Chapter 4.pptx - Exchange Rate Determination CHAPTER 4 Chapter Objectives Explain how exchange rate movements are measured Explain how the equilibrium

Chapter 4.pptx - Exchange Rate Determination CHAPTER 4...

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Exchange Rate Determination CHAPTER 4
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2 Explain how exchange rate movements are measured.Explain how the equilibrium exchange rate is determined.Examine factors that determine the equilibrium exchange rate.Explain the movement in cross exchange rates.Explain how financial institutions attempt to capitalize on anticipated exchange rate movements.Chapter Objectives
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3 1 1 alue currency v foreign in Percent t t S S S Measuring Exchange Rate Movements 1. Depreciation is a decline in a currency’s value. 2. Appreciation is an increase in a currency’s value. 3. Comparing foreign currency spot rates (direct quotation) over two points in time, S and S t-1 4. A positive percent change indicates that the currency has appreciated . A negative percent change indicates that it has depreciated .
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4 Exhibit 4.1 How Exchange Rate Movements and Volatility Are Measured
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5 Exchange Rate Equilibrium
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6 Exhibit 4.4 Equilibrium Exchange Rate Determination
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