The Forward Currency Market and Financial Arbitrage INTERNATIONAL MONETARY AND FINANCIAL ECONOMICS The Forward Currency Market and Financial Arbitrage Third Edition Joseph P. Daniels David D. VanHoose Managing Foreign Exchange Risk Wang xin Xi’an university of tecnology.

1.Foreign Exchange Risk £8.75billion ($14.7billion) 1.68 $/ £ Us property developer-------------------------Uk real estate ($14billion=8.75*1.6$/ £) 1.6$/ £ ($14.7billion) 1.68 $/ £ ($ 13.125billion) 1.5 $/ £

Foreign exchange risk is the risk that the value of a future receipt or obligation will change due to a change in foreign exchange rates. Exchange rate change may be positive or negative. There are a number of instruments that can be used to hedge foreign exchange risk.

Transaction exposure: the risk that the domestic cost or proceeds of a transaction may change. Translation exposure: (also known as accounting exposure) the risk that the translation of value of foreign-currency-denominated assets is affected by exchange rate changes. (book exposure) Economic exposure: (also known as operating) the risk that exchange rate changes may affect the present value of future income streams. (long-term effect)

Hedging is the act of offsetting an exposure to risk. Covered Exposure refers to a foreign exchange risk that has been completely eliminated with a hedging instrument.

2.the forward exchange market Forward market: is the market for contracts that ensure the future delivery of a currency at a specified exchange rate.Typical maturity is 1,3,6, 9 and 12 months date,currency,rate,amount contract future delivery (spot) (future spot) 1.62$/ £ 8.75*1.62

short position: liability, hedging by buying forward contract long position: asset, hedging by selling forward contract The forward rate is determined by the forces of supply and demand in the forward market.

案例1 金龙进出口贸易公司于2006年11月15日发运了一批出口货物，合同规定100万美元货款的收汇时间是1个月后。当时建设银行远期1个月美元结汇牌价是7.8436，也就是说，1个月后无论外汇市场如何变化，金龙公司都可以按7.8436来卖出美元。届时，公司到银行结汇100万美元，银行向金龙公司支付人民币7.8436×USD100万元=784.36万元。         如果该公司没有办理远期结汇，1个月后只能按当天的汇率来结汇了，12月15日建设银行的美元的即期结汇汇率为7.8113，按照这个汇率，该公司能得到的人民币额为7.8113×USD100万元＝781.13万元。         784.36-781.13=3.23万元         显然，采用远期结汇帮该公司锁定了收益3.23万元的收益，避免了汇率波动带来的损失。

中国工商银行人民币远期外汇牌价 中国工商银行人民币即期外汇牌价 日期： 2007年3月31日 星期六 　　　　　　　　　　　单位：人民币/100外币 币种 汇买、汇卖 中间价 现汇买入价 现钞买入价 卖出价 基准价   美元 (USD) 773.42 771.87 765.69 774.97   港币 (HKD) 98.99 98.79 98.00 99.19   日元 (JPY) 6.5600 6.5338 6.3238 6.5862 6.5539   欧元 (EUR) 1030.58 1026.46 993.48 1034.70 1030.68   英镑 (GBP) 1517.60 1511.53 1462.97 1523.67 --   瑞士法郎 (CHF) 634.99 632.45 612.13 637.53   加拿大元 (CAD) 667.26 664.59 643.24 669.93   澳大利亚元 (AUD) 623.84 621.34 601.38 626.34   新加坡元 (SGD) 509.80 507.76 491.45 511.84   丹麦克朗 (DKK) 138.32 137.77 133.34 138.87   挪威克朗 (NOK) 126.95 126.44 122.38 127.46   瑞典克朗 (SEK) 110.6 110.16 106.62 111.04   澳门元 (MOP) 96.60 96.41 95.63 96.79   新西兰元 (NZD) 551.37 549.16 531.52 553.58   韩元 (KRW) 0.8220 0.7793 0.8647 备注：此汇率为我行初始报价，成交价以各地分行实际交易汇率为准 日期： 2007年3月31日 星期六 　　　　　　　　　　单位：人民币/100外币 期限 美元兑人民币 中间价 现汇买入价 现汇卖出价 起息日   7天 (7D) 772.9 770.97 774.83 2007-04-10   20天 (20D) 772.2 770.27 774.13 2007-04-23   1个月 (1M) 771.43 769.5 773.36 2007-05-08   2个月 (2M) 769.69 767.76 771.61 2007-06-04   3个月 (3M) 768.1 766.18 770.02 2007-07-03   4个月 (4M) 766.48 764.56 768.39 2007-08-03   5个月 (5M) 764.86 762.94 766.76 2007-09-04   6个月 (6M) 763.2 761.28 765.1 2007-10-09   7个月 (7M) 761.99 759.93 764.04 2007-11-05   8个月 (8M) 760.79 758.51 763.07 2007-12-03   9个月 (9M) 759.48 756.97 761.98 2008-01-04   10个月 (10M) 758.03 755.38 760.68 2008-02-14   11个月 (11M) 757.4 754.52 760.27 2008-03-03   12个月 (1Y) 756.39 753.36 759.41 2008-04-03 备注：此汇率为我行初始报价，成交价以各地分行实际交易汇率为准

