InternationalFinance

SchoolofEnglishStudies,

TianjinForeignStudiesUniversity

TheScoreArrangementTotalScore=Ordinary(30%)+FinalExam(70%)IntroductionTo“Finance”FromNational,Corporate,AndPersonalProspectsBank(lender)Publicinvestorsacompany(borrower)capitalprincipalwithinterestsA.Financev.Providecapital(money)andcapitalmovement，withfinancialinstitutionsasintermediaries,inChinesemeans“融資”.a)indirectfinance,withcommercialbanksasintermediaries:AcompanyBorrowsshort-termfundsfromcommercialbanks.Anditisatemporarytransferofownershipoffundsfromthebanktotheborrower,andtheborrowerpromisestopaybackprincipalwithintereststothebankinthefuture.Acompanymayborrowlong-termfundsbyissuinglong-termcorporatebondstothepublic.Itisatemporarytransferofownershipoffundsfromthebondbuyers(investors)tothecompany.Andthecompanypromisestopaybacktheprincipalwithintereststothebondbuyersinthefuture.Here,commercialorinvestmentbanksplaytheroleoffinancialintermediationandcollectfeesforthisservices,insteadofinterests.investors(lender)acompany(borrower)dividendsb)directfinance,withinvestmentbanksasintermediaries:providingfundsthrubuyingshares

AcompanyAcquireslong-termfundsbyissuingstockstothepublic.Andtheinvestorsbecometheshareholders(owners)ofthecompany.Theshareholdershavethevotingpowersandmakedecisionsonsomeimportantissuesofthecompany.Andthecompanywillgivethedividendstotheshareholdersinthefutureifmakingprofits.B.Finance(fromnationalperspective)n.inChinesemeans“國家財政”.

Hence,governmentsusuallyusetwomethodstocoverfiscaldeficits.Oneisraisetaxrate(itmaycausedissatisfactionfromthepublicdirectly),anotheristoissuetreasurybondstocoverdeficits(itmeansthegovernmentwillborrowmoneyfromthepublicandguaranteetorepayprincipalwithintereststothepublicinthefuture).Governmentsobtainrevenuesfromcollectingtaxesandusetheserevenuesforpublicexpenditures,suchassocialwelfare,militaryexpenditures,education,environmentalprotection,andsoon.If,revenues>expendituresfiscalsurplusesIf,revenues<expendituresfiscaldeficitsC.Finance(fromcorporateperspective),inChinesemeans“公司財務”.Foracompany,itsassetsarecomposedofequity(所有者權(quán)益/自有資金）andliabilities(負債）.

Assets=Equity+Liabilities

borrowmoneyfrombankorissuecorporatebondstopublicNote:Borrowingfrombankisshort-termdebtfinance,whileissuingcorporatebondsislong-termdebtfinance.

yourownmoneyorissuestocktopublictoraisecapitalD.Finance(frompersonalperspective)ismoneymanagement,inChinesemeans“個人金融（理財)”.

It’sabouthowtoallocateyourpersonalincomesforconsumptionandinvestments,suchassavings,buyingfinancialproducts(T/B,housing,stocks,insurance,futures,mutualfunds,foreignexchanges,andsoon)fromfinancialinstitutionstoearnmoremoney,butthereisariskforanyinvestment.RiskReturne.g.buystocks

RiskReturne.g.buyT-bondsReferenceBooksForLearningFinance&Economics：1、《金融學》,曹龍騏等,高等教育出版社。

