Exchange rate?

Concept: Exchange rate or ratio of two currencies.

Exchange rate pricing method

Direct quotation: means to convert foreign currency into a certain amount of domestic currency. ($1= 8.27 reais)

Indirect pricing method: a method of converting domestic currency into a certain amount of foreign currency. (￡ 1=$ 1.50 12)

Dollar pricing method: the customary practice of buying and selling foreign exchange quotations in the international foreign exchange market. The dollar is the base currency, and other currencies are the marked currencies.

Non-US dollar pricing method: other currencies are the benchmark currency, and US dollar is the pricing currency.

The first lecture on exchange rate and factors affecting exchange rate changes

I. Foreign exchange rate

3. Foreign exchange quotation:

(1) buying price: the exchange rate at which banks buy foreign exchange.

(2) Selling price: the exchange rate at which banks sell foreign exchange.

(3) Middle price: (buying price+selling price) /2

(4) Spot price: the exchange rate at which banks buy foreign exchange spot.

4. The general law of foreign exchange quotation: the bid-ask spread of big banks is small, and the bid-ask spread of small banks is large; The bid-ask spread of big coins is small, and the bid-ask spread of small coins is large;

The first lecture on exchange rate and factors affecting exchange rate changes

Example 1: Tokyo foreign exchange market (direct quotation)

$ 1= ￥ 108. 15 —— 108.65

(buying exchange rate) (selling exchange rate)

* Buy before selling, buy low and sell high.

Example 2: London foreign exchange market (indirect pricing method)

￡ 1=$ 1.5025 —— 1.5050

(selling exchange rate) (buying exchange rate)

* Sell before buying, sell low and buy high.

The first lecture on exchange rate and factors affecting exchange rate changes

I. Foreign exchange rate

5. Types of exchange rates

According to the nature and use of foreign exchange funds:

Commercial exchange rate

financial rate

According to the exchange rate calculation method:

Guaranteed wage

cross rate

According to the way of foreign exchange management:

official exchange rate

Market exchange rate

The first lecture on exchange rate and factors affecting exchange rate changes

I. Foreign exchange rate

5. Types of exchange rates

(4) according to the different sources and uses of foreign exchange receipts and payments.

@ Single exchange rate

@ Multiple exchange rates

(5) Receipt and payment according to foreign exchange trading tools and time.

@ T/T exchange rate (T/T)

@ mail exchange rate (M/T)

@ Bill exchange rate

(6) According to the difference between the buyer and the seller.

@ Interbank exchange rate

@ Commercial exchange rate

The first lecture on exchange rate and factors affecting exchange rate changes

Second, determine the basis of exchange rate.

(a) the decision of the exchange rate under the gold standard:

1, the material basis for determining the exchange rate:

Gold content of two kinds of coins

(? : 7.32238 grams; $: 1.50463g)

2. Standard for determining exchange rate: coin parity.

7.32238/ 1.50463=4.8665

￡ 1=$4.8665

3. Exchange rate fluctuation: gold delivery point = coinage parity+freight.

(2) The foreign exchange rate under the paper currency system: gold parity.

Major exchange rate determination theories in western countries

I. Balance of payments theory

Traditional international lending theory-Goshen: A country's exchange rate is determined by its external creditor's rights and debts.

The New Balance of Payments Theory-Keynes and algie: The current account is the key factor affecting the balance of payments, in which the change of national income, the change of domestic and international price levels, the expectation of exchange rate, domestic monetary policy, fiscal policy and labor wage level will all have an important impact on the exchange rate.

The limitation of this theory is that the above-mentioned effects can only be produced in countries with highly developed foreign exchange markets, and the role of a country's national income is overestimated.

Major exchange rate determination theories in western countries

Second, the purchasing power parity theory (the theory of purchasing power parity)-Kassel (Sweden)

1, absolute purchasing power parity (law of one price-law of one price): the exchange rate between the two currencies is determined by the purchasing power of the two currencies, that is, the quotient of the general price level of the two countries. Under the condition of free trade, there are no fees and tariffs between countries, and because of the existence of commodity arbitrage, commodity prices around the world will be consistent.

