FINS1612 Lecture Notes - Lecture 8: Forward Exchange Rate, Floating Exchange Rate, Crawling Peg
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Managed float - held within defined band relative to other currency ie, Crawling peg - allowed to appreciate in controlled steps over time ie, china (arguable) Linked exchange rate - tied to value of another currency or basket of currencies i. e. , hkd. Above means: a more simplistic way to look at currency is to treat it as an item. Aud/usd the price of 1 aud (base) in terms of usd (terms) - which makes it an (cid:862)e(cid:454)(cid:272)ha(cid:374)ge rate(cid:863). Eg, aud(cid:1005) (cid:272)osts u d(cid:1004). (cid:1011)(cid:1005)(cid:1012)5 to (cid:271)u(cid:455) whereas it costs aud1 to buy. Aud1: as an american tourist, you will use usd0. 7185 to buy aud1. Or: as an aussie, you will need aud1. 39 (inverse of 0. 7185) to buy usd1, note this does not include fees or bid/ask, etc. Supply & demand of currency in the fx markets: what does a supply demand curve for foreign currency look like, demand for a currency (base)