而同一币种，不同银行的远期汇率是有区别的。理财专家建议，外贸企业在选择怎样进行远期结售汇避险的同时，还需要根据不同银行的报价进行选择。         例如美元，招商银行2006年11月15日同个时间段的1个月远期结汇价的报价是784.16，售汇价的报价是787.24，交通银行的报价分别是782.96/786.89。

人民币外汇远期/掉期报价 11-09-30 09:30 单位：BP 货币对 1周 1月 3月 6月 9月 1年 USD/CNY --- / 3.09 --- / 10.0 -17.0 / -17.0 -140.0 / -130.0 -270.0 / -260.0 -400.0 / -350.0 HKD/CNY --- / --- 6.07 / 9.10 -1.54 / 3.08 -10.60 / -3.16 100JPY/CNY 6.90 / 19.60 29.05 / 56.16 50.80 / 106.87 37.04 / 114.04 -181.0 / -15.0 7.14 / 110.56 EUR/CNY -53.05 / -21.86 -230.33 / -177.53 -427.79 / -335.92 -624.59 / -450.04 GBP/CNY -111.0 / -78.0 -375.0 / -322.0 -639.0 / -549.0 人民币外汇远期/掉期报价 11-09-30 09:30 单位：BP

外汇市场-人民币外汇远期/掉期报价 10-10-08 11:30 外汇市场-人民币外汇远期/掉期报价 10-10-08 11:30 货币对 1周 1月 3月 6月 9月 1年 USD/CNY -5.0/-1.0 -40.0/-20.0 -240.0/-190.0 -500.0/-480.0 -700.0/-700.0 -1000.0/-1000.0 HKD/CNY -0.57/-0.17 -6.50/-2.27 -29.87/-21.98 -59.68/-56.39 -89.44/-82.68 -125.72/-118.52 100JPY/CNY -0.02/0.01 -0.27/-0.06 -212.21/-155.34 -419.43/-371.73 -616.94/-538.88 -856.05/-775.93 EUR/CNY -430.78/409.15 -78.97/-48.51 -420.07/-333.83 -860.71/-823.53 -1306.57/-1231.44 -1826.45/-1747.69 GBP/CNY -13.42/-9.97 -87.06/-54.61 -461.88/-370.74 -937.18/-902.53 -1418.97/-1326.85 -1987.88/-1894.92

1)spot rate and forward rate forward exchange rate >the spot rate: forward premium, forward exchange rate <the spot rate: forward discount The standard forward premium is the forward premium or discount annualized. the formula for the standard forward premium is:

Example For example, suppose the spot rate is 1.4926 (SFr/$) and the 3-month forward rate is 1.4887. The forward premium on the Swiss franc is: [(1.4887-1.4926)/1.4926]•(12/3)•100 = -1.05%

2)The Forward Rate and future spot rate Expectation of Future spot1.68 $/£) Forward(1.62 $/£) More traders buy forward £ Forward rate increases FN= SNe

Because the forward rate is determined by the supply of and demand for the future delivery of a currency, it may convey information about the future spot rate. Many empirical studies indicate that there is some co-movement between the forward and spot rate. The co-movement is less than one-to-one; thus the forward rate has limited ability in forecasting the future spot exchange rate.