2. Relative purchasing power parity: the exchange rate changes of the two countries' currencies depend on the ratio of their purchasing power changes.

Defects of this theory:

1, paper money only represents value when it is put into circulation, and the value represented by its unit will change with the change of input in circulation.

2. This theory can explain the long-term trend of exchange rate, but it can't explain the short-term and sudden change of exchange rate.

3. Statistical methods, bases and standards of price levels vary greatly among countries.

Major exchange rate determination theories in western countries

Third, interest rate parity-Keynes

The theory holds that:

When the domestic interest rate is lower than that of country A, investors will transfer their capital from their own country to country A in order to obtain higher returns, thus obtaining the interest difference. However, whether the goal can be achieved must be based on the exchange rate of the two countries, because if the exchange rate changes unfavorably, not only can we not get higher returns, but we will also suffer losses.

In order to avoid this situation, investors will convert the income from their investment in country A into local currency at the forward exchange rate in the forward foreign exchange market, and compare this income with the income from their investment in their own country. The result of this comparison is the basis for investors to determine the investment direction. The difference in investment income between the two countries leads to the international flow of capital. The international capital flow will not be terminated until the return on investment of the two countries is equal through the adjustment of interest rates.

Defects of this theory:

Ignore the cost factors of foreign exchange transactions and foreign exchange control and other factors that limit the free flow of capital.

Major exchange rate determination theories in western countries

Four. Portfolio market theory.

(1) Monetary theory of exchange rate-(monetary method of exchange rate) Johnson, Mundell, etc.

The theory holds that the growth rate of money should be consistent with the growth rate of GDP, otherwise the stability of exchange rate cannot be maintained. People put too much emphasis on the role of money market in price.

(B) exchange rate overshoot model

According to this theory, in the short term, the commodity market reacts slowly to the imbalance of the money market because of its price stickiness, while the securities market is very sensitive, so the interest will change immediately. In this way, the imbalance of the money market is entirely borne by the securities market, thus forming the overshoot of interest rates, that is, the change of interest rates is greater than the change of the imbalance of the money market. If there are conditions for the free flow of capital in the world, the change of interest rate will inevitably lead to arbitrage activities and the change of exchange rate, and the change of exchange rate is greater than the change of money market imbalance.

The contribution of this theory is that it can help people understand the short-term fluctuation of exchange rate, but its limitation is that it is biased to attribute the fluctuation of exchange rate entirely to the imbalance of money market.

(C) Exchange rate portfolio balance model

The first lecture on exchange rate and factors affecting exchange rate changes

Three. Exchange rate changes and factors affecting exchange rate changes

(a) exchange rate changes

1, appreciation: the increase in the external value of a country's currency due to changes in supply and demand in the foreign exchange market.

2. Devaluation: the decline in the external value of a country's currency caused by changes in supply and demand in the foreign exchange market.

Three. Exchange rate changes and factors affecting exchange rate changes

(b) Factors affecting exchange rate changes

1, balance of payments-direct factors

B/P surplus: foreign exchange income >; Expenditure, foreign exchange supply > demand, foreign exchange rate fell, local currency exchange rate rose.

Balance of payments deficit: foreign exchange expenditure > income, foreign exchange supply.

2. Inflation:

When a country's inflation rate is high-

Domestic prices in this country have gone up-

The prices of export commodities have gone up, and imported commodities are relatively cheap-

Increase in imports/decrease in exports—

The trade balance has deteriorated-

The exchange rate of foreign currency rises and the exchange rate of local currency falls.

Three. Exchange rate changes and factors affecting exchange rate changes

(b) Factors affecting exchange rate changes

3. Interest rate difference

Impact on short-term capital: A country's interest rate is higher than other countries-capital inflow increases foreign exchange supply/the country's money demand increases-the foreign exchange rate drops and the local currency exchange rate rises.

In the long run, an increase in a country's interest rate will lead to an increase in the investment cost of investors, a decrease in the rate of return and capital outflow, which will lead to an increase in the foreign currency exchange rate and a decrease in the local currency exchange rate.

