EC 340 Study Guide - Final Guide: Foreign Exchange Spot, Foreign Exchange Market, Market Basket
Document Summary
Sell financial assets to surplus country: external wealth= foreign assets foreign liabilities, decides the net credit position, external wealth>0= creditor (lending > borrowing, external wealth<0=debtor (borrowing > lending, reason for changes. Deficit countries borrow from the rest of the world. Surplus countries lend to the rest of the world. 6. 90 yuan per dollar ( /$=6. 90: appreciation and depreciation, appreciation: one currency buys more foreign currency, depreciation: one currency buys less foreign currency, determine the size of appreciation/depreciation (et+1 et)/et+1, multilateral exchange rates, effective exchange rate. Uk, us, japan: the spot contract: a contract for the immediate exchange of two currencies. Most common, 90: forwards: make the contract today, but the settlement date in the future. The price is fixed as of today. Forward premium: forward exchange price > current spot price. The buyer is under no obligation to trade. Will not exercise the option if the spot price is more favorable: examples of how derivatives work.
