G aus wheat board issuing usd bonds on nyse euro

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E.g. Aus Wheat Board issuing USD bonds on NYSE Euro Bonds Issued usually in a foreign market but in a currency other than that of the country of issue These are not treated like domestic bonds (i.e. avoid strict regulation) e.g. AUS Wheat Board issuing YEN bonds on the NYSE International Equity Market (not as developed as international bond market) Exists to buy foreign shares on foreign stock exchanges - Australian holders of foreign shares buying them on the foreign share’s domestic exchange - E.g. Australian shareholder buying US shares on the US stock exchange Euro-equity issue Companies can simultaneously list their stocks on the Euro market - ADRs is one way to get around the difficulties of listing overseas - Allowing foreign companies to in a sense, effectively list in the US - American depository banks buy foreign stocks and will issue receipts for those stocks - These receipts trade freely and for the same price as the shares Exchange Rate The price of one currency in terms of another Cross rates The ER between two currencies derived from their ER between another currency Effective Exchange Rate “Multi-lateral exchange rate” - Because different exchange rates move in different directions in relation to the base currency The exchange rate between one currency and more than one other currency (The value of one currency in terms of more than one currency) ? ? −/ 0 −12 w i = weight of currency i , V it = ? ?? ? ?0 Real Exchange Rate The nominal exchange rate adjusted for international relative prices (i.e. takes into consideration inflation) ? ? ? = ? ? ? ?? ?? S(x/y) = exchange rate Py = price levels in country y Px = price levels in country x Real effective exchange rate: ? ? ?(?/? ? ) ? ?(?/? ? ) 0 ? ?=1 Modelling A way of thinking that makes some abstraction of reality; some aspects of reality are extracted and discussed - Simplifying assumptions are often made - There are three types of models: verbal, diagrammatic and algebraic Comparative statics Changing one exogenous variable to see its effects on the endogenous variables Flexible Exchange Rate An exchange rate determined by the market and free from government intervention and regulation Fixed ER Where the government or monetary authority sets the price of domestic currency in terms of foreign currency and stands ready to support the domestic currency price at that level- can also be set against a commodity such as gold Distributing prohibited | Downloaded by K C ([email protected]) lOMoARcPSD|2330446
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Fixed vs Flexible In favour of flexible: - Policy independence à the inflation of one country will not spill- over to other countries that it trades with - Market is efficient – will provide the best allocation of scarce resources o To disprove this, you will have to show that Government intervention and regulation will make markets better without any adverse consequences - BoP deficits simply represent borrowing to other markets and are not a source of worry for the Government - Don’t need to use FX reserves Fixed: - More certainty Speculation:
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