国际金融(双语)chap6课件.ppt

1、Chapter 6 Exchange Rates,Interest Rates,and Interest Rate ParityTopics to be Covered Interest Rate Parity:Exchange rate,Interest rate Fisher Equation:Exchange Rates,Interest Rates,and Inflation Expected Exchange Rate and the Term Structure of Interest RateNews from the Economist Hot and bothered Des

2、pite strict capital controls,China is being flooded by the biggest wave of speculative capital ever to hit an emerging economy.Jun 26th 2008|BEIJING In 2007-2008,interest rates in China and the United States have been moving in opposite directions.The U.S.Federal Reserve lowered the federal funds ra

3、te nine times from a high of 5.25%in June 2007 to 2.00%.Over the same time period,the Peoples Bank of China raised its benchmark one-year interest rate on deposits from 2.52%to 4.14%.In addition to the attraction of the interest rate difference,speculators are moving“hot money”into China because of

4、the general expectation that the RMB will continue appreciate in value against the U.S.dollar and other currencies.Since July 21,2005,through July 15,2008,the RMB has appreciated in value by 21.6%.Most analysts expect the Chinese government to continue the RMBs appreciation.Covered Interest Rate Arb

5、itrage Consider the following set of foreign and domestic interest rates and spot and forward exchange rates.Covered Interest Rate Arbitrage A trader with$1,000 to invest could invest in the U.S,in one year his investment will be worth$1,050=$1,000(1+i$)=$1,000(1.05)Alternatively,this trader could e

6、xchange$1,000 for 800 at the prevailing spot rate,(note that 800=$1,000$1.25/)invest 800 at i=10%for one year to achieve 880.Translate 880 back into dollars at F360($/)=$1.30/,the 880 will be exactly$1,144.So What would happen if everyone recognize the arbitrage opportunity?More and more people woul

7、d exchange$to at the spot market,so the spot exchange rate of Pound would appreciate.At the same time,More and more people would exchange to$at the forward market,thus the forward exchange rate of Pound would depreciate.Moreover at the money market,more and more people would borrow money from US dol

8、lar market and lend it to the Pound market,then i$would increase and i would decrease respectively.In practice,in the short term the response of FEM is much faster than that of money market,so we can have the Interest Rate Parity.Interest Rate Parity The interest rate parity relationship is a result

9、 of profit-seeking arbitrage activity called covered interest rate arbitrage(无风险套利、抵补套利无风险套利、抵补套利).A U.S.investor deciding between investing in the U.S.or in the U.K.must consider:The interest rates,i$and i The spot exchange rate,E,(in$/)The forward exchange rate,F,(in$/)Interest Rate Parity(cont.)B

10、y investing$1 at home,the U.S.investor can earn 1+i$for one period.Or,since$1=1/E pounds,the U.S.investor can invest in the U.K.and earn(1+i)/E.Since future spot rates are unknown,the investor can eliminate the uncertainty over the future dollar value of the investment with a forward exchange contra

11、ct.Covered Return（抵补收益）（抵补收益）Covered return is the domestic currency value of a foreign investment when the foreign currency proceeds are sold in the forward market.In our example,the covered return is equal to(1+i)F/E dollars.Arbitrage between the two investment opportunities results in:（6.1）Intere

12、st Rate Parity Interest rate parity states that the forward premium(or discount)is equal to the interest rate differential between two currencies.This parity is approximated by the equation:（6.3）Effective Return(有效收益有效收益)The effective return on a foreign investment is given by the interest rate plus

13、 the expected change in the exchange rate.Using our example,the effective return is:（6.4）Reasons Why Interest Rate Parity May Not Hold Buying and selling foreign exchange and international securities involve transaction costs.Taxes may differ according to an investors residence.Government controls o

14、n financial capital flows may exist.There may be political risks.Interest Rates and Inflation Nominal Interest Ratethe interest rate actually observed in the market.Real Interest Ratethe nominal interest rate minus or adjusted for inflation.Fisher Equation The relationship between interest rates and

15、 inflation is given by the Fisher equation:where i is the nominal interest rate,r is the real interest rate,and is the expected rate of inflation.Refer to Table 6.1（5.5）TABLE 6.1 Interest Rates and Inflation Rates for Selected Countries,20071Exchange Rates,Interest Rates,and Inflation If the real in

16、terest rates are equalized internationally,Interest Rate Parity indicates(Given our U.S.and U.K.investment example):（6.7）Term Structure（期限结构）（期限结构）of Interest Rates For different investment opportunities and for different maturity dates,the interest rates vary.Term structure of interest ratesthe pat

17、tern of interest rates over different terms of maturity dates.1.Expectation long term interest rate tends to be equal to an average of short term rates expected over the long term holding period.2.Liquidity premium risk premium（People prefer to lend short term）3.Preferred habitat There are different

18、 markets for long term and short term interest rate.The interest rates are determined by supply and demand in each market.Expected Exchange Rates and Term Structure of Interest Rates Refer to Figure 6.1 Eurocurrency Interest Rates If the term structure lines for two countries are:Parallel,then the f

19、uture changes in exchange rate are expected to be constant Diverging,then the high-interest-rate currency is expected to depreciate at an increasing rate over time Converging,then the high-interest-rate currency is expected to depreciate at a declining rate relative to the low-interest-rate currency

20、 p123 Suppose the term structure of interest rates is rising for the United States and falling for Japan.If this is all you know,what can you say about the expected change in the yen/dollar exchange rate?As we move out over time,the expected change in the exchange rate should increase.Exercise The 1

21、-year interest rate on Swiss francs is 5 percent,and the dollar interest rate is 8 percent.a.If the current$/SF spot rate is$0.60,what would you expect the spot rate to be in 1 year?b.Why is there no observable expected future spot rate?c.Suppose U.S.policy changes and leads to an expected future sp

22、ot rate of$0.63.What would you expect the dollar interest rate to be now?(Assume no change in the Swiss interest rate.)a.1.08=1.05+(F-0.60)/0.60,F=0.618 b.The reasons of why IRP may not hold c.i$=(0.63-0.60)/0.60+.05=0.10 percentThought Indicate whether the following quotation is true or false,and t

23、hen carefully explain your answer.“Lenders benefit from unexpected inflation but borrowers are hurt by it.”Suppose there is no inflation,and I loan you$100 for a year at 5%.But suddenly the money supply zooms,and the inflation rate turns out to be 10%over the year,and on the day you pay me back the$

24、105,it now takes$110 to buy what$100 used to.The$105 wont even be worth what$100 was worth a year ago,and I am clearly worse off for having loaned you the money.Ive receiveda nominal interest rate of 5%but a real interest rate of-5%.You,on the other hand,had to pay me back less than you borrowed in

25、real terms.Lenders are hurt from unexpected inflation,but borrowers benefit from it.Question Assume the 3-month interest differential for Swiss francs minus British pounds is equal to-0.05.The 6-month interest differential is equal to-0.03.Is the British pound selling at a premium or a discount rela

26、tive to the Swiss franc?How is the expected rate of pound appreciation or depreciation changing over time?Since British interest rates are higher than Swiss rates,IRP requires that the pound will sell at a forward discount against the franc.With the forward rate lower than the spot rate.The rate of such depreciation is expected to depreciate at a declining rate relative to the low-interest-rate currency.