International Finance 1 Foreign exchange markets  World’s largest financial market  Over the counter  “Carry trade”

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Presentation transcript:

International Finance 1 Foreign exchange markets  World’s largest financial market  Over the counter  “Carry trade”

International Finance 2 Exchange rates  Price of one country’s currency in terms of a foreign currency  Prior to 1970s, exchange rates were generally fixed  Now markets generally set the exchange rates China

International Finance 3 Factors impacting value of a country’s currency  Strength of country’s economy  Returns available in that country  Level of inflation in that country  Supply and demand

International Finance 4 Exchange rate quotes  U.S. $ equivalent  Currency per U.S. $ Spot rates Forward rates  Cross rates Opportunities for triangle arbitrage Purchasing power parity

International Finance 5 Impact of declining value of U.S. dollar  On investments in foreign stocks, bonds  On imports  On exports  On inflation  On jobs Average hourly manufacturing wage: United States $ 32 China $1.08 India $.45 Myanmar $. 19 Germany:

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