P P P P e e Money and PPP combined 货币模型)/(*)/(*)/(/Y Y k k M M Pf P e f f sf s ==Each 1 percent rise in the domestic money supply s MEach 1 percent drop in the foreign money supply sf MEach 1 percent drop in domestic real GDP YEach 1 percent rise in foreign GDP f YThe special drawing right (SDR) 特别提款权of U.S$0.66 plus 0.423 euro plus 12.1 Japanese yen plus British€0.111.Defending a fixed exchange rate 保护汇率1.The government can intervene in the foreign exchange market, buying or selling foreign currency in exchange for domestic currency,to maintain or influence the actual exchange rate in the market.2.The government can impose some form of exchange control to maintain or influence the exchange rate by constricting demand or supply in the market.3.The government can alter domestic interest rates to influence short-term capital flows, thus maintaining or influencing the exchange rate by shifting the supply demand position in the market.4.The government can adjust the country‟s whole macroeconomic position to make it …fit‟the chosen fixed exchange-rate value.Gold standard金本位emerged by 1870Bretton woods system 布雷顿森林体系英镑-美元The u.s shifted to running official settlements balance deficits.习题1.What has happened to the exchange-rate value of the dollar in each case?A.(Fr)the value of the dollar decreasesB.($)the value of the dollar decreasesC.(yen)the value of the dollar increasesD.(yen/$)the value of the dollar increases2.For each of the following ,is it part of demand for yen or supply of yen in the foreign exchange market?A.(Japan)demand for yenB.(producer)demand for yenC.(oranges)supply of yenD.(exchange)demand for yen3.The spot exchange rate between the dollar and the swiss franc is a floating ^ rate?A(Switzerland)increase in supply of swiss franc reduces the exchange-rate value of the franc.the dollar appreciatesB(markedly)increase in supply of franc reduces the exchange-rate value of the franc.the dollar appreciatesC(US)increase in supply of franc reduces the exchange-rate value of the franc.the dollar appreciatesD(products)decrease in demand for francs reduces the exchange-rate value of the franc .the dollar appreciates.4.The current spot exchange rate is $0.50/SFr. The current 180-days^forward contract?For forward speculation the relevant comparison is between the current forward exchange rate and the expected future spot exchange rate .Comparing these two rates,we hope to make a profit by buying low and selling high.5.You have access to the following rate:Current spot exchange rate$0.0100/yen^followingA($1-dollar-180) invest in dollar-denominated asset:$1*(1+0.0605)=$1.0605 Invest in yen-denominate asset $1*(1/0.0100)*(1+0.01)*(0.0105)=$1.0605 B($1-yen-180)invest in dollar-denominated asset:$1*(1+0.0605)*(1/0.0105)=101yen Invest in yen-denominate asset $1*(1/0.0100)*(1+0.01)=101yenC(100yen-180)Invest in dollar-denominated asset:100yen*(0.01)*(1+0.0605)*(1/0.0105)=101yen.Invest in yen-denominate asset 100yen*(1+0.01)=101yen5.Short-run pressures on market exchange^trade in goods and services”agree or dis_? Disagree.First,exchange rates can be quite variable in the short run.Second ,the volume of trading in the foreign exchange market is much larger than the volume of international trade.6.The current rates areSpot exchange rate:$2.00/€A（rates）if we use the approximation formula,uncovered interest parity holds when the foreign interest rate plus the expected rate of appreciation of the foreign currency equals the domestic interest rate.B（depreciated）this shifts the uncovered differential in favor of investing in dollar-denominated bonds.the additional demand for dollars in the foreign exchange market results in an appreciation of the dollar.7.As a foreign exchange trader,how would ^computer screen?A(earlier)Sell pesosB(credit)sell Canadian dollarsC(foreigners)Sell Swiss francs.8.For your next foreign vacation,would ^relative to PPP?As a tourist ,you will be importing services from the country you visit,You would like the currency of this foreign country to be relatively cheap so you would like it tobe undervalued relative to PPP9.In 1975,the price level for the US^to 390A(2008)if we used 1975 as a base year,the nominal exchange rate of$1/p nut corresponded to a ratio of US.prices to Pugelovian prices of 100/100B(PPP)if the actual exchange rate is $1/p nut in2008 ,then the p nut is overvalued.it‟s exchange-rate value is higher than the rate that would be consistent with PPP.图表Current account CA活期Exports of goods and services 1834Imports of goods and services -2330Income received from foreigners 662Income paid to foreigners -499Unilateral transfers,net -137Current account balance -470Financial account (excluding official international reserves) FA资本交易Changes in U.S direct investment abroad -346Changes in foreign direct investment in the U.S 194Changes in U.S holding of foreign stock and bonds -167Changes in foreign holdings of U.S stocks and bonds 482Changes in U.S loans to foreigners and other investments -510 Changes in foreign loans to the U.S and other investments 286Financial account balance -61Official international reserves OR 国际储备Changes in U.S official official holdings of foreign assets -2Changes in foreign official holdings of U.S assets 298Changes in official international reserves,net 296Statistical discrepancy 统计误差 235Other important balances:Goods and services balance -496Overall balance -296A.The market for poundsExchange rate ($ per €)本币美元1.98 Government buy 若AB 在E 上方，则€B-€A=50billion 政府买入€B-€A1.60 若AB 在E 下方，则 政府卖出€B-€A270 300 320 € （billions ）Determinants of exchange rate in the short runChange in Variable Direction of internationalFinancial repositioning Implications for the current rate(e=Domestic currency/ForDomestic Interest Rate(i )(Domestic currency+) IncreasesToward domestic-currency assets e decreases(appreciates) Decreases Toward foreign-currency assets e increases(depreciates)Foreign Interest Rare (fi ) IncreasesToward foreign-currency assets e increases(depreciates) Decreases Toward domestic-currency assets e decreases(appreciates)Expected Future Spot Exchange rate (ex e )IncreasesToward foreign-currency assets e increases(depreciates) DecreasesToward domestic-currency assets e decreases(appreciates) B A E。