...Study……………………………………… 7 7. Scope and Limitation of the Study………………………… 7 8. Research Methodology……………………………………. 7 II. Literature Review……………………………………………… 8-9 III. Discussion III.1. Interest rate versus exchange rate in Bank deposit……… 10 III.1.1 Appreciate US Dollar in Bank Deposit factor…10-11 III.1.2 Depreciate US Dollar in Bank Deposit factor….. 11 III.2. Interest rate affected in Stock market…………………... 11 III.2.1 Depreciate US Dollar in Stock Market………..11-12 III.2.2 Appreciate US Dollar in Stock Market..................12 IV. Conclusion……………………………………………………… 13 V. References…………………………………………………….14-15 Abstract In this paper, I use high frequency data to investigate the extent to which interest rate changes originated in the United States by the Reserve Federal Fund. More specifically, I am interested in understanding in effects of changes in the Federal Reserve Fund’s interest rates on differential between (short term) local currency interest rates. I also investigate how interest rate influences to the foreign exchange market when Federal set the interest rate. The result indicates that Federal Reserve’s rate can influence foreign exchange market in the bank deposit factor and in the stock market. Key words: U.S Federal Reserve, Federal Fund rate, Interest rate and foreign exchange market. ACKNOWLEDGMENTS First of all, I have been blessed with the help of some wonderful people while preparing this term paper. Thanks must first given to Dr. CHHUN Vannak...
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...of factors that you believe influence or determine foreign exchange rates (i.e., factors that you may want to monitor as an corporate international finance manager). Rank these factors from most important (1) to least or less important. (1/2 to maximum 1 page). Political Stability Inflation Interest Rates Speculations Strength of other currencies Current-Account Deficits Public Dept Terms of Trade Government Intervention Economic Performance Imports Exports unforseeable incidents (like natural disasters, gunshooting, terorrism) Central Bank Actions For the factor you ranked as number 1, write a brief statement as to why you selected it and why you think that factor is the most important in determining foreign exchange rates. (maximum ½ page). From my point of view, political stability is one of the most, not to say the most important factor that influences foreign exchange rates. Because, if there is no political stability in a country, the economic performance is not stable, too. Also consumer spending declines or is weak and trading sentiments for its currency turns sour, leading to a decline in that country's currency against other currencies with stronger economies. So to say, a country with political stability will also have most likely a stable and/or strong currency. We saw that in history many times, that political instability also lead to big changes in foreign exchange rates and also could lead to a financial...
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...6 Factors That Influence Exchange Rates Изображение Стр. 1 Home Videos Dictionary Acronyms Bonds Buzzwords FOREX Mutual Funds Options & Futures Retirement Stocks Taxes Tech Analysis Trading Articles Stock Analysis Special Features Investing Basics Stocks Mutual Funds FOREX ETFs Active Trading Bonds Financial Theory Fundamental Analysis Options & Futures Personal Finance Real Estate & Mortgages Retirement FAQs View All Tutorials Special Features Beginners Experienced Investors Active Traders Retirement Exam Prep Quizzes CFA Level I CFA Level II CFA Level III Series 6 Series 7 Series 26 Series 63 Series 65 Series 66 CSC More Exams... FXtrader Home Trade Now Challenges Login Simulator Home My Portfolio Trade Stock Games Resources http://www.investopedia.com/articles/basics/04/050704.asp 05.03.2011 1:09:20 6 Factors That Influence Exchange Rates Login Financial Edge Free Tools Stock Ideas Free Annual Reports Guides and Books Learn About Futures Mortgage Offers Financial Calculators Стр. 2 .omestopediaи е Страница, размещенная в публичном Интернет, запрашивает данные из вашей частной локальной сети. По соображениям безопасности автоматический доступ будет заблокирован, но вы можете его разрешить. Продолжить Всегда продолжать при запросе данных с данного сервера в мою закрытую локальную сеть enter keywords enter symbol Get Quote Предупреждени е Страница, размещенная в публичном Интернет, запрашивает данные из вашей частной локальной сети. По соображениям...
