HO_MB3e_IM_Ch8

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1、Chapter8 TheMarketforForeignExchange  113Chapter8TheMarketforForeignExchangen BriefChapterSummaryandLearningObjectives8.1ExchangeRatesandTheForeignExchangeMarket(pages247–253)Explainhowmarketsforforeignexchangeoperate.·ForeignexchangeratescanbeexpressedaseitherU.S.d

2、ollarsperunitofforeigncurrencyorasunitsofforeigncurrencyperU.S.dollar.·Thenominalexchangerateisthepriceofonecountry’scurrencyintermsofanothercountry’scurrency.·Therealexchangeratemeasurestherateatwhichgoodsandservicesinonecountrycanbeexchangedforgoodsandservicesinan

3、othercountry.8.2ExchangeRatesintheLongRun(pages253–257)Usethetheoryofpurchasingpowerparitytoexplainhowexchangeratesaredeterminedinthelongrun.·Thetheoryofpurchasingpowerparityisbasedonthelawofoneprice,theideathatidenticalproductsshouldsellforthesamepriceeverywhere.·I

4、nthelongrun,exchangeratesshouldmakeitpossibletobuythesameamountofgoodsandserviceswiththeequivalentamountofanycountry’scurrency.·Intheshortrun,real-worldcomplicationskeeppurchasingpowerparityfromcompletelyexplainingexchangerates.8.3ADemandandSupplyModelofShort-RunMov

5、ementsinExchangeRates(pages257–271)Useademandandsupplymodeltoexplainhowexchangeratesaredeterminedintheshortrun.·ThedemandforU.S.dollarsrepresentsthedemandbyhouseholdsandfirmsoutsideoftheUnitedStatesforU.S.goodsandU.S.financialassets.ThesupplyofU.S.dollarsinexchangef

6、oraforeigncurrencyisdeterminedbythewillingnessofhouseholdsandfirmsthatownU.S.dollarstoexchangethemfortheforeigncurrency.·AnythingthatincreasesthewillingnessofforeignhouseholdsandfirmstobuyU.S.goodsorU.S.assetswillcausethedemandcurvefordollarstoshifttotheright;anythi

7、ngthatincreasesthewillingnessofhouseholdsandfirmsintheUnitedStatestobuyforeigngoodsorassetswillcausethesupplycurvefordollarstoshifttotheright.·Theinterest-rateparityconditionholdsthatdifferencesininterestratesonsimilarbondsindifferentcountriesreflectexpectationsoffu

8、turechangesinexchangerates.Copyright©2018PearsonEducation,Inc.Chapter8 TheMarketforForeignExchange  113n KeyTermsAppreciation,p.248.Anincr