Exchange Rate Determination：汇率的决定.pptVIP

Exchange Rate Determination International Business (MB 40) Outline Defining Exchange Rate Measuring Exchange Rate Movements Appreciation/Depreciation of a currency Exchange Rate Equilibrium Factors that influence Exchange Rate Movements Meaning of Exchange Rate and Measuring Changes in Exchange Rates Value of one currency in units of another currency A decline in a currency’s value is referred to as depreciation and an increase in currency’s value is called appreciation. If currency A can buy you more units of foreign currency, currency A has appreciated and foreign currency depreciated If currency A can buy you less units of foreign currency, currency A has depreciated and foreign currency appreciated Exchange Rate Equilibrium Forces of Demand and Supply Demand for foreign currency negatively related to the price of foreign currency Supply of foreign currency positively related to the price of foreign currency Forces of demand and supply together determine the exchange rate Factors that influence the Exchange Rate Political Events Expectations of the Market Relative Inflation Rates Relative Interest Rates Relative Income Levels Exchange rate is the results of an interaction of these factors Political Events Fall of Berlin Wall and unification of East and West Germany Rumors about resignation of Mikhail Gorbachov Tiannanmon Square Persian Gulf War September 11, 2001 Market Expectations Expectations about future exchange rate changes on the basis of current and future political and economic conditions 1960s Strong $ Between 1960s and 1970s: weak $ Strong $ now 1995 European Exchange Rate Mechanism Devaluation of Asian Currencies Relative Inflation High inflation relative to a foreign country, decline in value of currency—Why? Low inflation relative to a foreign country, increase in value of currency—Why? Relative Interest Rates High interest rates in home country relative to a foreign country may cause domestic currency to appreciate—Why? Relative Income Levels Incr