2、《金融市場學》，張亦春、鄭振龍等,高等教育出版社。

3、《國際金融學》，姜波克,高等教育出版社。

4、《貨幣金融學》，殷孟波，中國金融出版社。

5、《宏、微觀經(jīng)濟學》，Paul.Samulson

&

William.Nordhaus,

機械工業(yè)出版社。

6、《經(jīng)濟學原理》，GregoryMankiw,機械工業(yè)出版社。

7、《中央銀行英語教程》、《商業(yè)銀行英語教程》、

《證券市場與投資銀行英語教程》，李若谷、張燕鈴、和廣北等，新華出版社。

8、《金融市場與機構(gòu)》，JeffMadura,

北京大學出版社。RecommendedMediaforLearning

Finance&Economicswww.FT.comwww.Ewww.WSJ.comwww.Bwww.F《21世紀經(jīng)濟報導》(報紙)《經(jīng)濟觀察家報》(報紙)《財經(jīng)》(雜志)中央電視臺經(jīng)濟頻道《經(jīng)濟半小時》節(jié)目中央電視臺經(jīng)濟頻道《中國財經(jīng)報道》節(jié)目Biz-China,EnglishChannel,CCTV-9Unit1.MoneyI.MoneyA.Definitionofmoneyandreviewofmoney’shistory.a)Moneyisdefinedasanythingthatisgenerallyacceptableinpaymentforgoodsandservices,orindischargeofdebts.b)Inthepast,manythingshaveservedtheirturnasmoney,suchasdecorativeshells,beads,stoneaxes,bronze,goldandsilver.c)Nowadays,forourdailypointofview,moneyreferstonotes,coins,checks,travelingchecksanddeposits.d)Thedifferencebetweencurrencyandmoney:Currencyreferstonotesandcoins,whilemoneycoversmorethancurrency,suchaschecks,travelingchecksanddeposits.B.Reasonsforusingmoney:a)Theuseofmoneyenricheseconomiclifebybroadeningthescopeofexchange,productionandconsumption.Itbroadensthescopeofexchangebyeliminatingtheneedfora“doublecoincidenceofwants”necessityinbartertrade.b)Itamplifiestherangeofgoodsandservicespeoplecanproducebymakingpossibleawiderspecializationanddivisionoflabor.c)Moneyaddsflexibilitytoeconomicconsumption.Itenableseachconsumertodistributehisspendingashewishes(Hecanchoosetospendallhisincomesimmediatelyorchoosetoexercisetheoptionoftransferringsomehisconsumptiontofuturewhenhemayenjoyitmore.)II.FunctionsofMoneyA.MediumofExchange(流通手段）—basicfunctionB.StandardofValue(價值尺度）—

basicfunctionC.StoreofValue(價值儲藏）D.StandardofDeferredPayment(延期支付標準）F.WorldCurrency(世界貨幣）

Duetothedevelopmentofinternationaltrade,somecurrencieshavecrossedborderandplayedtheroleofworldcurrency,suchasUSdollars,Euro,JapaneseYen,andBritishpounds.III.MoneySupplyA.Theavailablequantityofmoneyatamomentiscalledthemoneysupply.(是指貨幣存量，是一個國家或一個地區(qū)在某一時點上的現(xiàn)金存量和銀行存款的總和，其中銀行存款占的比例較大。）B.Basedontheliquidityoffinancialassets(liquidityoffinancialassets指存款和信用工具轉(zhuǎn)化為現(xiàn)金的速度和成本),thecentralbankcomputes3seriesofmoneysupply:i)Internationalexplanationofmoneysupply:

M1=C+DdM2=C+Dd+DtM3=C+Dd+Dt+Dn(Non-bankingfinancialinstitutions)ii)Chineseexplanationofmoneysupply:M0=CashM1=Cash+Dd

M2=M1+Quasi-Money(includingDt+marginsofsecuritiesfirms+otherdeposits)C.Broadly-definedmoney（廣義貨幣）&narrowly-definedmoney（狹義貨幣）

M1constitutesanarrowly-definedmoneysupply,whileM2andM3arebroadly-definedmoneysupply.D.KnowingMoneysupplyisthebasisforlearningmonetarypolicy(貨幣政策）.