Three. Exchange rate changes and factors affecting exchange rate changes

(b) Factors affecting exchange rate changes

4. Economic growth rate-the fundamental factor affecting exchange rate changes.

On the one hand, the increase of economic growth rate means the relative increase of national income, which increases import demand and leads to the decline of domestic currency exchange rate;

On the other hand, high economic growth means the improvement of labor productivity and the competitiveness of domestic products, which is conducive to exports and makes the local currency exchange rate rise.

The net impact of the above two aspects is subject to the comparison of the two aspects. Generally speaking, a country's high economic growth rate is not conducive to the operation of its currency in the foreign exchange market in the short term, but in the long run, it is a strong support for its currency.

The first lecture on exchange rate and factors affecting exchange rate changes

Three. Exchange rate changes and factors affecting exchange rate changes

(b) Factors affecting exchange rate changes

5. Government policy factors

On the one hand, countries directly intervene in the foreign exchange market through central banks and change the relationship between supply and demand in the foreign exchange market, so that the foreign exchange rate changes in a direction that is beneficial to their import and export trade, capital flow and international payments;

On the other hand, the macroeconomic policies of various countries have an impact on inflation rate, economic growth rate, interest rate and balance of payments through the adjustment of domestic economy, thus affecting the change of exchange rate.

However, this kind of intervention can only affect the change of exchange rate in the short term and cannot fundamentally change the long-term trend of exchange rate change.

6. Psychological expectations of the market

The second lecture on exchange rate changes and the economic impact of exchange rate system

First, the economic impact of exchange rate changes.

(A) the impact on the balance of payments

1, impact on current account (general)

Depreciation of local currency-exports increase and imports decrease;

Appreciation of local currency-exports decrease and imports increase.

However, whether the above phenomenon appears or not must consider Marshall Lerner condition and time lag effect.

@ elastic analysis theory-Marshall-Lerner condition

1, this theory mainly studies the influence of currency depreciation on trade balance, regardless of other factors.

2. This theory assumes that the supply of import and export commodities is completely elastic (the supply of commodities reflects the degree of commodity prices: high elasticity means that prices can greatly affect supply and demand).

3. The core of this theory: Assuming that Dx is the elasticity of export demand and Di is the elasticity of import demand, then:

When Dx+Di & gt；; At 1, currency depreciation is conducive to improving the trade balance. (Marshall-Lerner condition)

When Dx+Di= 1, currency depreciation has no effect on the trade balance.

When dx+di

4. Contribution of this theory: Only when the elasticity of import and export supply and demand is certain, currency depreciation can improve the trade balance.

5. Limitations of this theory:

Regardless of the international movement of labor and capital; The assumption of complete elasticity of supply has great limitations; Ignore the "time lag" (J curve effect) effect of exchange rate changes; Only the influence of exchange rate changes in the previous period on trade balance is considered, and the inflation problem caused in the later period is ignored; The assumption that other conditions remain unchanged is basically untenable.

The second lecture on exchange rate changes and the economic impact of exchange rate system

First, the economic impact of exchange rate changes.

(A) the impact on the balance of payments

2. Impact on capital inflow and outflow:

Under normal circumstances: devaluation of local currency-local currency holders will exchange their local currencies to avoid losses and lead to capital outflow. However, if the devaluation of the local currency is in place, foreign currency will attract more foreign capital inflows, because it has more purchasing power at this time.

Under normal circumstances: the appreciation of local currency-foreign currency holders will increase their demand for local currency in order to obtain more income, leading to capital inflows. However, if the local currency appreciates in place, the exchange of equivalent foreign currency into local currency will decrease and the investment cost will rise, which will curb the inflow of direct investment.

3. Impact on reserve assets:

When the exchange rate of reserve currency appreciates, the real value of reserve assets of countries holding reserve currency increases; On the contrary, the real value of reserve assets will decline.

The second lecture on exchange rate changes and the economic impact of exchange rate system

(B) the impact of exchange rate changes on the domestic economy

First, the economic impact of exchange rate changes.

1, the impact of exchange rate changes on domestic prices:

Under normal circumstances, the depreciation of the local currency will cause inflationary pressure in China, which will lead to rising prices.

