Professional Documents
Culture Documents
Management
Alan Shapiro
th
7
Edition
Power Points by
J.Wiley
& Sons
Joseph
F. Greco,
Ph.D.
California State University, Fullerton
1
CHAPTER 2
THE
DETERMINATION OF
EXCHANGE RATES
2
CHAPTER 2 OVERVIEW:
I.
II.
III.
EQUILIBRIUM EXCHANGE
RATES
ROLE OF CENTRAL BANKS
EXPECTATIONS AND THE
ASSET MARKET MODEL
Part I.
Exchange
Rates
I.Equilibrium
SETTING THE
EQUILIBRIUM
A. Exchange Rates
market-clearing prices that
equilibrate the quantities
supplied and demanded of
foreign currency.
4
e0 e1
e1
e1 e0
e0
11
e0
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PART II.
I. FUNDAMENTALS OF CENTRAL
BANK INTERVENTION
A. Role of Exchange Rates:
LINKS BETWEEN THE DOMESTIC
AND THE WORLD
ECONOMY
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WHAT AFFECTS A
CURRENCYS VALUE?
A. Current events
B. Current supply
C. Demand flows
D. Expectation of future
exchange rate
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EXPECTATIONS
II. Role of Expectations :
A. Currency = financial
asset
B. Exchange rate =
simple relation of two
financial assets
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EXPECTATIONS
III. Demand for Money and
Currency Values: Asset
Market Model
A. Exchange rates reflect the
supply of and demand
for
foreign-currency
denominated
assets.
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EXPECTATIONS
B. Soundness of a Nations
Economic Policies
- a nations currency tends
to strengthen with sound
economic policies.
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EXPECTATIONS
IV. EXPECTATIONS AND
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EXPECTATIONS
A. Central Bank Reputations
B. Central Bank Independence
C. Currency Boards
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