Monetarypolicy:i)Whenthecentralbankincreasesmoneysupply,moremoneyispumpedintotheeconomicsystemanditpromotestheeconomicgrowthandmaycauseinflation(andthenincreaseinterestratetocurbinflation);ii)Whenthecentralbankdecreasesmoneysupply,lessmoneyisintheeconomicsystemanditslowsdowntheeconomicgrowthandmaycausedeflation(andthenlowerinterestratetostimulatetheeconomy).Unit2.BalanceofPaymentsI.DefinitionofBalanceofPaymentsBalanceofPayments(BOP)referstoasystemofgovernmentaccountsthatrecordsandcatalogsacountry’sexportsandimportsaswellastheflowofcapitalandgiftsbetweentheresidentsofthecountryandresidentsofothercountriesduringaspecifictimeinterval.II.TwoPrinciplesofBOPNaturalPersonA.ResidentsLegalPerson(Enterprises&PublicAgencies)e.g.ForanMNC,suchasGeneralMotor(GM)forChina’sBOP:ParentinAmericaSubsidiaryinChinaso,foreignresidentregardedasChina’sresidentsNote:“Hence,salesbyaparentfirmtoaforeignsubsidiaryresultinbalanceofpaymentsentries,eventhoughthetransactiontakesplacewithinasinglecorporation.”B.Double-EntrySystem(復式記帳法）Eachtransactiongivesrisetobothacreditentry(貸記)

anddebitentry(借記）ofBOPindifferentcountries.CreditDebit

Inflowofcapital+-Outflowofcapitali)AlltransactionsinvolvingpaymentsfromforeignerstoacountryareenteredinBOP“receipts”columnwithaplussignal(+)toreflectthattheyarecredits,whichresultsininflowoffundstothecountry.ii)Allpaymentstoforeignersareenteredinthe“payments”columnwithaminussignal(-)toreflectthattheyaredebitsbecausetheyresultinoutflowsoffundstoothercountries.III.ImportantSectionsofBOPA.CurrentAccount(經(jīng)常項目帳戶）i)Merchandise-Imports&Exportstangiblegoods(有形商品）ii)Services（服務）-intangiblegoods（無形商品）

transportation運輸

tourism旅游

insurance保險

communication通訊

e.g.costCIFinsuranceBasedontherequirementsofBOP,thesetwopartsareputinto“Services”.freightiii)

UnilateralTransfer(單方面轉(zhuǎn)移、無償轉(zhuǎn)移）

Governmentaids得到“+”，支出“-”Remittancefromrepatriation匯入“+”，匯出“-”NetCurrentAccountBalanceNote：經(jīng)常項目差額（主動獲得外匯的多少），如果此項為正，國家處于主動地位；如果此項為負，國家需要用其他項目彌補，處境較被動。B.CapitalAccount(資本帳戶）i)DirectInvestment(直接投資/利潤)Long-termCapital(長期資本）

ii)PortfolioInvestment(證券投資/股息、紅利）iii)Short-termCapital(短期資本）NetCapitalAccountBalanceC.OfficialReserveAccount(官方貯備帳戶）i)Goldii)ForeignExchangeiii)SDRs(特別提款權(quán)）

（PositioninIMF-在IMF的貯備頭寸）NetOfficialReserve(Note:SpecialDrawingRights(SDRs)areissuedtogovernmentsbyinternationalmonetaryfunds(IMF)tosettleinternationaldebtsandhavereplacedgoldininternationalfinancialtransaction.)gold25%SDRsforeignexchangedomesticcurrency75%

SDRs相當于股份公司，每個國家購買一定的份額（Share),此財產(chǎn)屬于基金組織財產(chǎn)，存于本國中央銀行，待IMF需要時動用?，F(xiàn)在，美國占有份額的17.47%，居首位，中國占有份額的2.99%，居第八位。

