>Top 1. Exchange market:
- Bid rate and Offered rate:
- 121.25-35 ¥/$: means the highest bid rate of a buyer is 121.25; the lowest TTS (Telegraphic Transfer Selling rate), Middle rate, TTB (Telegraphic Transfer Buying rate:
- Mine; Yours (121.35 yours); Done (=agreed the transaction)
- EBS (Electronic Brokering Service): a wholesale electronic trading platform to trade FX (Foreign eXchange)
- ICAP; <Intercapital listed in London Stock Exchange
- FRB of US is a member of the ICAP, but BOJ is not.
- How to earn a trader of FX?
- A: Buy FX cheap, and sell it high.
- C: There will be no low-risk & high-return product.
- C: The business is $\pm$ interest and exchange rate.
- Order of the transaction:
- around $500M at the difference of ¥0.3/$
- The breakeven will be the sum of $500M×0.3 ¥/$=¥150M
- >Top Futures contract (or futures), or forward contract:
- The parties agree to buy and sell an asset for a price agreed upon today with delivery and payment occurring at a future point. (derivative product)
- Currency futures, interest rate futures and stock market index futures.
- Forward exchange rate is not an estimate after 1 year; which is automatically calculated by interest difference of the spot.
- Spot contract:
- A: Actual delivery is 2 days later.
- Why exchange rate fluctuate?
- A: fundamentals (or national power)
- A: Keynesian beauty contest
- A: Difference of interest rate
- A: Balance of payments; trade surplus increase, $ selling pressure increases.
- C: 1) Goods & services balance+2) Income balance+3) Current capital transfer balance+4) Foreign exchange reserve+5) Errors & omissions
(Current A/C=1+2, and Capital A/C=3)
- Japan tends to emphasize the sizeｚof goods balance, underestimating the impact of services balance; recent Japanese are mostly pensioners, whose life is depending on income by the interest and dividend.
- Structure of balance of payments of Japan has changed:
- In 1985:big surplus of goods balance (trading nation)
- In 2001: mostly depend of income balance
- B: there will be no $ selling pressure.
- Q: Do the foreign investors sell Japanese stock when ¥ becomes weaker?
- B: Investment profit and risk hedge of exchange are different.
- Repatriation problem:
- B: Japanese banks mostly procure and operate in $ in transaction in US. They rarely reflux their profit to HQ in Japan changing into ¥.
- US banks evaluate the transaction by the market value, not by the book value, so they have no incentive to sell assets as of end of the accounting period.
- $ buying in emergency:
- Maxima about the market: buying in the distant war, selling in the near war.
- Internal exchange rate:
- if the internal rate was determined at ¥130/$, Japanese companies tend to sell at the rate slightly higher than the internal rate, considering discount rate of the forward. (say, ¥131 or ¥132)
- >Top Foreign exchange intervention:
- B: J-Government or BOJ are one of participant, who could move the market trend.
- C: but, they could be an adjuster of the ¥ level and its real economy.
- Their ¥ fund will be procured by issue of FB (Financial Bill);
- Balance of FB: ¥57T (2003)
- Sterilized intervention (>)
- C: FX intervention is a powerful carry trade.
- Super-preferential rate?:
- Seller's rate (6mos future) is not preferable.
- Credit risk:
- Spot exchange inter banks: there is 2 days risk.
- Future exchange with individual: there is a risk.
- Economic measures (FFE):
- 1) Fiscal policy, 2) Financial policy, 3) Exchange policy.
- Plaza accord (1985): to make weaker $.
- Lourvre accord (1987): to adjust too weaker $.
- RMB: 1.5 RMB/$ (c1980), now 8.3 RMB/$ (1995-)
- Weaker exchange rate means; stronger competitiveness (more jobs) and weaker ppp
- Weaker ¥ is better than dismissal of labor (=hollowing out of industry)
- Debt in foreign currency denominated: cannot make weaker of the local currency.
- Asian currency crisis in 1997:
- Most of Asian countries adopted fix rate or being pegged to $.
- Fix rate or $ peg is indispensable to induce foreign investment.
- Capitalism=Market mechanism=Speculators are indispensable.
- Market is not sustainable only by actual demand.
- Market system which is attacked by speculators; the system is worse than the speculators.
- "Speculators are haunting in the market."
- A: .... Affirmative 肯定的コメント
- B: .... But then 否定的コメント
- C: .... Considering 別要素コメント
|$ futures 1y
- モノサービス収支: 給与ボーナス
- 所得収支: 利息配当
- 資本収支: 元本
- FB: Financial Bill, 政府短期証券
- 外為特別会計 (FX special account)
- BS of Monetary Authority
||Currency issue balance ↗
- 不胎化介入1 (Sterilized intervention):
||6 mos future