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...Relationship Exchange Rate Stock Price CHAPTER THREE 3.1) introduction This chapter is particularly focused on the various previous studies, which tries to explore the relationship between the exchange rate and stock price. Many studies had been conducted in context to the relation between the exchange rate and stock prices, some studies even have analyzed the relation by considering some of the other variables (like FDI, interest rate, inflation rate ect), to see if these variables have any influence on the fluctuating exchange rate and stock prices. The current literature provides year by year explanation about the Different opinions and arguments of various researches on the relationship between exchange rate and stock prices. For the easy understanding the chapter will be divided into two sections. The first section will cover all the research papers published prior to 1990's. one can observe that most of the studies in section one had established the relationship by measuring the exposure from fluctuating exchange rates to stock prices, so we will name this part as “literature review on measuring the exposure'. And in second section; we cover all the research papers which are published after 1990's and one can observe that some of the studies have established the relation by measuring the causal relation between the exchange rate and stock prices, so we would name the second part as” literature review on measuring the causality relation between the exchange rate and stock...
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...s 1. Foreign Exchange Market 02 2. Foreign Exchange Rate 03 3. Determinants of Foreign Exchange Rates 04 4. Exchange Quotation 06 5. Direct Quotation (Home Currency) 08 6. Indirect Quotation (Foreign Currency) 09 7. Conclusion 10 Foreign Exchange Market Introduction: • Today no country is self sufficient in its demand and supply of goods and services and factors of production such as labour and capital are seen moving freely across the national frontiers. • All the countries trade in goods and services, borrow and lend, invest and accept investments with other countries with nominal or full control to govern the currency flow and trade. • Since different countries have their own currencies (with different purchasing power), the settlement of payments cannot be made with the currency of one country. Meaning: • The Foreign Exchange market is a decentralized world-wide market; the participants in the market include central banks, commercial banks, brokers, corporations and individuals. • The central banks monitor both market movements and sentiments and intervene according to government policy and prevailing situation. Functioning: • International economic and commercial relations between countries involve exchange of goods and services and payment for these exchanges. • The payments lead to conversion of one currency into another. • Each country has its financial system and its own currency and financial assets. • Exchanges between the money...
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...CENTRAL BANK A central Bank is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. The central bank often also oversees the commercial Banking system within its country. A central Bank is distinguished from a normal commercial bank because it has a monopoly and creating the currency of that nation, which is usually that Nations legal tender. Central Bank of Kenya is the highest Banking institution in the country and responsible for ensuring the smooth working of banking sector and other financial institutions. Central Bank differs from commercial banks in that it does not engage in ordinary banking activities e.g. accepting deposits from the general public. It is owned by the government while commercial banks are owned by shareholders. CBK usually implements certain government policies. OBJECTIVES OF CENTRAL BANK OF KENYA i. To formulate and implement monetary policy directed to achieving and maintaining stability in the general level of prices. ii. The Bank fosters the liquidity, solvency and proper functions of a stable market based financial system. iii. Support the economic policy of the government including its objectives for growth and employment. iv. Formulate and implement foreign exchange policy v. Hold and manage its foreign exchange reserves. vi. License and supervise authorized dealers vii. Formulate and implement such policies as best promote the establishment, regulations...
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...have to consider? P. 13-17 - international economic conditions … if conditions weaken, income of consumers becomes relatively low, consumer purchases of products decline and an MNC’s sales in that country may be lower than expected … results in reduction in cash flows and valuation - international political risk … foreign government may increase taxes or impose barriers, consumers may boycott if friction between countries - exchange rate risk … foreign currencies to be received suddenly weaken against dollar, MNC will receive lower cash flows, cash outflows in foreign currencies are exposed to movements but in opposite direction Using the valuation (model) of an MNC, illustrate in detail the impact of these key exposures on an MNC’s value. Make sure to explain all your notation and assumptions. - cost of capital is influenced by the return required by its investors … if there is suddenly more uncertainty surrounding the cash flows, investors may only be willing to invest in the MNC if they can expect to receive a higher rate of return - consequently, higher level of uncertainty increases the return on investment required by investors and the MNC valuation decreases 2. What are the theories that explain why firms become motivated to expand their business internationally? Discuss each. p. 6-8 - comparative advantage … specialization by countries can increase production efficiency - imperfect markets … factors of production are immobile, costs and restrictions...