經(jīng)常項目順差+資本與金融項目順差官方儲備增加（中國情況）經(jīng)常項目順差>資本與金融項目逆差官方儲備增加

經(jīng)常項目逆差<資本與金融項目順差官方儲備增加（美國情況）經(jīng)常項目逆差+資本與金融項目逆差官方儲備減少

經(jīng)常項目逆差>資本與金融項目順差官方儲備減少

經(jīng)常項目順差<資本與金融項目逆差官方儲備減少D.ErrorsandOmissions(凈錯誤和遺漏）Theestablishmentofthisaccountistofillthegaponthebookkeepingartificially.Theoretically,CurrentAccount+CapitalAccount=OfficialReservesPractically,CurrentAccount+CapitalAccount=OfficialReserves(Duetoincompletefiguresandsmuggling.)F.ComparativeAnalysisMethodsa)HorizontalAnalysis:CompareBOPwithothercountries’BOPs.b)VerticalAnalysis:CompareBOPwithyourownBOPsBefore.IV.AnalysisImplications(EquilibriumofBOP)A.ImplicationsoffavorableBOP&unfavorableBOPa)Itreferstotradeequilibrium,whichmeansthatexportsequalimports.Ifexportsexceedimports,tradesurpluswillappear.Andifexportsarelessthanimports,tradedeficitswillappear.b)Thesecondimplicationiscurrentaccount’sequilibrium.Iftradeitemrunsadeficit,theinvisibletradeitemcanmakeitup,andifitcannot,capitalaccountwillbeusedtocoverdeficits.c)Finally,ifitstillnot,thegovernmentshavetodrawontheirforeignreservesassets,whichshouldbeuseasthelastresorttocoverdeficits.

B.ImplicationsforManagersa)Acountryexperiencingseriousbalanceofpaymentsdeficitsisnotlikelytoimportasmuchasitwouldifitwererunningasurplus.b)Continuingdeficitsinacountry’sBOPmaysignalfuturecontrolsontheoutflowcapitalmovements.c)Acontinuingsurplusinacountry’sBOPmayindicateastronginternationalcompetitiveposition.

Unit3BasicTheoriesofBOP

(HowaretheimbalancesofBOPadjustedwhentheyoccurinacountry?)

I.TheElasticityApproach

(彈性論）A.PriceElasticityinEconomicsi)pricequantitydemandeddemandiselasticquantitydemandedpricequantitydemandeddemandisinelastic(littlechange)ii)pricequantitysuppliedsupplyiselasticquantitysuppliedpricequantitysuppliedsupplyisinelastic(littlechange)Note:“Whendemandorsupplyiselastic,itmeansthatquantitydemandedorsuppliedwillberelativelyresponsivetothechangeinprice.”“Aninelasticdemandorsupplyindicatesthatquantityisrelativelyunresponsivetopricechanges.”B.Whenadevaluation(pricedecreasing)occursinacountry,exportsarestimulatedbecausethepriceofitsgoodsinforeigncurrencieshasbeenreduced,andimportsareretardedbecausethedomesticcostofimportedgoodshasrisen.So,theimbalanceoftradehavebeenimproved.Butitdependsonthesizeofdevaluationandthepriceelasticityofdemand.Note:thesizeofdevaluationmeanshowmuchthepricegoesdownandtheelasticityofdemandincludestwoaspects:1)foreigndemandfordomesticgoodswhenthepricechanges(specifically,thedevaluationoccurs);2)domesticdemandforforeigngoodswhenthepricechanges(specifically,thedevaluationoccurs).i)Foracountry,devaluationofthecurrenciesexportstotalpaymentsofBOPtradedeficitsimports

(littlechangeduetoinelasticdemand)

Theexportsincreasefromdevaluation(althoughthepricegoesdown,foreigndemandfordomesticgoodsincrease)isnotsomuchasimports(becauseimportsareinelasticinshortterm),so,totalpaymentsincreaseandtradebalancedeteriorates.Andinthelongrun,thereistimetolookforsubstitutesforhigherpricedgoods.thusforthelongrun,thedemandiselasticandthecountry’stradebalanceisimproved.(ThisistheJ-curveeffect.)

ii)Foracountry,thedevaluationofcurrenciesexportstotalpaymentstradesurplusesimports(decreasegreatlyduetopriceelasticity)Thedevaluationofdomesticcurrencycausemoreforeigndemandofdomesticgoodsandlessdomesticdemandforforeigngoods.a)Theincreaseofexportsandthedecreaseofimportscausedbydevaluationcouldimprovetradebalance;b)Ortheincreaseofexportsaremorethantheimports(althoughthereislittlechangeinimports),whichcouldalsoimprovetradebalance.

