CURRENT FINANCIAL MARKETS DEVELOPMENT FOREX Doc. RNDr. Petr Budinský, CSc. Prague, 2016.

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CURRENT FINANCIAL MARKETS DEVELOPMENT FOREX Doc. RNDr. Petr Budinský, CSc. Prague, 2016

Current Financial Markets Development Global economy Bonds Forex Stocks Commodites Derivatives

Currency Markets- FOREX the relationship between interest rates and exchange rates the impact of the exchange rate on the state's economy analysis of selected exchange rates – USD / EUR, CZK / USD, CZK / EUR, YEN / USD, CHF / EUR analysis of individual currencies in terms of their importance in international trade and in foreign exchange operations significance and impact of currency interventions (BP, CHF, CZK)

Evolution of the price of gold

History of exchange rates

Exchange rate regimes Fixed Exchange Rate Currency board (Bulgaria, Estonia, Argentina) Managed Float Crawling peg (Mexico) Floating Rate

The choice of exchange rate regime Fixed Exchange Rate - Low Maturity Financial Sector - Exchange Risk Floating Rate - High Inflation - Autonomous Monetary Policy

European Monetary System (EMS)

British Pound (BP) Attack in 1992 – George Soros Inflation 10 %, Distrust by the Bundesbank Raising Interest Rates: 10 %  12 %  15 % Intervention buying BP (15 mld. BP) BP  15 % towards DM 25 % towards USD

European Exchange Rate Mechanism II (ERM II) Successor EMS ( ) EU  Euro Fluctuation Band I 15% Fulfillment of Conditions – 2 years

Exchange Rate– EUR / USD

The relationship between the exchange rate and interest rate Example: Czech Republic… r = 1 % 1 USD = 24,5 CZK If the CNB will raise rates, then the new rate is equal to S: a) 24,20 CZK / USD b) 24,80 CZK / USD

Parity interest rates

Purchasing Power Parity (PPP) Absolute (strong) form - tariffs, quotas, taxes, wages, costs Relative form - appreciation / depreciation of the currency depending on differences in inflation INFLATION DIFFERENTIALS

Foreign exchange reserves by currency CurrencyYear 2001Year 2013 USD71,0 %65,0 % EUR18,3 %25,1 % JPY6,1 %0,6 % GBP2,8 %4,0 % CHF0,3 % Other1,5 %5,0 % Total100 %

Foreign exchange reserves by countries State Foreign exchange reserves (in bill. USD) China3 300,0 Japan1 300,0 Saudi Arabia656,9 Russia537,6 Switzerland531,1 Taiwan408,5 Brazil373,1 South Korea327,0 Hong Kong317,4 India297,8 Germany248,9

The most traded currencies CurrencyYear 1995Year 2010 USD90 %85 % Euro0 %39 % JPY24 %19 % GBP18 %13 % CHF8 % AUD3 %8 % CAD2 %5 % Total145 %179 %

The most traded currency pairs Currency PairYear 2010 USD / EUR28 % USD / JPY15 % …… EUR / JPY3%

Special Drawing Rights (SDR) Formation SDR in 1969, the role of the International Monetary Fund Support for Bretton Woods 204,1 mld. SDR in 2009 USD, EUR, YEN, BP and JUAN

Special Drawing Rights (SDR) CurrencyAmountRate USD equivalent Euro0,42301,102200, YEN12, ,400000, BP0,11101,557200, USD0,66001,000000, SDR1,397135

Formation of Monetary Union Criteria: High labor mobility Openness, capital mobility Price and wage flexibility Alignment of economic cycles Benefits: Reduced transaction costs, elimination of exchange rate risk, business connectivity Drawbacks: The loss of monetary policy, the possibility of asymmetric shocks

The criteria for euro adoption

Exchange Rate – USD / CZK, EUR / CZK

Exchange Rate - EUR / CHF

Exchange Rate – GBP / CZK

Exchange Rate – USD / CNY

Exchange Rate – USD / JPY

Exchange Rate – USD / MXN

Exchange Rate – USD / RUB, EUR / RUB