Lect09-International Financial Markets-VineyChptr15

40 120 100 080 060 040 020 000 aus parity jan 80 jan

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Unformatted text preview: under hyperinflation and over long periods of time. 38 Exchange Rates and Inflation High Brazil Argentina Israel Mexico Venezuela Greece Portugal South Africa Philippines Inflation Italy Pakistan Spain India New Zealand Hong Kong, China United Kingdom Finland Australia Sw eden Thailand Canada Malaysia France Denmark Norw ay United States Belgium Austria Netherlands Singapore Sw itzerland Japan Low Depreciation Exchange 39 Appreciation Exchange Rates and PPP $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 $A/US$ Parity Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 $A/US$ $A/US$ Time 40 European Monetary Union and FX Markets • Currently, 12 of the 25 members of the EU are participants in EMU • As the EMU gains acceptance, the size and liquidity of EMU member equity and bond markets will increase • The euro has become a hard currency like the USD, JPY and GBP, in that it is generally accepted in international trade transactions 41 Summary • Who are the participants in foreign exchange markets? FX market participants include companies, dealers, central banks, investors, speculators and arbitrageurs • What are the three foreign exchange relationships? Interest Rate Parity Unbiased Forward Rates Purchasing Power Parity 42 Summary • What are FX market instruments FX market instruments are usually either spot or forward transactions – Involve the quotation of the dealer’s buy-sell prices – Cross-rates calculations are necessary between 2 non-USD currencies – Forward exchange rates are quoted as forward points either above or below the spot rate – The euro has grown in acceptance to become a hard currency accepted in international trade transactions 43...
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