tailieunhanh - Lecture International finance: An analytical approach (2/e) – Chapter 11: Market efficiency, uncovered interest parity and real interest parity

The goals of this chapter are: To explain the concept of market efficiency, to describe the UIP condition, to assess the empirical validity of UIP, to explain the concept of the real interest rate and derive real interest parity (RIP). | Chapter 11 Market Efficiency, Uncovered Interest Parity and Real Interest Parity Objectives To explain the concept of market efficiency. To describe the UIP condition. To assess the empirical validity of UIP. To explain the concept of the real interest rate and derive real interest parity (RIP). The Concept of Market Efficiency A distinction is made between allocative efficiency and informational efficiency. In an efficient market, prices reflect all available information. Implications It is not possible to predict price movements from available information. It is not possible to earn abnormal returns via active trading. Weak Efficiency Prices reflect all the information contained in the past behaviour of prices. Semi-Strong Efficiency Prices reflect all the information contained in their past behaviour, as well as all public information. Strong Efficiency Prices reflect all available information, including private and insider information. Spot-Market Efficiency The spot exchange rate moves in a random and unpredictable way, reflecting the random arrival of new information: Forward Market Efficiency The market reflects all available information where the information is contained in the forward rate. Forward Market Efficiency (cont.) The Forward Rate as Predictor of the Spot Rate (AUD/GBP) The Forecasting Error of the Forward Rate (AUD/GBP) Uncovered Interest Parity UIP is a condition that precludes profitable uncovered arbitrage. It is ‘uncovered’ because the long currency position is left open. It can be derived by combining CIP and unbiased efficiency. Return on Domestic Investment and Foreign Investment (with Uncovered Position) Converting at spot rate Investing in foreign assets Reconverting at expected spot rate Domestic Investment Foreign Investment Investor (K) The UIP Condition The Effect of Uncovered Arbitrage UIP can be derived from arbitrage. A violation of the UIP condition triggers uncovered arbitrage. Uncovered Interest Arbitrage Covered margin . | Chapter 11 Market Efficiency, Uncovered Interest Parity and Real Interest Parity Objectives To explain the concept of market efficiency. To describe the UIP condition. To assess the empirical validity of UIP. To explain the concept of the real interest rate and derive real interest parity (RIP). The Concept of Market Efficiency A distinction is made between allocative efficiency and informational efficiency. In an efficient market, prices reflect all available information. Implications It is not possible to predict price movements from available information. It is not possible to earn abnormal returns via active trading. Weak Efficiency Prices reflect all the information contained in the past behaviour of prices. Semi-Strong Efficiency Prices reflect all the information contained in their past behaviour, as well as all public information. Strong Efficiency Prices reflect all available information, including private and insider information. Spot-Market Efficiency The spot exchange rate

• Tài chính doanh nghiệp
• International Finance
• Lecture International finance
• Tài chính quốc tế
• Bài giảng Tài chính quốc tế
• Market efficiency
• Interest parity
• International monetary system
• Exchange rate arrangements
• Eurocurrency market
• International banking
• Internal financing
• International short term financing
• International long term financing
• Foreign bonds
• Foreign direct investment
• International capital budgeting
• International bank loans
• Financial analysis
• Financial management
• Lecture Introduction to finance
• Financial markets
• International trade
• International business firms
• Financial manager
• Bond investment
• Equity investment
• International arbitrage
• Multipoint arbitrage
• Basel accords