文档介绍：Chapter 5 The International Parity Conditions
The Law of One Price
Exchange Rate Equilibrium
Interest Rate Parity
Less Reliable International Parity Conditions
The Real Exchange Rate
Exchange Rate Forecasting
Summary
Appendix 5-A Continuous Time Finance
Though this be madness,
yet there is method in it.
William Shakespeare
Prices
Prices appear as upper case symbols
Ptd = price of an asset at time t in currency d
Std/f = spot exchange rate at time t in currency d
Ftd/f = forward exchange rate between currencies d and f
E[…] = expectation operator (. E[St€/$])
Rates of change
Changes in a price appear as lower case symbols
rtd = an asset’s return in currency d during period t
ptd = inflation in currency d in period t
td = real interest rate in currency d in period t
std/f = change in the spot rate during period t
The law of one price
Equivalent assets sell for the same price
(also called purchasing power parity, or PPP)
Seldom holds for nontraded assets
Can’pare assets that vary in quality
May not hold precisely when there are market frictions
An example: The world price of gold
Suppose P£ = £250/oz in London
P€= €400/oz in Berlin
The law of one price requires:
Pt£ = Pt€ St£/€
Þ £250/oz = (€400/oz) (£/€)
or 1/(£/€) = €/£
If this relation does not hold, then there is an opportunity to lock in a riskless arbitrage profit.
An example with transactions costs
Gold dealer A Gold dealer B
€ Offer
€ Bid
£ Offer
£ Bid
Buy low from A
Sell high to B
FX dealer
€/£ bid
€/£ ask
Arbitrage profit
Cross exchange rate equilibrium
Sd/e Se/f Sf/d = 1
If Sd/eSe/fSf/d < 1, then either Sd/e, Se/f or Sf/d must rise
Þ For each spot rate, buy the currency in the denominator with the currency in the numerator
If Sd/eSe/fSf/d > 1, then either Sd/e, Se/f or Sf/d must fall
Þ For each spot rate, sell the currency in the denominator for the curr