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Este Cmap, tiene información relacionada con: Economics - 17 to 19 - Foreing Exchange, EXCHANGES RATES Are determinated in different systems Fixed Exchage rate policy, <math xmlns="http://www.w3.org/1998/Math/MathML"> <mrow> <mtext> Indirect Quote = </mtext> <mfrac> <mtext> 1 </mtext> <mtext> Direct Quote </mtext> </mfrac> </mrow> </math> remember ????, <math xmlns="http://www.w3.org/1998/Math/MathML"> <mrow> <mtext> Spread = </mtext> <mfrac> <mtext> ask - bid </mtext> <mtext> ask </mtext> </mfrac> </mrow> </math> depends of -Market conditions -Dealer position -Trading Volume -Length of the operation (for frws), FX is quoted given an spread between the rate to sell and the rate to buy BID - ASK where <math xmlns="http://www.w3.org/1998/Math/MathML"> <mrow> <mtext> Spread = </mtext> <mfrac> <mtext> ask - bid </mtext> <mtext> ask </mtext> </mfrac> </mrow> </math>, ???? affected by MONETARY POLICY, MONETARY POLICY if Expansionary ↑ increase growth ↑ demand for imports ↑ increase inflation ↓ demand for exports ↓ current account ↓ demand for local currency = DEPRECIATION Also ↓ i ↓ demand local assets ↓ financial inflows ↓ financial account ↓ demand for local currency, Parity Relationships are Different economic theories, FISCAL POLICY if Expansionary ↑ govt borrowing ↑ i ↑ demand for local assets ↑ financial account ↑ demand for local currency = APPRECIATION Also ↑ Economic growth ↑ inflation ↓ current account ↓ demand for local currency = DEPRECIATION, BALANCE OF PAYMENTS includes - Govertment transactions, BALANCE OF PAYMENTS its equation is <math xmlns="http://www.w3.org/1998/Math/MathML"> <mrow> <mfrac> <mtext> +Current account
+Capital account
+Official settlement account </mtext> <mtext> = 0 </mtext> </mfrac> </mrow> </math>, ???? affected by FISCAL POLICY, Parity Relationships like Uncovered Interest Rate Parity When there is not a forward market you can no cover. So, use the expected Spot insted of the frw. It's a thery about expectations, The expected future value of a currency. can be ????, Parity Relationships used because markets are forward looking, EXCHANGES RATES Are traded in FX MARKETS, Purchasing Power Parity The same basket of goods should cost the same in different currencies once the FX rate is included Differences in FX = Differences in Π are two kinds Absolute PPP Law of one price of goods Same basket of goods should have the same price after adjustment for FX, <math xmlns="http://www.w3.org/1998/Math/MathML"> <mfrac> <mrow> <mtext> 1 + </mtext> <mmultiscripts> <mtext> r </mtext> <mtext> a </mtext> <none/> </mmultiscripts> </mrow> <mrow> <mtext> 1 + </mtext> <mmultiscripts> <mtext> r </mtext> <mtext> b </mtext> <none/> </mmultiscripts> </mrow> </mfrac> <mtext> = </mtext> <mfrac> <mtext> 1 + Inflation A </mtext> <mtext> 1 + Inflation B </mtext> </mfrac> </math> means that (1 + real rate) x (1 + E(inflation)) = (1 + nominal rate), when any frw premium or discout offset any interest rate differencial if true The currency with the higher interest rate is expected to be selling at a frw discount (depreciates), Relative PPP Even if PPP do not hold, there still a relationship between FX movements and inflation differentials Formally <math xmlns="http://www.w3.org/1998/Math/MathML"> <mrow> <mmultiscripts> <mtext> S </mtext> <mtext> 0 </mtext> <none/> </mmultiscripts> <mfenced open="[" close="]"> <mfrac> <mtext> 1 + Inflation A </mtext> <mtext> 1 + Inflation B </mtext> </mfrac> </mfenced> <mmultiscripts> <mtext> </mtext> <none/> <mtext> t </mtext> </mmultiscripts> <mtext> =E </mtext> <mfenced open="(" close=")"> <mmultiscripts> <mtext> S </mtext> <mtext> t </mtext> <none/> </mmultiscripts> </mfenced> </mrow> </math>, when any frw premium or discout offset any interest rate differencial if true The currency with the lower interest rate is expected to be selling at a frw premium (appreciates)