Brian Butler: TBird int'l finance class 02
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Series of lectures from Brian Butler, given during fall 2008 session at Thunderbird Global MBA, Miami campus: This lecture 02: learn to use International Fisher effect (IFE), and PPP, Law of one Price, Big Mac index to estimate long term currency (FX) trends
![Contact Information: Brian David Butler Miami Campus Facilitator International Economics & Trade (Prof. Grosse) Email: [email_address] Cell: 786-457-0984 Blog: http://blog.globotrends.com/ Wiki: http://kookyplan.pbwiki.com/brianbutler Connect professionally: http://www.linkedin.com/in/briandbutler http://www.linkedin.com/e/gis/69362 Connect personally: http://www.facebook.com/people/Brian_Butler/293500110](https://image.slidesharecdn.com/brianpresentation02-090530163236-phpapp01/85/brian-butler-tbird-intl-finance-class-02-1-320.jpg)
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Brian Butler: TBird int'l finance class 02
- 1. Contact Information: Brian David Butler Miami Campus Facilitator International Economics & Trade (Prof. Grosse) Email: [email_address] Cell: 786-457-0984 Blog: http://blog.globotrends.com/ Wiki: http://kookyplan.pbwiki.com/brianbutler Connect professionally: http://www.linkedin.com/in/briandbutler http://www.linkedin.com/e/gis/69362 Connect personally: http://www.facebook.com/people/Brian_Butler/293500110
- 2. Global MBA International Finance & International Trade GM6212 2 nd session. September 27, 2008 Last Class Now Next… Define: Theories Apply - FX markets -PPP -hedging - Arbitrage -IFE -real life
- 5. Exchange Rate Determination E[XR S ] – XR S XR S UFR UNBIASED FORWARD RATE IFE INT’L FISHER EFFECT INTEREST RATE PARITY IRP PARITY PURCHASING POWER (Forward Premium) (Interest Differential) FISHER EFFECT FE (% Spot Rate*) (Inflation Differential*) THIS MODEL IGNORES GOVERNMENT CONTROLS AND TRANSACTIONS COSTS * = Forecasted Value XR = Domestic Currency Foreign Currency
- 13. Purchasing Power Parity E[XR S ] – XR S XR S UFR UNBIASED FORWARD RATE IFE INT’L FISHER EFFECT INTEREST RATE PARITY IRP PARITY PURCHASING POWER (Forward Premium) (Interest Differential) FISHER EFFECT FE (% Spot Rate*) (Inflation Differential*) THIS MODEL IGNORES GOVERNMENT CONTROLS AND TRANSACTIONS COSTS * = Forecasted Value XR = Domestic Currency Foreign Currency
- 14. PPP – purchasing power parity E[XR S ] – XR S XR S PARITY PURCHASING POWER (% Spot Rate*) (Inflation Differential*) It looks confusing, but is simple. PPP states that … % change in spot rate = inflation differential That’s all.
- 23. Big Mac Index
- 28. Exchange Rate Determination E[XR S ] – XR S XR S UFR UNBIASED FORWARD RATE IFE INT’L FISHER EFFECT INTEREST RATE PARITY IRP PARITY PURCHASING POWER (Forward Premium) (Interest Differential) FISHER EFFECT FE (% Spot Rate*) (Inflation Differential*) THIS MODEL IGNORES GOVERNMENT CONTROLS AND TRANSACTIONS COSTS * = Forecasted Value XR = Domestic Currency Foreign Currency
- 29. IFE E[XR S ] – XR S XR S IFE INT’L FISHER EFFECT (Interest Differential) (% Spot Rate*) Looks confusing, but is simple. IFE states that … % change in spot rate = interest differential That’s all.