克魯格曼國際經(jīng)濟(jì)學(xué)(第六版)的教師手冊(cè)：imch13

1、CHAPTER 13 EXCHANGE RATES AND THE FOREIGN EXCHANGE MARKET: AN ASSET APPROACH Chapter OrganizationExchange Rates and International TransactionsDomestic and Foreign PricesExchange Rates and Relative PricesBox: A Tale of Two DollarsThe Foreign Exchange MarketThe ActorsCharacteristics of the MarketSpot

2、Rates and Forward RatesForeign Exchange SwapsFutures and OptionsThe Demand for Foreign Currency AssetsAssets and Asset ReturnsRisk and LiquidityInterest RatesExchange Rates and Asset ReturnsA Simple RuleReturn, Risk, and Liquidity in the Foreign Exchange MarketEquilibrium in the Foreign Exchange Mar

3、ketInterest Parity: The Basic Equilibrium ConditionHow Changes in the Current Exchange Rate Affect Expected ReturnsThe Equilibrium Exchange RateInterest Rates, Expectations, and EquilibriumThe Effect of Changing Interest Rates on the Current Exchange RateThe Effect of Changing Expectations on the Cu

4、rrent Exchange RateBox: The Perils of Forecasting Exchange RatesSummaryAppendix: Forward Exchange Rates and Covered Interest ParityCHAPTER OVERVIEW The purpose of this chapter is to show the importance of the exchange rate in translating foreign prices into domestic values as well as to begin the pr

5、esentation of exchange-rate determination. Central to the treatment of exchange-rate determination is the insight that exchange rates are determined in the same way as other asset prices. The chapter begins by describing how the relative prices of different countries goods are affected by exchange r

6、ate changes. This discussion illustrates the central importance of exchange rates for cross-border economic linkages. The determination of the level of the exchange rate is modeled in the context of the exchange rates role as the relative price of foreign and domestic currencies, using the uncovered

7、 interest parity relationship.The euro is used often in examples. Some students may not be familiar with the currency or aware of which countries use it; a brief discussion may be warranted. A full treatment of EMU and the theories surrounding currency unification appears in Chapter 20.The descripti

8、on of the foreign-exchange market stresses the involvement of large organizations (commercial banks, corporations, nonbank financial institutions, and central banks) and the highly integrated nature of the market. The nature of the foreign-exchange market ensures that arbitrage occurs quickly, so th

9、at common rates are offered worldwide. Forward foreign-exchange trading, foreign-exchange futures contracts and foreign-exchange options play an important part in currency market activity. The use of these financial instruments to eliminate short-run exchange-rate risk is described. The explanation

10、of exchange-rate determination in this chapter emphasizes the modern view that exchange rates move to equilibrate asset markets. The foreign-exchange demand and supply curves that introduce exchange-rate determination in most undergraduate texts are not found here. Instead, there is a discussion of

11、asset pricing and the determination of expected rates of return on assets denominated in different currencies. Students may already be familiar with the distinction between real and nominal returns. The text demonstrates that nominal returns are sufficient for comparing the attractiveness of differe

12、nt assets. There is a brief description of the role played by risk and liquidity in asset demand, but these considerations are not pursued in this chapter. (The role of risk is taken up again in Chapter 17.)Substantial space is devoted to the topic of comparing expected returns on assets denominated

13、 in domestic and foreign currency. The text identifies two parts of the expected return on a foreign-currency asset (measured in domestic-currency terms): the interest payment and the change in the value of the foreign currency relative to the domestic currency over the period in which the asset is

14、held. The expected return on a foreign asset is calculated as a function of the current exchange rate for given expected values of the future exchange rate and the foreign interest rate. The absence of risk and liquidity considerations implies that the expected returns on all assets traded in the fo

15、reign-exchange market must be equal. It is thus a short step from calculations of expected returns on foreign assets to the interest parity condition. The foreign-exchange market is shown to be in equilibrium only when the interest parity condition holds. Thus, for given interest rates and given exp

16、ectations about future exchange rates, interest parity determines the current equilibrium exchange rate. The interest parity diagram introduced here is instrumental in later chapters in which a more general model is presented. Since a command of this interest parity diagram is an important building

17、block for future work, we recommend drills that employ this diagram.The result that a dollar appreciation makes foreign currency assets more attractive may appear counterintuitive to students - why does a stronger dollar reduce the expected return on dollar assets? The key to explaining this point i

18、s that, under the static expectations and constant interest rates assumptions, a dollar appreciation today implies a greater future dollar depreciation; so, an American investor can expect to gain not only the foreign interest payment but also the extra return due to the dollars additional future de

