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1 基本概念
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2 PPT
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3 视频小课堂
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4 自我测试
Chapter 4 Forward-looking Market Instruments
Ⅰ Forward Rates
A. Definition
Forward rate – the price of foreign money for delivery at a future date (one, threeor six months later).
Forward exchange rates help facilitateinternational trade and serve as a hedge against foreign exchange risk.
B. Forward Premium vs. Forward Discount
Forward Premium—when the forward exchangerate is greater than the spot rate.
Forward Discount—when the forward exchangerate is less than the spot rate.
Flat Currency—when the forward rate and spotrate are equal.
C. How are Forward Rates Determined?
Forward rates are determined by majorfinancial institutions in the foreign exchange market using a formula calledthe covered interest parity(CHAPTER6).
Active Learning 7: Covered interest arbitrage(CIA)
Covered interest parity condition
(id – if) ≈ (Ftd/f– S0d/f)/ S0d/f
If the equation does not hold, arbitragerscan borrow funds from one place, invest them in another place, take theadvantage of the forward market to lock the profits.
If (id – if) < (Ftd/f– S0d/f)/ S0d/f, then borrow at id,buy S0d/f, lend at if, and sell Ftd/f.
1)Borrow domestic currency;
2)Sell domestic currency in spot market;
3)Invest in foreign market;
4)Buy domestic currency in forward market.
If (id – if) > (Ftd/f– S0d/f)/ S0d/f, then borrow at if,buy Ftd/f, lend at id, and sell S0d/f.
D. Hedging
Hedging—an activity to offset or avoid riskin the market.
