arbitrage(国际金融-香港大学,WONGKaFu)

1AnIntroductiontoExchangeRateDeterminationWONGKaFu10thJanuary2000AndArbitrage2HowwouldyouexplainthemovementofJapaneseYen?(source:http://pacific.commerce.ubc.ca/xr/plot.html)3HowwouldyouexplainthemovementofJapaneseYen?(source:http://pacific.commerce.ubc.ca/xr/plot.html)4HowwouldyouexplainthemovementofEuropeanEuros?(source:http://pacific.commerce.ubc.ca/xr/plot.html)5HowwouldyouexplainthemovementofEuropeanEuros?(source:http://pacific.commerce.ubc.ca/xr/plot.html)6Howdoweexplainthemovementofforeignexchange?ArbitragePurchasingPowerParityHongKong’sCurrencyBoardmechanism7UCMacDonaldNAMacDonaldPricesofBigMac7.8015.60Case1Whatwouldyoudo?8Whatwouldyoudo?ChoosethecheaperMacDonaldforlunch.BuyBigMacfromUCandsellatNA.9EffectofouractionOuraction:•ChoosethecheaperMacDonaldforlunch.•BuyBigMacfromUCandsellatNA.MoresupplyofBigMac,lessdemandforBigMacAtNAPriceofBigMacfalls.GreaterdemandforBigMac,lesssupplyforBigMacAtUCPriceofBigMacincreases.10UCMacDonaldNAMacDonaldWhatwouldyoudointheabsenceoftransactioncosts?PUCPNACase2PUCPNACase3><11Punchline:Arbitrageactivitiescontinueuntilpricesequalize.Arbitrageisastrongdrivingforcetoequalizeprices.12HKMacDonaldUSMacDonaldPricesofBigMac(assume1USD=7.8HKD)HKD7.80USD1Case4HKD15.60USD1Case513HKMacDonaldUSMacDonaldPricesofBigMac(assume1USD=eHKD)PHKePUSCase7PHKePUSCase8><14Arbitrageactivitiescontinueuntilpricesequalize.Thatis,PHK=ePUSande=PHK/PUS15Pricesatdifferentlocations,whenexpressedinthesamecurrency,havetoequalize.Thatis,PurchasingPowerParityExchangerateimpliedbyPPPe=PHK/PUSPHK=ePUS.16Ifeisfixed,PUShastoadjustwhenthereisachangeinPHK.PurchasingPowerParityThreevariablesintherelation:Knowinganytwoofthem,wecancomputethethird.PHK=ePUS.ePHKPUSIfPUSisfixed,ehastoadjustwhenthereisachangeinPHK.17OtherarbitrageopportunitiesacrossspaceInternationalphonecall:HKdirecttoBeijing(Price=P1)HKtoCantonprovince,fromwherethecallisredirectedtoBeijing(Price=P2)ArbitrageopportunitiesexistswhenP1P2,orP1-P20.Arbitrageactivities(thoughillegal)willdriveP1-P2towardszero.18ArbitrageopportunitiesacrossspaceABXP2P119OtherarbitrageopportunitiesacrossspaceBuyingorsellingJapaneseYenHKDdirecttoJPY(Price=P1)HKDtoSwedishKronaandSwedishKronatoYen(Price=P2)ArbitrageopportunitiesexistswhenP1P2,orP1-P20.ArbitrageactivitieswilldriveP1-P2towardszero.20ArbitrageacrosstimeTodayTomorrow189200StockpricesIfcostofinterestiszero,