Foreign Exchange (Forex) Foreign Exchange Markets

x ‘”‡š‹•‘–ƒƒ••‡–Ǥ ‘”‡‹‰‡š…Šƒ‰‡ƒ”‡–•ƒ”‡ƒŽ•‘‘™ƒ•…—””‡…›ǡ ƒ†

x ‘”‡š“—‘–‡•Ǥ ˆ‘”‡šƒ”‡–•ǤŠ‡›ƒ”‡–Š‡„‹‰‰‡•–ƒ”‡–•‹–Š‡™‘”Ž†„›
x ‘”‡šƒ’’”‡…‹ƒ–‹‘ƒ††‡’”‡…‹ƒ–‹‘Ǥ –—”‘˜‡”Ǥ
x ‘”‡šˆ‘”™ƒ”†…‘–”ƒ…–•ǡ–Š‡…ƒ””›–”ƒ†‡ƒ†‹–‡”‡•–”ƒ–‡ Š‡ ƒ”‡–‹•ƒŽŽ‘˜‡”Ǧ–Š‡Ǧ…‘—–‡”ȋȌǤ‘—Šƒ˜‡–‘†‡ƒŽ
’ƒ”‹–›Ǥ ™‹–Šƒ„ƒ‘”ƒ „”‘‡”–‘ƒ…–—ƒŽŽ›„—›ƒ†•‡ŽŽ…—””‡…‹‡•Ǥ
x ‘”‡šƒ†…‡–”ƒŽ„ƒ‘‡–ƒ”›’‘Ž‹…›Ǥ  –Š‡”ƒ”‡–•–Šƒ–ƒ”‡ƒŽ•‘‘•–Ž›ƒ”‡–Š‡†‡„–ƒ”‡–•ǡ
Žƒ†ƒ†’”‘’‡”–›ƒ”‡–•ƒ†ƒ›–›’‡•‘ˆ†‡”‹˜ƒ–‹˜‡••—…Š
ƒ••™ƒ’•ƒ†ˆ‘”™ƒ”†•Ǥ
…‘–”ƒ•–ǡ‡š…Šƒ‰‡–”ƒ†‡†ˆ‹ƒ…‹ƒŽƒ••‡–•‹…Ž—†‡•Šƒ”‡•
ƒ†ˆ—–—”‡•Ǥš…Šƒ‰‡Ǧ–”ƒ†‡†ƒ••‡–•ƒ”‡‘”‡•–ƒ†ƒ”†‹•‡†Ǥ

FX is not an Asset ‘Ǯ„—›†‘ŽŽƒ”•ǯƒ—•–”ƒŽ‹ƒ…‘—Ž†ǣ

‘”‡‹‰‡š…Šƒ‰‡”ƒ–‡•ƒ”‡‘–ƒƒ••‡–ǡ–Š‡›ǯ”‡ƒ”ƒ–‹‘‘ˆ–Š‡ x ‘””‘™ˆ”‘ƒ—•–”ƒŽ‹ƒ„ƒǤŠ‹•‹•–Š‡—•–”ƒŽ‹ƒ
’”‹…‡‘ˆ‘‡…—””‡…›ƒ‰ƒ‹•–ƒ‘–Š‡”ǡ—•—ƒŽŽ›–Š‡‹–‡† ’‡”•‘•‡ŽŽ‹‰ƒnew•Š‘”––‡”†‡„–…‘–”ƒ…––‘–Š‡
–ƒ–‡•‘ˆ‡”‹…ƒǯ•‘ŽŽƒ”ȋȌǤ „ƒǡ•‘–Š‡’‡”•‘™‹ŽŽŠƒ˜‡ƒ†‡„–Ž‹ƒ„‹Ž‹–›ǤŽ–‡”ƒ–‹˜‡Ž›ǡ
–Š‡—•–”ƒŽ‹ƒ…‘—Ž†™‹–Š†”ƒ™†‡’‘•‹–•ˆ”‘–Š‡‹”
ˆ•‘‡‘‡•ƒ›•–Šƒ––Š‡›ǯ”‡Ǯ‹˜‡•–‹‰‹ˆ‘”‡‹‰‡š…Šƒ‰‡ǯǡ‹–
—•—ƒŽŽ›‡ƒ•–Šƒ––Š‡›ǯ”‡ƒ…–—ƒŽŽ›‹˜‡•–‹‰‹•Š‘”––‡”
†‡„–†‡‘‹ƒ–‡†‹ƒ‘–Š‡”…‘—–”›ǯ•…—””‡…›Ǥ
—•–”ƒŽ‹ƒ„ƒ™Š‹…Š‹•”‡†—…‡†Ž‡†‹‰–‘–Šƒ–„ƒǤ
‡”‡–Š‡’‡”•‘‹••‡ŽŽ‹‰–Š‡‹”existing•Š‘”––‡”
†‡„–ƒ••‡––‘–Š‡„ƒǢˆ–‡”–Š‹•ǡ–Š‡—•–”ƒŽ‹ƒ’‡”•‘…ƒǣ
ˆƒ—•–”ƒŽ‹ƒ„—›•†‘ŽŽƒ”•ǡ–Š‡›ǯ”‡’”‘„ƒ„Ž›„—›‹‰•Š‘”– x ‡†–‘ƒ„ƒǤŠ‹•‹•–Š‡•ƒ‡ƒ•„—›‹‰–Š‡
–‡”†‡„–†‡‘‹ƒ–‡†‹ƒ†•‡ŽŽ‹‰•Š‘”––‡”†‡„– „ƒǯ•Ǧ†‡‘‹ƒ–‡†•Š‘”––‡”†‡„–ǡƒŽ•‘‘™ƒ•
†‡‘‹ƒ–‡†‹Ǥ †‡’‘•‹–‹‰‹–‘ƒ„ƒǤ–ǯ•‘”ƒŽŽ›†‘‡
 ‡Ž‡…–”‘‹…ƒŽŽ›ǡ–Š‡”‡ǯ•‘‡‡†–‘–”ƒ•’‘”–‘–‡•ƒ†…‘‹•Ǥ
 
