: Define an exchange rate and distinguish between nominal and real
exchange rates and spot and forward exchange rates (환율 정의, 명목,실질 환율 구별, 현물,선도
환율 구별)
Currency exchange rates are
given as the price of one unit of currency in terms of another. A nominal
exchange rate of 1.44 USD/EUR is interpreted as $1.44 per euro. We refer to the
USD as the price currency and
the EUR as the base currency. An
increase (decrease) in an exchange rate represents an appreciation(depreciation)of the base currency relative to
the price currency.
Price Currency / Base Currency
Direct quote (직접표시) : 국내통화(Price)/해외통화(Base)
Indirect quote (간접표시) : 해외통화(Price)/국내통화(Base)
A spot exchange rate is the rate for immediate delivery(일반적으로 거래 후 2영업일 이내). A forward exchange rate is a rate
for exchange of currencies at some future
date.
A real exchange rate measures changes in relative purchasing power
over time.
LOS 20.b
: Describe function of and participants in the foreign exchange
market.(외환시장의 참여자 및
기능 설명)
The market for foreign
exchange is the largest financial market in terms of the value of daily
transactions and has a variety of participants, including large multinational banks (the sell side) and corporations,
investors, governments,
retail market and central banks (the buy side). Participants in
the foreign exchange markets are referred to as hedgers if they enter into transactions that decrease an existing foreign
exchange risk and as speculators if they enter into
transactions that increase
their foreign exchange risk.
LOS 20.c
: Calculate and interpret the percentage change in a currency
relative to another currency.(환율의 변동 계산 및 해석)
항상 base
currency 관점으로 계산해야 한다.
The percentage
appreciation of the dollar is not the same as the percentage depreciation in
the euro
For example, a decrease in the USD/EUR exchange rate from 1.44 to 1.42 represents a depreciation of the EUR relative
to the USD of 1.39% (1.42 /
1.44 - 1 = -0.0139) because the price of a euro has fallen 1.39%.
To calculate the appreciation
or depreciation of the price currency, we first invert the quote so it is now the base currency and then
proceed as above. For example, a decrease in the USD/EUR exchange rate from
1.44 to 1.42 represents an appreciation
of the USD relative to the EUR of 1.41%:
(1/1.42)/(1/1.44) -1 = 0.0141. The appreciation is the inverse of the
depreciation, 1/(1-0.0139) -1 = 0.0141.
LOS 20.d
: Calculate and interpret currency cross-rates(교차환율 측정 및 해석)
수학적으로 곱셈, 나눗셈으로만
계산
Given two exchange rate
quotes for three different currencies,
we can calculate a currency cross rate. If the MXN/USD quote is 12.1 and the
USD/EUR quote is 1.42, we can calculate the cross rate of MXN/EUR as 12.1 x 1.42 = 17.18.
LOS 20.e
: Convert forward quotations expressed on a points basis or in
percentage terms into an outright forward quotation(선도환율에서 포인트 단위의 변환)
1pip = 0.0001
Points in a foreign
currency quotation are in units of
the last digit(사용하는 환율이 소수점 4번째
자리까지 사용한다면 1point = 0.0001이다) of the quotation For
example, a forward quote of +25.3
when the USD/EUR spot exchange rate is 1.4158
means that the forward exchange rate is 1.4158 +0.00253 = 1.41833 USD/ EUR
For a forward exchange rate quote given as a percentage, the
percentage (change in the spot rate) is calculated as forward / spot - 1. A forward exchange rate quote of
+1.787%, when the spot USD/EUR exchange rate is 1.4158,
means that the forward exchange rate is 1.4158
(1 + 0.01787) = 1.4411 USD/EUR.
Module 20.2 : Forward Exchange Rates
LOS 20.f
: Explain the arbitrage relationship between spot rates, forward
rates, and interest rates (현물환, 선도환, 이자율의 차익거래
관계식 설명)
Interest rate
parity(IRP) : 이자율
평가
두
나라의 투자수익을 같게하는 환율
If a forward exchange
rate does not correctly reflectthe differencebetween the interest rates for two currencies,
an arbitrage opportunity for
a riskless profit exists. In this case, borrowing one currency, converting it
to the other currency at the spot rate, investing the proceeds for the period,
and converting the end-of-period amount back to the borrowed currency at the
forward rate will produce more than enough to pay off the initial loan, with
the remainder being a riskless profit on the arbitrage transaction
LOS 20.g
: Caculate and interpret a forward discount or premium (선도 discount,
premium 계산 및 해석)
To calculate a forward premium or forward discount for Currency B
using exchange rates quoted as units of Currency A per unit of Currency B, use
the following formula:
(forward /spot) – 1
계산된 값이
positive = forward premium for
the base currency
계산된 값이 negative = forward discount for the base currency
LOS 20.h
: Calculate and interpret the forward rate consistent with the
spot rate and the interest rate in each currency (각 통화의 이자율과 현물환율로 선물환 계산 및 해석)
The condition that must be met so that there is no arbitrage
opportunity available is:
If the spot exchange rate for
the euro is 1.25 USD/EUR, the euro
interest rate is 4% per year, and the dollar interest rate is 3% per year, the no-arbitrage
one-year forward rate can be calculated as:
Exchange rate regimes for countries that do not have their own currency:
With formal dollarization, a country uses the currency of another country.
In a monetary union, several countries use a common currency.
Exchange rate regimes for countries that have their own currency:
A currency board arrangement is
an explicit commitment to exchange domestic currency for a specified foreign
currency at a fixed exchange rate.
In a conventional fixed peg
arrangement, a country pegs its currency within
margins of +1% versus another currency.
In a system of pegged exchange rates within horizontal bands or a target
zone, the permitted fluctuations in currency value relative to another currency
or basket of currencies are wider (e.g.,
+2%).
With a crawling
peg, the exchange rate is
adjusted periodically, typically to adjust for higher inflation versus
the currency used in the peg.
With management
of exchange rates within crawling
bands, the width of the bands that identify permissible exchange rates
is increased over time.
With a system of managed floating exchange rates, the monetary authority
attempts to influence the exchange rate in response to specific indicators,
such as the balance of payments, inflation rates, or employment without any
specific target exchange rate.
When a currency is independently floating, the exchange rate is
market-determined.
LOS 20.j
: Explain the effects of exchange rates on
countries’ international trade and capital flows (환율이 국제 무역, 국제 자본 흐름에 미치는 영향 설명)
Elasticities (e) of export and import demand
must meet the Marshall-Lerner
condition for a depreciation
of the domestic currency to reduce
an existing trade deficit:
WxEx + Wm(Em-1)> 0
Ex + Em > 1 (elastic)
Under the absorption approach, national
income must increase relative to national expenditure in order to decrease a trade deficit.
BT(balance of trade) = Y(national income) – E(total
Expenditure)
This can also be viewed as a requirement that
national saving must increase
relative to domestic investment in order to decrease a trade deficit.