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...The U.S. financial system has many complexities and it is impacted by several environmental factors including federal regulations and the economy. The U.S. financial markets impact the economy, businesses, and individual by the movement of funds among financiers, businesses and governments. It involves investments in the area of sales or marketing of securities, the management of investment risk through portfolio diversification and the analysis of securities. Melicher, R. W., & Norton, E. A. (2011).Pg. 6 The U.S. Federal Reserve is the central bank of the United States and is responsible for regulating the banking system, setting monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices. ("What is the," 2013) The role of the U.S. Federal Reserve is important for the U.S. payment system. It provides banking service for the twelve Federal Reserve Banks by providing banking service to depository institutions and to the federal government. The depository institutions maintain accounts including collecting checks and provide various payment services, distributing and receiving currency and coin, and electronically transferring funds. Melicher, R. W., & Norton, E. A. (2011). The Federal Reserve Chairman is a position with high ethical standards and morals; a high standard are a must. A successful chair must have the confidence and trust of the president and Congress and bank officers, foreign officials,...
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...Abstract: In this research, we expect that there are some relationships between exchange rate of CNY and the asset price of Chinese capital market. Some countries with low interest rate will attract many investors to borrow money, and those investors will use this amount of capital to transfer into other curries so that they can invest in that country. With more capital flowing into the capital stock market, the index measured the performance of stocks will have some changes. Somehow, the changes in the exchange rate should be able to predict the changes in Shenzhen Component Index. Using the data from some reliable resources, we would figure out the relationships between them. Introduction: Exchange rate is one of the most common rates we concern about in our daily economic activities. Knowing the effect of this rate on Shenzhen...
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...International Trade Speech ECO/372 July 22, 2014, 2014 International Trade Speech There are various factors that influence the activities and behaviors of international trade and the relationships between trading countries. For example, the amount of goods and services a country imports and exports may have vast effects on foreign and domestic market places, economies, and their monetary and trading policies. Exchange rates also play a role in market activity. Relationships between trading countries are also affected by trading tactics, strategies, and policies. It is important to understand how and why policies and marketplace interactions, both foreign and domestic, work and are determined, and how they affect international trade. International trade is what makes the world an amazing place to do business of all types. With international trade, businesses can import and export many goods and services that help keep prices down, but also can cause a loss of jobs from importing being too high. Nevertheless, we tend to treat imports as some sort of negative or bad thing even though, when you think about it, imports are what we gain from international trade while exports are what we pay in international trade (Mcteer, 2013). International trade has effects on the domestic markets because many consumers do not care where there product is coming from and continue to support importing regardless of associated consequences. Tuition and fees paid for by international...
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...announcement on the spot exchange rate, or a group of announcements over a period of time that impact on the spot rate. In this question, need to consider which factor can influence the spot rate; usually the following factors can influence the spot rate: 1. The interest rates: interest rates is one of the most significant elements to influence the spot rate, because of it is reflect the supply and demand of currency in the market. In general raising the interest rate should increase the spot rate. 2. The inflation rate: the inflation rate, exchange rate and interest rate these three rate are highly correlated, a country with a low inflation rate it means that low inflation country has high purchasing power and the value of low inflation country’s currency will be increase. 3. Economic growth: it is also have a big impact on exchange market, economic factor can divide three parts, the first one is GDP, the second one is unemployment rate and the last one is trade balance data. Usually a country has stable economic growth the value of currency will be increase. 4. Political stability and economic performance: the foreign investors choose invest their capital in stable country with economic performance. The political situations generally include political conflict, military conflict, elections etc. These situations will influence the exchange rate. According to above analysis, we know the announcement can influence the spot rate, I select AUD/USD spot rate to explain the...