3.international financial arbitrage 1) Covered interest parity U.S resident U.S treasure bill R UK treasure bill R* After 1 year 1+R 1/S(1+R*)S+1 > no-arbitrage condition 1/S(1+R*)F 1+R = S F <

(R - R* )= (F-S)/S. The condition can be rewritten: 1+R=1/S(1+R*)F 1+ R*-- R* +R/ (1+R*)= F /S R --R* / (1+R*)= F /S-1=F-S/S (R -R* )= (F-S)/S+ (F-S) R*/S (R - R* )= (F-S)/S. Interest rate difference should approximately equal the forward premium or discount. Higher interest rate currency will be forward discount, and lower interest rate currency will be forward premium.

玺汇创富：日央行出绝招“正打歪着”拖累美指大幅下行 2010年10月06日 11:37 玺汇创富：日央行出绝招“正打歪着”拖累美指大幅下行 2010年10月06日 11:37　 日本央行在周二(10月5日)的10月利率决议中意外决定调降利率目标，将利率目标从0.1%调降至0-0.1%区间，并承诺将维持零利率直到物价企稳。同时，央行还将创建基金用以购买日本公债和其它资产，旨在压低长期市场利率，降低风险溢价。 　　日本央行行长白川方明表示，央行放宽政策是因为经济展望差于预期，主要是针对日本当前的通缩形势，同时也有央行理事表示该行动主要是为了遏制日元进一步升值，但市场表现令后者大跌眼镜。决议公布后，美元兑日元只维系了短暂的上涨行情，美/日汇价于84.00之下遇阻，最高探至83.97。随后，受融资成本降低诱发短线套息交易升温影响，风险偏好情绪急剧高涨，欧元、英镑、澳元等高收益货币以及黄金等商品价格大幅拉升，拖累美元指数大幅下探，使得美元兑日元盘终大幅收阴。目前，美元兑日元于83之上交投，不排除日本当局近日再度入市干预汇率。

利率保持纪录低点 英镑汇率全下跌 2011-7-11 由于英国经济疲弱，英国中央银行星期四维持利率在纪录低点不变，且在今年余下时间预料都将按兵不动，导致英镑汇率全线下跌，澳元兑英镑刷新26年高点。 澳元兑英镑昨天触及1.4780兑1英镑的26年新高。澳大利亚本周较早时公布强劲的就业数据后，澳元汇率便大涨，随时测试1.08美元，而英镑则因为复苏低迷而连续11个交易日维持在低位，昨天最低至1.5938美元。

英国央行周四宣布将利率维持在纪录低点0.5％不变，尽管市场对此早有预期，但仍然难抑失望之情。加上英国国家经济社会研究院(NIESR)表示，英国今年第二季的经济增幅放缓，仅增长0.1％，进一步打压英镑。 分析人士指出，英国央行按兵不动也意味着英国复苏低迷的忧虑盖过了通胀率高于目标的影响。　　

EXAMPLE U.S resident(S=1.6$£) R=4.5% U.S treasure bill UK treasure bill R*=2.25% --2.25% After 1 year 1+4.5% 1/1.6(1+2.25%)1.62=1.0148 (1.62-1.6)/1.6*100=1.25% Interest rate difference+forward premium>0

案例2 以客户进口付汇为例，某客户预计在6个月后将支付1000万美元。此时美元即期售汇价为8.2900。若中国银行6个月远期美元对人民币的报价为8.2100/8.2500,则客户在同中国银行签订了远期合同后，便可于6个月后按1美元兑8.2500元人民币的价格向中国银行买入美元1000万。 远期结售汇价格是根据外币和人民币两者利率差计算而来的，高息货币远期帖水，低息货币远期升水，本例中美元利率高于人民币利率，所以美元兑人民币远期汇率低于即期汇率，从而可知，如果预计人民币汇率没有大幅升值的可能，客户可以低于现价的远期价格购买美元，节约了换汇成本。

2)Uncovered Interest Parity If foreign exchange risk is not hedged when purchasing a foreign financial instrument, the transaction is said to be uncovered. Uncovered interest parity (UIP), is a condition relating interest differentials to an expected change in the spot exchange rate of the domestic currency.

