Exchange Rate Determination - PowerPoint PPT Presentation

Loading...

PPT – Exchange Rate Determination PowerPoint presentation | free to view - id: 7d7d6c-OGQ1O



Loading


The Adobe Flash plugin is needed to view this content

Get the plugin now

View by Category
About This Presentation
Title:

Exchange Rate Determination

Description:

International Finance Exchange Rate Determination Bill Reese * Learning Objectives In this unit we will learn: The factors that influence changes in exchange rates ... – PowerPoint PPT presentation

Number of Views:97
Avg rating:3.0/5.0
Slides: 19
Provided by: works294
Category:

less

Write a Comment
User Comments (0)
Transcript and Presenter's Notes

Title: Exchange Rate Determination


1
International Finance
  • Exchange Rate Determination
  • Bill Reese

2
Learning Objectives
  • In this unit we will learn
  • The factors that influence changes in exchange
    rates
  • How these factors can influence the supply of and
    demand for a currency

3
Exchange Rate Determination
  • Measuring exchange rate movements
  • Always in relation to another currency
  • Appreciate vs. depreciate
  • Percent ? St St-1
  • St

4
Exchange Rate Determination
  • Measured over some period of time
  • Longer times ? greater movements
  • Some currencies are more volatile than others
  • Example

5
Exchange Rate Determination
6
Exchange Rate Equilibrium
  • Demand for a currency
  • Quantity demanded increases as price of currency
    decreases
  • Supply of a currency for sale
  • Quantity supplied increases as price of currency
    increases

7
Demand Schedule for Pounds
8
Supply Schedule for Pounds
9
Equilibrium Exchange Rate
10
Factors that Influence XRs
  • Liquidity of the currency
  • Illiquid market means large transactions may
    influence price

11
Factors that Influence XRs
  • Relative inflation rates
  • Increase in U.S. inflation
  • Increased demand for British goods (greater
    demand for pounds)
  • Decreased demand for U.S. goods in Great Britian
    (fewer pounds for sale)
  • Demand and supply curves shift
  • Value of increases

12
Rising U.S. Inflation
13
Factors that Influence XRs
  • Relative interest rates
  • Increase in U.S. interest rates
  • Less interest in investing in G.B. (decreased
    demand for pounds)
  • Increased interest by British investors in
    investing in U.S. (more pounds for sale)
  • Demand and supply curves shift
  • Value of decreases

14
Rising U.S. Interest Rates
15
Factors that Influence XRs
  • Relative income levels
  • Increase in U.S. income level
  • Increased demand for British goods (increased
    demand for pounds)
  • No change in supply of pounds for sale
  • Demand curve shifts
  • Value of increases

16
Rising U.S. Income Level
17
Factors that Influence XRs
  • Government Controls
  • Imposing FX barriers
  • Imposing trade barriers
  • Intervening in FX markets
  • Policies affecting inflation, interest rates and
    income levels

18
Factors that Influence XRs
  • Expectations vs. Changes
  • If FX market is efficient
  • Only unexpected changes and changes in
    expectations have effect
  • Interaction of factors
  • Rarely does anything happen in isolation
  • Levels of factor changes
About PowerShow.com