On the one hand, the devaluation of the local currency will stimulate exports, but because the production scale can not be expanded rapidly in a short period of time to meet the needs of exports, the supply of China's export commodities will be reduced, leading to an increase in domestic prices.

On the other hand, the depreciation of the local currency will increase the price of imported goods, bring demonstration effect to related goods in the domestic market, raise the price, and lead to the price increase in the domestic market.

Under normal circumstances, the appreciation of the local currency will cause the domestic price level to drop.

The second lecture on exchange rate changes and the economic impact of exchange rate system

First, the economic impact of exchange rate changes.

(B) the impact of exchange rate changes on the domestic economy

2. The increase in employment and national income caused by exchange rate changes.

Depreciation of the local currency (within the controllable range)-stimulating exports-increasing employment and national income in related industries-increasing domestic investment, consumption and savings-promoting long-term foreign capital inflows-expanding the national economy-increasing national income.

3. The influence of exchange rate changes on industrial structure.

Depreciation of the local currency (within the controllable range)-improving the competitiveness of the export industry-increasing the profits of the industry-transferring a large amount of funds to the export industry-eliminating industries that are not suitable for export-forming an industrial structure dominated by the export industry.

The second lecture on exchange rate changes and the economic impact of exchange rate system

Second, the exchange rate system.

(A) the fixed exchange rate system

1. Definition: The currency parity of the two countries is basically fixed, and the fluctuation range of the currency parity is specified within a certain range.

2. Measures taken to maintain the fixed exchange rate system:

Increase the discount rate; Use gold foreign exchange reserves; Foreign exchange control; Carry out public devaluation, etc.

3. The role of the fixed exchange rate system

4. The influence of fixed exchange rate on domestic economy and domestic economic policy: weakening the effect of monetary policy; Sacrifice the national economic development goal; Causing the loss of foreign exchange reserves;

The second lecture on exchange rate changes and the economic impact of exchange rate system

Second, the exchange rate system.

(B) floating exchange rate system

1. Definition: the exchange rate between local currency and foreign currency determined by the supply and demand situation in the foreign exchange market.

2. Type:

Clean floating and dirty floating;

Single floating and joint floating

3. Function: Impact on finance and foreign trade; Influence on domestic economy and international economy

The second lecture on the influence of exchange rate changes and exchange rate system

(3) Linked exchange rate system (Hong Kong)

1. Contents: The note-issuing bank will deposit US dollars as preparation for issuance or return Hong Kong dollars to US dollars according to 1: 7.8; Commercial banks pay US dollars to note-issuing banks according to 1: 7.8 to collect Hong Kong dollars or return them to exchange US dollars.

2. Features: The determination of exchange rate system is combined with the preparation of currency issuance.

3. Function:

(1) Advantages: stable exchange rate, automatic adjustment of international payments, less administrative intervention, and full play of market role.

(2) Disadvantages: affecting the independence of monetary policy; It is easy to incur the impact of international hot money.

The second lecture on exchange rate changes and the economic impact of exchange rate system

Second, the exchange rate system.

(d) Types of exchange rate regimes in the world today (IMF)

1, free floating: implemented in 48 countries.

2. Parallel nails

Step 3 Crawl and nail

4, crawling interval floating

5. Manage floating without interval

6. Fixed exchange rate arrangements without national legal tender: implemented in 37 countries.

7. Currency board system: implemented in 8 countries.

8. Traditional pegged exchange rate arrangements: implemented in 44 countries.

Exchange rate changes and the economic impact of exchange rate system

Third, exchange rate policy.

(A) the concept of exchange rate policy

(B) the objectives pursued by the exchange rate policy

1, keep the exchange rate relatively stable.

2. Maintain the stability of the national currency.

3. Promote the development of domestic and foreign trade.

4. Affect the inflow and outflow of international capital.

(C) the main content of achieving the policy objectives

1, select the corresponding exchange rate system.

2. Control the range of exchange rate changes.

3. Determine the appropriate exchange rate level.

4. Do a good job in international coordination and cooperation.

(D) Policy means to achieve policy objectives