II.AbsorptionApproach

(吸收論)A.DefinitionofAbsorptionApproach

Itisatheoryofthebalanceoftradethatemphasizeshowdomesticspendingchangesrelativetodomesticoutput.Inthenationalincomeaccount,totaloutputsequaltotalexpenditures.Totaloutputornationalincome(Y)consistsoffourtypesofexpenditures:consumption(C),investment(I),governmentexpenditures(G),andnetexports(X-M).

So,Y=C+I+G+(X-M)HereXstandsforexportsandMstandsforimports.Y+M=C+I+G+X

（國民收入+進口=消費+投資+政府開支+出口）

totalsupplytotaldemand

（總供給)(總需求)X-M(出口-進口）=Y-(C+I+G)B=Y-A“herewedefinedomesticabsorption(A)beingequalto(C+I+G)”If,Y>AtradesurplusY<AtradedeficitsY=Aexportsequalimports,reachtradeequilibriumB.CharacteristicsofAbsorptionApproacha)吸收論是從總收入和總支出的相對關(guān)系來考察國際收支失衡的原因，而不是從相對價格關(guān)系出發(fā)。此外，吸收論是建立在凱恩斯的宏觀經(jīng)濟學基礎之上，采用一般均衡的分析方法，而非具體價格分析方法。b)就貨幣貶值的效應來講，吸收論是從貶值對國民收入和支出的相對影響中考察國際收支失衡的原因。

III.MonetaryApproach

(貨幣論）A.Thebasicpremiseofthistheoryisthatanybalanceofpaymentsdisequilibriumistheresultofamonetarydisequilibrium,thatis,differencesexistingbetweentheamountofmoneypeoplewishtoholdandtheamountsuppliedbythemonetaryauthorities.“Inverysimpleterm,theexcessdemandformoneywouldbesatisfiedbyinflowsofmoneyfromabroad,whileontheotherhand,theexcesssupplyofmoneyiseliminatedbyoutflowsofmoneytoothercountries.”ThusthemonetaryapproachemphasizesthedeterminantsofmoneydemandandmoneysupplyalsodeterminetheBOP.Now,weuseaformulatoexplainthat:Md(貨幣需求）=

f(y,r)(y-收入水平，r-利率）

incomeMdMd

interestrateMdMdMs(貨幣供給）=D+F=D+B（于額）

domesticsupplyforeignsupply(順差，流入）DuetoMd=Ms,Md=D+B(國際收支平衡）

B=Md(貨幣需求）-D（國內(nèi)貨幣供給）If,Md>DMoneycomesinTradesurplusesMd<DMoneygoesoutTradedeficitsMd=DImports=Exports,reachtradeequilibrium.B.Policy:GovernmentsshouldcontroldomesticmoneysupplyinordertobalanceBOP.a)所有國際收支不平衡，在本質(zhì)上都是貨幣造成的，因此國際收支不平衡都可以由國內(nèi)貨幣政策來解決。b)國內(nèi)貨幣政策主要指國內(nèi)貨幣供應政策，因此松的貨幣政策(loosemonetarypolicy/creditpolicy)可以減少國際收支順差；緊的貨幣政策(tightmonetarypolicy/creditpolicy)可以減少貨幣收支逆差。

Unit4.ForeignExchangeMarket

I.DefinitionsofForeignExchange&ForeignExchangeMarketA.Foreignexchangeisdefinedasthecurrencyofanothercountry.

E.g.ToaJapanese,u.s.dollarisforeignexchange,andtoanAmerican,JapaneseYenisforeignexchange.B.Theforeignexchangemarketisamarketforconvertingthecurrencyofonecountryintothatofanothercountry.Themajorparticipantsintheforeignexchangemarketarelargecommercialbanksthatoperateattwolevels-retailandinter-bank:a)attheretaillevel,theydealwithbankcustomerswhowanttobuyorsellforeignexchange;b)attheinter-banklevel,usuallythroughforeignexchangebrokers,theytradeinforeignexchangewithotherdomesticandforeignbanks,andbrokerswillreceivecommissionsfortheirservices.

