1 / 13

Understanding Currency Trading, Exchange Rates, and Macro Policy Interactions

This overview explores key concepts in international finance, including currency trading, exchange rates (XR), and the impact of monetary and fiscal policies on macroeconomic stability. It details the distinction between spot and forward exchange rates, the role of capital flows, and various financial instruments like futures, options, and swaps. The text also examines the short-term and long-term determinants of exchange rates, highlighting the importance of money supply (M) and interest rates (i). Understanding these dynamics is crucial for navigating global markets effectively.

esma
Télécharger la présentation

Understanding Currency Trading, Exchange Rates, and Macro Policy Interactions

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Overview Chapters 12-17

  2. Ch. 12: Int. Fin. Markets • Currency Trading -> Exchange Rate • Time lag twix ship and receive bigger than time needed for cable transfer. Solution: commercial bill of exchange • Spot vs. Forward XR: risk transferred to speculators • Also: Futures, Options, Swaps

  3. Capital Flows • To get higher return • To get safer return: risk diversification • SR: Money Market (maturity < 1 year) • LR: Capital Market (maturity > 1 year)

  4. Eurocurrency • E.g., Eurodollar = $-denominated account outside the US

  5. Ch. 13: XR (basic model) • It’s a supply and demand thing. • Demand for currency shifts with income and changing relative prices. • Ditto for supply of currency

  6. Ch. 14: XR (add M and i) • Previous model good for long-term predictions. But other determinants matter in the shorter term: M and i. • What is M? • How does Supply of M work? (Reserve requirement -> multiplier) • Discount rate, Open mkt ops

  7. Demand for M • MD=f(i,P,Y) • MD=MS determines i • Interest arbitrage: capital movement • Affects XR, which affects Exp-Imp

  8. Ch. 15: XRPPP • What are the determinants of the exchange rate over long periods of time? • What effect does monetary policy have on the country’s price level and therefore its exchange rate? • Is there a benchmark for the current exchange rate?

  9. Ch. 15: XRPPP • arbitrage -> law of 1 price -> PPP • relative PPP: • RXR:

  10. Ch. 16: Y and XR (SR) • AD and AS (slopes) • Intersection determines Y and P • Foreign income affects Exp • Domestic income affects Imp • XR affects both Imp and Exp • XR affects composition of output(tradable vs. non-tradables)

  11. Ch.17: Macro Policy • Internal Balance • GDP (full employment) • P (keep inflation in check) • External Balance • X-M (current account balance)

  12. Fiscal Policy (expansionary) (G and/or T)  • direct effect: AD and P • indirect effect: budget deficit  Gov. must borrow  i  attracts foreign capital (until i back at original level)  XR (X-M)  AD and P • net effect: ambiguous! Fiscal policy now used less as a means of stabilizing the economy than 30 years ago b/c of flexible exchange rates and increased international mobility of capital.

  13. Monetary Policy (expansionary) MS  i • direct effect: (C and I)  (AD and P) • indirect effect:  outflow of capital  XR (X-M)  (AD and P) • net effect: clear! monetary policy is more effective than fiscal policy as a stabilization tool b/c of flexible exchange rates.

More Related