Financial Institutions and Markets Fall 2009 Dr. Andrew L. H. Parkes Day 13 “How do financial markets work?” 卜安吉

Oct. 27, 2009Financial Institutions & Markets, Day 132 Chapter 12: Foreign Exchange Markets Philippine Pesos! The Official Rate we used 40PP=$1. “How does the forex market work?” We calculated the 500 PP and 200 PP note value. We discussed the definitions: spot and forward rates. The Forex Market! Chaos?

Oct. 27, 2009Financial Institutions & Markets, Day 133 Foreign Exchange Markets continued China’s Major Economic Problem, 2007 Inflation of 6.5% over the past few months (annualized) in 2007 How did the Chinese government use exchange rates to slow inflation? For example: As pork prices were increasing, how did the Chinese government slow down pork price increases using the renminbi? Which is worth more? The Pork or the motorcycle?

Oct. 27, 2009Financial Institutions & Markets, Day 134 Foreign Exchange Markets continued For example: As pork prices are increasing, by allowing the RMB to appreciate, imported pork prices will fall and therefore, to remain competitive (and sell your pork to the Nan Xiang Xiao Long restaurant) domestic pork producers must lower their prices as well! Which is worth more? The Pork or the motorcycle?

Oct. 27, 2009Financial Institutions & Markets, Day 135 Foreign Exchange Markets continued For example: As a restaurant owner, as long as the quality of the pork is the same, you will buy the least expensive pork. So An Appreciating will help to control inflation and lower domestic prices. Notice export prices will increase! Which is worth more? The Pork or the motorcycle?

Oct. 27, 2009Financial Institutions & Markets, Day 136 Foreign Exchange Markets continued This is a Stickup: Your pork or Your life! This is a Stickup: Your pork or Your life! Sunday, July 15th, 2007 Due to the rising prices of meat in southern China, robbers have started stealing pork because it has become so valuable. In the last year pork prices have soared more than 40%. According to the Shenzhen Jing newspaper, a peddler was robbed of his motorcycle and his load of 125kg of pork. He was on his way to a market in Shenzhen, which lies on the border of Hong Kong. The suspects rushed from a minibus and threatened him with a knife. Which is worth more? The Pork or the motorcycle?

Oct. 27, 2009Financial Institutions & Markets, Day 137 Foreign Exchange Markets continued This is a Stickup: Your pork or Your life! This is a Stickup: Your pork or Your life! Sunday, July 15th, 2007 “They took the pork because it was more expensive than the motorcycle,” a local police officer was quoted as saying. According to the police officer, the stolen motorcycle would fetch as little as 100 yuan, while the pork would be sold for more than 3000 yuan. According to the news report, the four would-be robbers were caught and will appear in court soon. Found at Found at - Jan. 15, 2008www.weirdasianews.com/2007/07/15/ Which is worth more? The Pork or the motorcycle?

Oct. 27, 2009Financial Institutions & Markets, Day 138 Foreign Exchange Markets continued Quiz: $1 = PP 38.5 | PP #1. At which price will you “bill” a customer (from the U.S.)? #2. At which exchange rate will you sell pesos? #3. How much did the peso change? (in %) 1 year ago: PP 50 = $ 1 1 year ago: PP 50 = $ 1 Today: PP 40 = $ 1 Today: PP 40 = $ 1