II.TheFunctionsofForeignExchangeMarket

A.CurrencyConversionThepaymentsacompanyreceivesforitsexportsandincomeitreceivesfromforeigninvestmentsmaybeinforeigncurrencies.Tousethosefundsinitshomecountry,thecompanymustconvertthemtoitshomecountry’scurrency;Internationalbusinessesuseforeignexchangemarketswhentheymustpayaforeigncompanyforitsproductsorservicesinthatcountry’scurrency;Internationalbusinessesuseforeignexchangemarketswhentheyhavesparecashthattheywishtoinvestforshort-termsinmoneymarket.E.g.AUSfirmhas$10mandwantstoinvestitfor3months.TheinterestrateinUSis8%,whiletheinterestrateis12%inFrance.Hence,thecompanymaychangeits$10mintofrancsforinvestmentstoearnmoreinterestsofanother4%.A.CurrencyConversionCurrencyspeculation(short-termmovementsoffundsfromonecurrencytoanotheroneinthehopesofprofitingfromthefluctuationsinexchangerates)isanotheruseofforeignexchangemarkets.E.g.AUScompanyhas$10mtoinvestfor3months.SupposethecompanysuspectsthatUSdollarisovervaluedagainstfranc.Thatisthecompanyexpectsthevalueofthedollartodepreciateagainstfranc.Thecurrentdollar/francexchangerateis$1=FFr6,thecompanyexchangeits$10mintofrancsandreceiveFFr6om.In3months,$1=FFr5(dollardepreciateagainstfranc),thenthecompanyexchangeitsFFr60minto$12m.Thus,thecompanygetsprofits=$12m-$10m=$2m.B.InsuringAgainstForeignExchangeRiskThesecondfunctionoftheforeignexchangemarketistoprovideinsurancetoprotectagainstthepossibleadverseconsequencesofunpredictablechangeinexchangerates.Throughforwardandfuturecontracts(tofixfuturedeliveryexchangerate),theforeignexchangemarketprovidesameansofremovingtheforeignexchangerisk.

III.CharacteristicsofForeignExchangeMarketTheforeignexchangemarketisaglobalsinglemarketofbanks,brokers,andforeignexchangedealersinmanylocationsconnectedbyelectroniccommunicationsystems,suchastelephone,faxandcomputer.Theforeignexchangemarkethasbeengrowingatarapidpace,whichreflectsageneralgrowthinthevolumeofcross-bordertradeandinvestment.Theforeignexchangemarketneversleeps,anditprovides24-hourtrading,becauseofthedevelopmentofInternettechnology.Mostforeignexchangetransactionsinvolvedollars.Dealersmaytradeonecountry’scurrencyforanotherone’swiththedollarsasintermediary,becausethevolumeofinternationaltransactionsinvolvingdollarsisgreat.Itisnothardtofinddealerswhowishtotradedollarsforothercurrencies.EuroUSdollarsJapaneseYen

tradingcostisbigger

Unit5.ForeignExchangeRate

I.DefinitionofForeignExchangeRateForeignexchangeratesaresimplythepricesofforeigncurrenciesintermsofone’sown.

II.QuotationMethodsofExchangeRatesA.DirectQuotationMethodItreflectstheamountofhomecurrencythatisrequiredtobuytheforeigncurrency.AndChinausesDirectquotation.E.g.TakingRMBasthehomecurrency,$1=RMB8.3foreigncurrencyhomecurrencyB.IndirectQuotationMethodtheindirectquotationmethodisthereverse,thehomecurrencyisexpressedasaunitandthepriceisshownbythenumberofunitsofforeigncurrencythatarerequiredtopurchaseoneunitofhomecurrency.E.g.TakingRMBasthehomecurrency,RMB1=$0.1204homecurrencyforeigncurrencyC.Cross-ExchangeRates

Mostexchangeratequotationtablesexpresscurrenciesrelativetothedollar,however,insomeinstances,theexchangeratebetweentwonon-dollarcurrenciesisneeded.Thistypeofrateisknownasacross-exchangeratebecauseitreflectstheamountofoneforeigncurrencyperunitofanotherforeigncurrency.Formulaofcross-exchangerate:valueof1unitofcurrencyAinunitsofcurrencyB=valueofcurrencyAin$/valueofcurrencyBin$E.g.1Mexicanpeso=$0.071C$=$0.70valueofMexicanpesoinC$=$0.07/$0.70=C$0.10(Thatis1C$=10Mexicanpesos.)