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...The Foreign Exchange Market Before the times of the foreign exchange market, the world depended on the gold standard to determine the value of goods and services. This paper will describe in more detail the gold standard, the positive and negative aspects of using the gold standard and in addition the paper will summarize the major functions of the world’s major foreign exchange markets. The gold standard was a monetary system that many countries used in order to determine the value of domestic currencies in relation to a specific amount of gold. The value of money, bank deposit and notes were transformed into gold at the specific amount. Britain was the first country to adopt the gold standard in 1816, followed by the United States. From 1834 until 1933 the specified price of gold in the United States was $20.67 per ounce (Bordo, 2002). However, in 1933 U.S. President Franklin D. Roosevelt put an end to the gold standard when he prohibited the possession of gold by any persons except for the purposes of owning or manufacturing jewelry (Moffatt, 2008). This was the beginning of the Bretton Woods System. Under the Bretton Woods System, countries agreed to settle their international balances by converting deficits into U.S. dollars at a flat exchange rate of $35 per ounce (Bordo, 2002). This monetary system only lasted until 1971 when President Richard Nixon completely ended the trading of gold (Moffatt, 2008). Since that time the gold standard has not been used by any major...
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...Abstract INTRODUCTION When first looking at an exchange rates, and foreign exchange, there are a few questions which must be considered. What factors affect the demand and supply of Australian dollars in the foreign exchange markets? Distinguish between the possible causes and effects of currency depreciation and a currency appreciation on the Australian economy. What forces have come into play, if any, in the past few years that have affected the value of the Australian dollar? In addition to looking further into those questions, it is helpful to know what the word Exchange Rate means; it is defined as, “The rate at which one unit of domestic currency is exchanged for a given amount of foreign currency.” A BRIEF HISTORY OF THE AUSTRALIAN DOLLAR Until 1971, the Australian dollar (AUD) was “pegged” to the British pound. This meant that the AUD rose or fell in line with the pound. In 1971, the AUD became pegged to the US dollar instead. These currencies were fixed currencies, which meant that the Australian currency would only change value when a major world currency also changed. This system lasted only until 1974 when the AUD became pegged to a trade-weighted selection of other currencies. This was still a fixed currency. In 1976 this selection of currencies became moveable. Small shifts were able to take place when needed. In 1983 the AUD became a floating currency. This means that the value of the dollar is determined by supply and demand. Initially, the Reserve...
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... 2007). In addition to these standard risks, investors in foreign markets are concerned with the differences in changing exchange rates, political and ethical influences and tax expenses. The Currency Exchange The currency exchange market fluctuates similar to that of stocks and bonds. When a company wants to purchase or invest into a foreign market it is first determined what one unit of the investors currency is equal to in one unit of the foreign currency. A market’s currency value is influenced by high or low activity, supply and demand and other economic influences (University of Phoenix, 2007). Seeing a gain in the foreign market does not necessarily mean that the gain will be realized in the home currency if the foreign currency has depreciated against the home currency(University of Phoenix, 2007). The currency exchange rate is of concern to investors, but, with strategic planning can be managed. An investing firm should limit the amount of times currency is changed back and forth. This limits the exchange rate effect. Another effective method would be to deposit large amounts at a local financial institution where the investment can draw from it to maintain fixed costs (University of Phoenix, 2007). This keeps the currency within the local market. When profits are generated the firm should monitor the current exchange rate to...
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...The Australian Exchange Rate Abstract INTRODUCTION When first looking at an exchange rates, and foreign exchange, there are a few questions which must be considered. What factors affect the demand and supply of Australian dollars in the foreign exchange markets? Distinguish between the possible causes and effects of currency depreciation and a currency appreciation on the Australian economy. What forces have come into play, if any, in the past few years that have affected the value of the Australian dollar? In addition to looking further into those questions, it is helpful to know what the word Exchange Rate means; it is defined as, “The rate at which one unit of domestic currency is exchanged for a given amount of foreign currency.” A BRIEF HISTORY OF THE AUSTRALIAN DOLLAR Until 1971, the Australian dollar (AUD) was “pegged” to the British pound. This meant that the AUD rose or fell in line with the pound. In 1971, the AUD became pegged to the US dollar instead. These currencies were fixed currencies, which meant that the Australian currency would only change value when a major world currency also changed. This system lasted only until 1974 when the AUD became pegged to a trade-weighted selection of other currencies. This was still a fixed currency. In 1976 this selection of currencies became moveable. Small shifts were able to take place when needed. In 1983 the AUD became a floating currency. This means that the value of the dollar is determined by supply...
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