國際金融英文版CH

Chapter3ForeignExchangeMarketandForeignExchangeRateForeignExchangeMarketForeignexchangeisanothercountry’smoney.Thedynamicmeaningoftheforeignexchangereferstotheactoftradingdifferentcountry’scurrencies.Convertibilitymeansacurrencycanbefreelyexchangedforanothercurrency.Thisisthemostimportantcharacteristicoftheforeignexchange.Foreignexchangerateisthepriceofonecurrencyintermsofanother.Foreignexchangemarketistheplacewherecurrenciesareboughtandsold.Theforeignexchangemarketisbyfarthelargestfinancialmarketintheworld.Foreignexchangemarkethastwofunctions:thefirstistoconvertonecurrencyintoanother(thespotexchangemarket);thesecondistoprovideinsuranceagainstforeignexchangerisk(theforwardexchangemarket).Theforeignexchangemarketisaninformal,over-the-counterandaround-the-clockmarket.Ithasnocentralizedmeeting-placeandnoformalrequirementsforparticipation.Themarketneversleeps.Tokyo,London,andNewYorkareallshutforonly3hoursoutofevery24.Duringthesethreehours,tradingcontinuesinanumberofminorcenters,particularlySanFranciscoandSydney.Measuringforeignexchangemarketactivity:AverageelectronicconversionsperhourAsof2009,morethan$3trillionaretradedinthismarketonadailybasis.Thiswasamassiveincreaseofnearly70%overthe2004survey’sestimateof$1.9trillion.TheU.S.dollarwasinvolvedinmorethan90%ofallforeignexchangetransactions,followedbytheeuro(38%),yen(23%),andBritishpoundsterling(13%).Londonisthelargestworldforeignexchangemarket,followedbyNewYorkandTokyo.Londonaccountsfor34.1%ofdailyworldexchange.NewYorkisabout16%.Globalforeignexchangemarketturnover,1998-2010(dailyaveragesinApril,billionsofU.S.dollar)Top10geographictradingcenterintheforeignexchangemarket,1992-2007(dailyaveragesinApril,billionsof$)ForeignexchangemarketstructureCustomersbuy$with￥Customersbuy￥with$LocalbanksLocalbanksMajorbanksInterbankmarketsForeignexchangebrokersMNCs&OthersParticipantsintheforeignexchangemarketRetailcustomersaremadeupofindividuals,internationalinvestors,smallbusinesses,speculatorsorthelikewhoneedforeignexchange.Commercialbanks(marketdealers)carryoutbuy/sellordersfromtheirretailclientsandbuy/sellcurrenciesontheirownaccount.

DealeSmall-tomedium-sizebanksarenotmarketmakersintheinterbankmarket.Theybuyfromandselltolargerbankstooffsetretailtransactionswiththeirowncustomers.Foreignexchangebrokersdonotputtheirownmoneyatrisk.Theyservethreepurposesinthemarket.First,theyarethesourcesofinformation.Second,theybringbuyersandsellerstogetherandcontributestomarketefficiency.Third,theymakeitpossiblefortraderstoremainanonymous.BusinessessuchasMNCsarethemajornon-bankparticipantsinthemarket.Centralbanksbuyandsellcurrenciesinabidtoinfluencetheexchangerate.SpotExchangeMarketandExchangeRateQuotationsThespotexchangemarketisamarketthatdealsinforeignexchangeforimmediatedelivery.Immediatedeliveryinforeigncurrenciesusuallymeanswithintwobusinessdays.Aspotexchangerateisthecurrentmarketprice,therateatwhichaforeignexchangedealerconvertsonecurrencyintoanothercurrencyonaparticularday.ForeignexchangeratequotationsontheU.S.Dollar/BritishPoundintheFinancialPressAnexchangeofcurrenciesinvolvestwocurrencies.Eitherofwhichmaybeplacedinthedenominator.Thequotationoftheexchangeratesfollowsconventions.Directquoteistheamountofdomesticcurrencyperunitofforeigncurrency.InJapan￥￥115=€1InCanadaC$1.50=?1Indirectquoteistheamountofforeigncurrencyperunitofdomesticcurrency.InEngland$1.60=?1Americanquoteisthedollarpercurrencyquote,i.e.thepriceofothercurrenciesintermsofthedollar.Example:US$1.57=￡1US$1.35=€1Europeanquoteisthecurrenciesperdollarquote,i.e.thepriceofthedollarintermExample:A$1.02=US$1€0.74=US$1Bidandaskquotesarethepricesatwhichabanklikestobuyandsellstandardamountsofforeigncurrency.Example:$1.0206/SFrBid$1.0217/SFrAskWhenbidislowerthanask,thebankisbuyingorsellingthecurrencyinthedenominatorofthequote.Whenbidishigherthanask,thebankisbuyingorsellingthecurrencyinthenumeratorofthequote.Example:SFr0.9798/$BidSFr0.9787/$AskThebankspendsonedollartobuySFr0.9798;ItsellsSFr0.9787foronedollar.Bid-askspreadisthedifferencebetweenthebidandaskprice.Itisusuallyexpressedby““point”.Example:SFr1.0206/$BidSFr1.0217/$AskHerebid-askspreadisSFr0.0011/$or11basispoints.onebasispoint=1%of1%=0.0001Whenthespreadisexpressedasapercentoftheaskprice,itiscalledbid–askmargin.Bid––askmargin=(ask––bid)/askx100Example:SFr1.0206/$BidSFr1.0217/$AskBid––askmargin=[(1.0217––1.0216)/1.0217]x100=0.1077%Acrossrateistheratewhichiscalculatedfromtwootherbilateralexchangerate.S(x/y)=S(x/z)/S(y/z)Exam￥/SFr=6.6766/0.9644=6.9230Thefollowingformulaisavailablewhenboththebidandaskpricesarecalculated:Sa(x/y)=Sa(x/z)/Sb(y/z)Sb(x/y)=Sb(x/z)/Sa(y/z)Examples:IfJ￥￥/$=85.01––08andSFr/$=0.9855J￥/SFr(bid)=85.01/0.9865=86.17J￥/SFr(ask)=85.08/0.9855=86.33If$/?=1.6000–10andJ￥/$=85.01–08J￥/?(bid)=1.6000x85.01=136.01J￥/?(ask)=1.6010x85.08=136.21Foreignexchangecrossratesatcloseofbusiness,4January2005TheValueofaCurrencyWhenacurrencygainsvaluerelativetoanother,thecurrencyappreciates.Otherwise,itdepreciates.Inforeignexchangemarket,ifthedemandfordollarismorethanthesupplyofthedollar,thedollarappreciates.Percentagechangeinforeigncurrencyvalue:(Endingrate–Beginningrate)(Beginningrate)Example:6monthsago:CHF/USD1.0235rightnow:CHF/USD0.9644Percentagechangeinthevalueofthedollar:(0.9644–1.0235)/1.0235x100=-5.77%Thedollardepreciatedagainstthefrancby5.77%.Annualdepreciationrate:11.54%.Percentagechangesincurrencyvaluesareasymmetric.Whenthedollarisdepreciatedagainstfrancby11.54%p.a.,itdoesnotmeanthefrancisappreciatedagainstthedollarby11.54%p.a.TocalculatethepercentagechangeinSwissfranc,wecanusethefollowingformula:(Beginningrate––Endingrate)(Endingrate)Applyingtheformula,thechangeinSwissfrancis:(1.0235–0.9644)/0.9644=6.13%TheSwissfrancappreciatesagainstthedollarby12.26%annually.ForeignExchangeArbitrageArbitragemeansaprofitablepositionobtainedwithnonetinvestmentandnorisk.Foreignexchangearbitragereferstobuyingonecurrencyinoneplaceandsellingitinanotherplaceatthesametime.Spatialarbitragereferstoarbitrageactivitiesconductedacrosstwodifferentgeographicalmarkets.Suppose$/Dkr=0.1584–0.1594inNewYork,andtheexchangerate(Dkr/$)is6.3520––6.3540inLondon,whatshouldtheforeignexchangetraderdotomakeprofit?Assumethetraderhas$1millionlineofcreditandbothmarketsareopenwithoutanyrestrictionsagainstbuyingandsellingcurrencies.ThetradershouldbuyDanishkroneinLondonandsellthekronefordollarinNewYork.BuyingKronerinLondon:$1mx6.3520=Dkr6.3520m(inLondon)SellingKronerinNewYork:Dkr6.3520mx0.1584=$1.006157m(inNewYork)Profit:$1.006157m-$1m=$6,157Sucharbitrageispracticalonlyiftheparticipantshaveinstantaccesstoquotesandexecutions.Banktraderscanconductsucharbitragewithoutaninitialsumofmoney,otherthantheirbank’screditstanding.Whentheprocessistakingplaceinthreeplaces,itiscalledTriangularArbitrage.Theno-arbitrageconditionfortriangulararbitrageinthecurrencymarketsis:(threecurrenciesd,e,f,areinvolved)Sd/e·Se/f·Sf/d=1Iftheproductofthethreeexchangeratesisnotequaltoone.Anarbitrageopportunityexists.Arulefordeterminingwhichcurrenciestobuyandsellintriangulararbitrage.IfSd/e·Se/f·Sf/d<1,buythecurrenciesinthedenominatorswithIfSd/e·Se/f·Sf/d>1,sellthecurrenciesinthedenominatorsforthecurrenciesinthenumerators.Example.IfinNewYork$/￥=0.00960984,inTokyo￥/SFr=60.75,inZurichSFr/$=1.7125,isthereanarbitrageopportunity?TheproductoftheseexchangeratesisSd/e·Se/f·Sf/d=S$/￥·S￥/SFr·SSFr/$Since0.00960984x60.75x1.7125=0.999754<1then,Buy￥￥with$,(1m)/0.00960984=￥￥104.06mBuySFrwith￥￥,104.06/60.75=SFr1.712922mBuy$withSFr,1.712922/1.7125=$1.000246mProfit:1.000246m–1m=$246.00TheForwardForeignExchangeMarketForwardforeignexchangemarketisforforwardforeignexchangetransactions.Itmeanstheratesandtheamountsofthedealareagreedontodaybutsettlementoccurssometimeinthefuture.Forwardexchangerateisdefinedastheratetobepaidfordeliveryofspecificcurrencyatsomefuturedate.ForwardPremiumandDiscountBidAskSpot:￥￥120.25/€￥￥120.45/€Forward:(90days)￥￥118.84/€￥￥118.97/€€BidAskSpot:￥￥120.25/€￥￥120.45/€Forward:(90days)-141-148basispointsForwardpremium:acurrencyistradingataforwardpremiumwhenthevalueofthatcurrencyintheforwardmarketishigherthaninthespotmarket.Forwarddiscount:acurrencyistradingataforwarddiscountwhenthevalueofthatcurrencyintheforwardmarketislowerthaninthespotmarket.Formulaforforwardpremium/discount(n)[(Ftd/f–S0d/f)]/(S0d/f)n:numberofcompoundingperiodsperyearExampleIfS0$/SFr=1.04andF6$/SFr=1.0000Swissfrancissellingata6-monthforwarddiscount$0.0400/SFr,or400basispoints.Annualizedpercentagedeviationfromthespotrateis:(n)[(Ftd/f–S0d/f)]/(S0d/f)=(2)[(1.0000––1.0400)]/1.0400=-0.06923=6.923%discountrateannuallyForeignExchangeRiskForeignexchangeriskreferstofluctuationsinthedomesticvalueofassets,liabilities,incomeorexpenditureduetounanticipatedchangesinexchangerates.Riskexistswhenthefutureisunknown;thatis,wheneveractualoutcomescandeviatefromexpectedoutcomes.Foreignexchangeexposureiswhatisatrisk.Transactionexposureistheextenttowhichtheincomefromindividualtransactionsisaffectedbyfluctuationsinforeignexchangevalues.Translationexposureistheimpactofcurrencyexchangeratechangesonthereportedfinancialstatementsofacompany.Translationexposureisbasicallyconcernedwiththepresentmeasurementofpastevents.Economicexposureistheextenttowhichafirm’sfutureinternationalearningpowerisaffectedbychangesinexchangerates.Economicexposureisconcernedwithlong-runeffectofchangesinexchangeratesonfutureprices,sales,andcosts.Hedgingistheactofoffsettingexposuretorisk.Longpositioninforeigncurrencymeansforeigncurrencyoraclaiminforeigncurrencyisowned.Shortpositioninforeigncurrencymeansaforeigncurrencyliabilityisowed.AChineseexportingcompanyexpectstoreceivetheU.S.dollarinthenearfuture.Thecompanytakeslongpositiononthedollar.Ifacompanywillpaydollar,thecompanytakesshortpositiononthedollar.Hedgingalongpositionreferstosellingforeignexchangeforward.Hpany’sincomeinRMBUnhedgedposition6.90m6.85mHedgingwitha6.80mforwardcontract6.806.856.90￥￥/$spotratecompany’sexpenditureinRMBUnhedgedposition6.90m6.85mHedgingwitha6.80mforwardcontract6.806.856.90￥￥/$spotrateRealexchangerateandeffectiveexchangerateNominalexchangerateistheexchangeratethatprevailsatagivendate.Realexchangerateisthenominalexchangerateadjustedforrelativechangesindomesticandforeignpricelevels.Thatis,adjustedforinflationdifferential.Sotherealexchangeratecaptureschangesinthepurchasingpowerofa