II.TypesofExchangeRatesA.SpotExchangeRate(現(xiàn)匯匯率)Whentwopartiesagreetoexchangecurrencyandexecutethedealimmediately,thetransactionisreferredtoasaspotexchange.Exchangeratesgoverningsuch“onthespot”tradesarereferredtoasspotexchangerates.Thevalueofonecurrencyisdeterminedbytheinteractionbetweenthedemandandsupplyofthatcurrencyrelativetothedemandandsupplyofanothercurrency.B.ForwardExchangeRate(遠期匯率)Toavoidfluctuationofspotrate,manyfirmsengageinaforwardexchange(signaforwardcontract).Aforwardexchangeoccurswhentwopartiesagreetoexchangecurrencyataspecifiedrateandexecutethatdealatsomespecificdateinthefuture.Exchangeratesgoverningsuchfuturetransactionsarereferredtoasforwardexchangerate.Takedollarsasanexample:Iftheforwardrateishigherthanthespotrate,thedollarissoldatapremium(升水)ontheforwardmarket;Iftheforwardrateislowerthanthespotrate,thedollarissoldatadiscount(貼水)ontheforwardmarket.Anexampleofusingaforwardcontractbyafirmtoavoidrisk:

AUSfirmimportslaptopsfromaJapanesesellerandsellthoselaptopsinAmerica@$2,000perunit,thecurrentspotrateis$1=￥120,A/Psin30daysare￥200,000perunit.sothecurrentpriceofeachcomputer=200,000/120=$1,667,profitsofeachcomputer=$2,000-$1,667=$333In3odays,thereare2possibilities:a)JapaneseYenappreciates,$1=￥95priceofeachcomputer=200,000/95=$2,105profitsofeachcomputer=2,000-2,105=-$105

(Inordertoavoidsuchfluctuationrisk,theUSfirmcansignaforwardcontract@$1=￥110tofixtheexchangeratein3odays.)b)JapaneseYendepreciates,$1=￥130priceofeachcomputer=200,000/130=$1,538profitsofeachcomputer=$2,000-$1,538=$462

(Withoutusingaforwardcontract,theUSfirmgainmore.)

Unit6.ForeignExchangeTransactions

I.Whatareforeignexchangetransactions?

Foreignexchangetransactionsarepurchasesandsalesofforeignexchangeswithapurposetomeettheneedsofreducingforeignexchangerisksandmakingprofits.Theyareinvolvednotonlyinmostofhugeamountofimporting,exporting,andforeigninvestmentthatgoesonthroughouttheworld,butineveryone’seconomiclife.

II.VariousForeignExchangeTransactionsA.Hedging(套期保值）involvesenteringintoacontractatthepresenttimetobuyorsellforeignexchangeataspecifiedpriceonagivenfuturedate.Itisameansofshiftingtheriskofapossiblemovementintheexchangeratetosomeoneelse.A.Hedginga.forwardtransactions:Aforwardcontractisanagreementtobuyorsellanassetatacertainfuturetimeforacertainprice.Thecontractisusuallybetween2financialinstitutionsorbetweenafinancialinstitutionandoneofitscorporateclients.(forexport&importbusinesses)Oneofthepartiestoaforwardcontractassumealongposition(多頭、買入）andagreestobuytheunderlyingasset（標的資產(chǎn)/外匯）onacertainspecifiedfuturedateforacertainspecifiedprice.Theotherpartyassumesashortposition

(空頭、賣出）andagreestoselltheassetonthesamedateforthesameprice.Thespecifiedpriceinaforwardcontractwillbereferredtoathedeliveryprice

(交割價格).

Aforwardcontractissett