(R - R* )= (S+1e -S)/S U.S resident R U.S treasure bill UK treasure bill R* 1+R 1/S(1+R*)S+1e = < > S S+1 U.S resident After 1 year (R - R* )= (S+1e -S)/S

U.S treasure bill R UK treasure bill R* 1+R 1/S(1+R*)S+1 1/S(1+R*)F = < > S F U.S resident After 1 year U.S treasure bill R UK treasure bill R* 1+R 1/S(1+R*)S+1e = < > S S+1 U.S resident After 1 year

3)Risk Premium and UIP Risk Premium: is an increase in the return offered on a higher risk financial instrument to compensate individuals for the additional risk they undertake. Foreign exchange risk Instrument-specific risk Country risk

4.Foreign Exchange Market Efficiency We can link the CIP condition and the UIP condition through the interest rate differential as: (F-S)/S = R-R* = (Se+1–S)/S. Through simplification, this can be restated as: F = Se+1. An efficient market is one in which market prices adjust quickly to new and relevant information. When the foreign market is efficient, foreign exchange rates should adjust to the point at which the forward premium is equal to the expected rate of currency depreciation.

5.International Financial Markets 1) International capital markets and money markets International capital markets are markets for cross-border exchange of financial instruments that have maturities of one year or more. (Bonds, Equities) International money markets are markets for cross-border exchange of financial instruments with maturities of less than one-year.(spot and forward exchange contracts, short-term international bank, government and corporate notes, and international commercial paper.)

2) Eurocurrency and Eurocurrency market

Eurocurrencies are bank deposits denominated in a currency other than that of the nation in which the bank deposit is located. The Eurocurrency market is a market for the borrowing and lending of Eurocurrency deposits. Eurocurrency interest differentials and the forward premium or discount tend to be in equilibrium,meaning that covered interest arbitrage in the Eurocurrency market is typically not profitable

example Borrow $1 million ------SFr-----lend in the eurocurrency market spot rate 1.259 SFr/$, 3 months forward rate 1.256 SFr/$ $ Borrowing rate 1.0625%, SFr lending rate 0.8715%, $1 million*[1+0.010625/4]=$1002656 (principle+interest) $1million*1.259=SFr1.259million, SFr1.259million*[1+0.008715/4]=SFr1259590, SFr1259590/1.256=$1002858, $1002858- $1002656 =$202. It is most likely that the $202 would not even pay transaction cost.

3)origins of the eurocurrency market The cold war-----Soviet Union fear that U.S official might freeze its $ deposit-------moved fund from U.S to Europe----eurodollar deposit. UK and France retook control of the Suez Canal------U.S began selling £-------UK restricted foreign lending------UK banks offered attractive rates on $ deposits-----deposited the funds in U.S banks------ eurodollars

欧洲货币市场是( ) A.经营欧洲货币单位的国家金融市场 B.经营欧洲国家货币的国际金融市场 C.欧洲国家国际金融市场的总称 D.经营境外货币的国际金融市场

离岸金融交易是指（ ） A. 国内投资者和国内借款人之间的交易 B. 国内投资者和外国借款人之间的交易 C 离岸金融交易是指（       ） A.国内投资者和国内借款人之间的交易 B.国内投资者和外国借款人之间的交易 C.外国投资者和国内借款人之间的交易 D.外国投资者和外国借款人之间的交易

欧洲货币市场的特点有（ ） A. 在欧洲货币市场上进行的一切金融交易，不受任何国家金融法规、税制和政策的约束。 B 欧洲货币市场的特点有（           ） A.在欧洲货币市场上进行的一切金融交易，不受任何国家金融法规、税制和政策的约束。 B.欧洲货币市场存贷利差通常高于货币发行国。 C.欧洲货币市场是一个批发性质的市场，欧洲货币交易主要是银行间交易。 D.在欧洲货币市场进行金融交易方便而快捷。 E.欧洲货币市场交易中，投资者和筹资者可以自由选择任何一种货币。