19、preciation. The following diagram illustrates this point. In this diagram, the exchange rate at time t+1 is expected to be equal to E. If the exchange rate at time t is also E then expected depreciation is 0. If, however, the exchange rate depreciates at time t to E then it must appreciate to reach

20、E at time t+1. If the exchange rate appreciates today to E then it must depreciate to reach E at time t+1. Thus, under static expectations, a depreciation today implies an expected appreciation and conversely.TimeDomestic CurrencyForeign Currencytt+1EEEexpected appreciationexpected depreciationFigur

21、e 13-1This pedagogic tool can be employed to provide some further intuition behind the interest parity relationship. Suppose that the domestic and foreign interest rates are equal. Interest parity then requires that expected depreciation is equal to zero and that the exchange rate today and next per

22、iod is equal to E. If the domestic interest rate rises, people will want to hold more domestic-currency deposits. The resulting increased demand for domestic currency drives up the price of domestic currency, causing the exchange rate to appreciate. How long will this continue? The answer is that th

23、e appreciation of the domestic currency continues until the expected depreciation that is a consequence of the domestic currencys appreciation today just offsets the interest differential.The text presents exercises on the effects of changes in interest rates and of changes in expectations of the fu

24、ture exchange rate. These exercises can help develop students intuition. For example, the initial result of a rise in U.S. interest rates is a higher demand for dollar-denominated assets and thus an increase in the price of the dollar. This dollar appreciation is large enough that the subsequent exp

25、ected dollar depreciation just equalizes the expected return on foreign-currency assets (measured in dollar terms) and the higher dollar interest rate.The appendix describes the covered interest parity relationship and applies it to explain the determination of forward rates under risk neutrality as

26、 well as the high correlation between movements in spot and forward rates.ANSWERS TO TEXTBOOK PROBLEMS1. At an exchange rate of $1.50 per euro, the price of a bratwurst in terms of hot dogs is 3 hot dogs per bratwurst. After a dollar appreciation to $1.25 per euro, the relative price of a bratwurst

27、falls to 2.5 hot dogs per bratwurst. 2. The Norwegian krone/Swiss franc cross rate must be 6 Norwegian krone per Swiss franc. 3. The dollar rates of return are as follows: a.($250,000 - $200,000)/$200,000 = 0.25. b. ($216 - $180)/$180 = 0.20. c.There are two parts of this return. One is the loss inv

28、olved due to the appreciation of the dollar; the dollar appreciation is ($1.38 - $1.50)/$1.50 = -0.08. The other part of the return is the interest paid by the London bank on the deposit, 10 percent. (The size of the deposit is immaterial to the calculation of the rate of return.) In terms of dollar

29、s, the realized return on the London deposit is thus 2 percent per year. 4. Note here that the ordering of the returns of the three assets is the same whether we calculate real or nominal returns. a.The real return on the house would be 25% - 10% = 15%. This return could also be calculated by first

30、finding the portion of the $50,000 nominal increase in the houses price due to inflation ($20,000), then finding the portion of the nominal increase due to real appreciation ($30,000), and finally finding the appropriate real rate of return ($30,000/$200,000 = 0.15). b. Again, subtracting the inflat

31、ion rate from the nominal return we get 20%- 10% = 10%. c.2% - 10% = -8%. 5. The current equilibrium exchange rate must equal its expected future level since, with equality of nominal interest rates, there can be no expected increase or decrease in the dollar/pound exchange rate in equilibrium. If t

32、he expected exchange rate remains at $1.52 per pound and the pound interest rate rises to 10 percent, then interest parity is satisfied only if the current exchange rate changes such that there is an expected appreciation of the dollar equal to 5 percent. This will occur when the exchange rate rises

33、 to $1.60 per pound (a depreciation of the dollar against the pound). 6. If market traders learn that the dollar interest rate will soon fall, they also revise upward their expectation of the dollars future depreciation in the foreign-exchange market. Given the current exchange rate and interest rat

34、es, there is thus a rise in the expected dollar return on euro deposits. The downward-sloping curve in the diagram below shifts to the right and there is an immediate dollar depreciation, as shown in the figure below where a shift in the interest-parity curve from II to II leads to a depreciation of

35、 the dollar from E0 to E1. I I I I E ($/euro) i E0 E1 Figure 13-27. The analysis will be parallel to that in the text. As shown in the accompanying diagrams, a movement down the vertical axis in the new graph, however, is interpreted as a euro appreciation and dollar depreciation rather than the rev

36、erse. Also, the horizontal axis now measures the euro interest rate. Figure 13-3 demonstrates that, given the expected future exchange rate, a rise in the euro interest rate from R0 to R1 will lead to a euro appreciation from E0 to E1. Figure 13-4 shows that, given the euro interest rate of i, the e

