Wk13_10Nove_Ch17_FXMktPartII

Wk13_10Nove_Ch17_FXMktPartII - Week 13 (Tues., Nov. 8,...

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Week 13 (Tues., Nov. 8, 2011) Chapter 17 The Foreign Exchange Market
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Review FX Market Mostly the exchange of bank deposits Participants: large banks, large multinationals, institutional investors, and central banks. Very integrated, open 24 hrs. Exchange rates Price of one currency in terms of another Depreciation/(devaluation) Appreciation (revaluation)
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Why Enter FX Market? International Trade Exporters might be paid in foreign currency Importers may need to pay in foreign currency International Investment Banks or CFOs may want to take advantage of differences in interest rates Firms may want to purchase foreign equity Speculation Desire to profit from changes in the exchange rate
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A Simple Demand and Supply Model of Foreign Exchange Two objectives: How to determine the value of Ed/f How to track changes in Ed/f
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FX Demand is Derived Demand FX demand driven by International Trade motives International Investment motives You demand FX when you want to import a foreign good or import a foreign asset. Americans’ demand for British products (Mgs) and British assets (FAp) will be reflected in a demand for £s.
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FX Demand is Downward- Sloping The stronger the dollar (the weaker the
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Wk13_10Nove_Ch17_FXMktPartII - Week 13 (Tues., Nov. 8,...

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