37、xpectation of a stronger euro in the future leads to a leftward shift of the downward-sloping curve from II to II and a euro appreciation (dollar depreciation) from E to E. A rise in the dollar interest rate causes the same curve to shift rightward, so the euro depreciates against the dollar. This s

38、imply reverses the movement in figure 13-4, with a shift from II to II, and a depreciation of the euro from E to E. All of these results are the same as in the text when using the diagram for the dollar rather than the euro. E E0 rates of return (in euros) (euro/$) E1 i0 i1 Figure 13-3IEiEIIIrates o

39、f return (in euros)(euro/$)EFigure 13-48. a.If the Federal Reserve pushed interest rates down, with an unchanged expected future exchange rate, the dollar would depreciate (note that the article uses the term downward pressure to mean pressure for the dollar to depreciate). In terms of the analysis

40、developed in this chapter, a move by the Federal Reserve to lower interest rates would be reflected in a movement from R to R in figure 13.5, and a depreciation of the exchange rate from E to E. If there is a soft landing, and the Federal Reserve does not lower interest rates, then this dollar depre

41、ciation will not occur. Even if the Federal Reserve does lower interest rates a little, say from R to R, this may be a smaller decrease then what people initially believed would occur. In this case, the expected future value of the exchange rate will be more appreciated than before, causing the inte

42、rest-parity curve to shift in from II to II (as shown in figure 13.6). The shift in the curve reflects the optimism sparked by the expectation of a soft landing and this change in expectations means that, with a fall in interest rates from R to R, the exchange rate depreciates from E to E, rather th

43、an from E to E*, which would occur in the absence of a change in expectations. E R E E* R ($/foreign currency) rates of return (in dollars) Figure 13-5 E E R ($/foreign currency) rates of return (in dollars) E” E* R” I I I I Figure 13-6b. The disruptive effects of a recession make dollar holdings mo

44、re risky. Risky assets must offer some extra compensation such that people willingly hold them as opposed to other, less risky assets. This extra compensation may be in the form of a bigger expected appreciation of the currency in which the asset is held. Given the expected future value of the excha

45、nge rate, a bigger expected appreciation is obtained by a more depreciated exchange rate today. Thus, a recession that is disruptive and makes dollar assets more risky will cause a depreciation of the dollar.9.The euro is less risky for you. When the rest of your wealth falls, the euro tends to appr

46、eciate, cushioning your losses by giving you a relatively high payoff in terms of dollars. Losses on your euro assets, on the other hand, tend to occur when they are least painful, that is, when the rest of your wealth is unexpectedly high. Holding the euro therefore reduces the variability of your

47、total wealth. 10.The chapter states that most foreign-exchange transactions between banks (which accounts for the vast majority of foreign-exchange transactions) involve exchanges of foreign currencies for U.S. dollars, even when the ultimate transaction involves the sale of one nondollar currency f

48、or another nondollar currency. This central role of the dollar makes it a vehicle currency in international transactions. The reason the dollar serves as a vehicle currency is that it is the most liquid of currencies since it is easy to find people willing to trade foreign currencies for dollars. Th

49、e greater liquidity of the dollar as compared to, say, the Mexican peso, means that people are more willing to hold the dollar than the peso, and thus, dollar deposits can offer a lower interest rate, for any expected rate of depreciation against a third currency, than peso deposits for the same rat

50、e of depreciation against that third currency. As the world capital market becomes increasingly integrated, the liquidity advantages of holding dollar deposits as opposed to yen deposits will probably diminish. The euro represents an economy as large as the United States, so it is possible that it w

51、ill assume some of that vehicle role of the dollar, reducing the liquidity advantages to as far as zero. Since the euro has no history as a currency, though, some investors may be leary of holding it until it has established a track record. Thus, the advantage may fade slowly.11. Greater fluctuation

52、s in the dollar interest rate lead directly to greater fluctuations in the exchange rate using the model described here. The movements in the interest rate can be investigated by shifting the vertical interest rate curve. As shown in figure 13.7, these movements lead directly to movements in the exc

53、hange rate. For example, an increase in the interest rate from i to i leads to a dollar appreciation from E to E. A decrease in the interest rate from i to i leads to a dollar depreciation from E to E. This diagram demonstrates the direct link between interest rate volatility and exchange rate volat

54、ility, given that the expected future exchange rate does not change. EE($/foreign currency)rates of return (in dollars)iIIEiiE”Figure 13-712. A tax on interest earnings and capital gains leaves the interest parity condition the same, since all its components are multiplied by one less the tax rate to obtain after-tax returns. If capital gains are untaxed, the expected depreciation term in the interest parity condition must be divided by 1 less the tax