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‘™‡˜‡”ǡ‹•–‡ƒ†‘ˆ„—›‹‰„ƒ•ǯ•Š‘”––‡”†‡„–ǡ–Š‡ Investable Assets in Finance
‹˜‡•–‘”…‘—Ž†ƒŽ•‘ƒ––ƒ‹‡š’‘•—”‡–‘ˆŽ—…–—ƒ–‹‘•‹–Š‡
„›„—›‹‰•–‘…•‘”Ž‘‰–‡”†‡„–‘”Žƒ†‘”ƒ›‘–Š‡”ƒ••‡– –…ƒ„‡—•‡ˆ—Ž–‘–Š‹ƒ„‘—–ˆ‹ƒ…‡‹–‡”•‘ˆ–Š”‡‡„”‘ƒ†
‹–Š‡™Š‡”‡ƒ••‡–•ƒ”‡†‡‘‹ƒ–‡†‹Ǥ …ƒ–‡‰‘”‹‡•‘ˆ‹˜‡•–ƒ„Ž‡ƒ••‡–•ǡ†‹ˆˆ‡”‡–‹ƒ–‡†„›–Š‡‹”’ƒ›‘ˆˆ•ǡ
Ž‹“—‹†‹–›ƒ†–Š‡–›’‡‘ˆƒ”‡––Š‡›–”ƒ†‡‹ǣ
‘–Š‡”™ƒ›–‘‰ƒ‹‡š’‘•—”‡–‘ˆ‘”‡‹‰…—””‡…‹‡•‹•–‘—•‡
†‡”‹˜ƒ–‹˜‡••—…Šƒ• ˆ‘”™ƒ”†ƒ‰”‡‡‡–•‘”‘’–‹‘•ǤŠ‡‹” x “—‹–›
˜ƒŽ—‡†‹•†‡–‡”‹‡†„›–Š‡—†‡”Ž›‹‰‡š…Šƒ‰‡”ƒ–‡Ǥ o ‘‘•–‘…ǡƒŽ•‘‘™ƒ•‘”†‹ƒ”›•–‘…Ǥ
x ‡„–
 
o Š‘”––‡”‘‡›ƒ”‡–†‡„–•—…Šƒ•„ƒƒ……‡’–‡†
„‹ŽŽ•ȋ̵•Ȍǡ…‡”–‹ˆ‹…ƒ–‡•‘ˆ†‡’‘•‹–ȋ̵•Ȍƒ†
’”‘‹••‘”›‘–‡•ȋ̵•‘”…‘‡”…‹ƒŽ’ƒ’‡”Ȍ™Š‹…Š
—•—ƒŽŽ›Šƒ˜‡ƒ‘”‹‰‹ƒŽƒ–—”‹–›‘ˆŽ‡••–Šƒ‘‡›‡ƒ”Ǥ
Š‹•ƒ”‡–‹•ƒŽ•‘‘™ƒ•–Š‡̵…ƒ•Šƒ”‡–̵•‹…‡‹–̵•
˜‡”›Ž‹“—‹†ƒ†•Š‘”–Ǧ–‡”Ǥ
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o ‘‰–‡”„‘†ƒ”‡–†‡„–•—…Šƒ•„‘†•ƒ† Foreign Currency Quotes

†‡„‡–—”‡•™Š‹…ŠŠƒ˜‡ƒ‘”‹‰‹ƒŽƒ–—”‹–›‘ˆ‘”‡
–Šƒ‘‡›‡ƒ”Ǥ ‘ˆ—•‹‰Ž›ǡ ”ƒ–‡•ƒ”‡“—‘–‡†‹†‹ˆˆ‡”‡–™ƒ›•Ǥ
x ”‘’‡”–› “—‘–‡‘ˆ̶Ȁ
 100̶‡ƒ•ͳ‹–‡†–ƒ–‡•‘ŽŽƒ”ȋȌ
o ƒ†ǡ„—‹Ž†‹‰•ǡƒ’ƒ”–‡–•ǡ‡“—‹’‡–Ǥ ‡“—ƒŽ•ͳͲͲ
ƒ’ƒ‡•‡‡ȋ
Ȍǡ‘”ͳͲͲ
αͳǤ
›„”‹†••—…Šƒ•’”‡ˆ‡”‡…‡•–‘…ƒ†…‘˜‡”–‹„Ž‡„‘†•…ƒ„‡ ˆ–‡ǡ–Š‡•Žƒ•ŠȋȀȌ…Šƒ”ƒ…–‡”‹•”‡‘˜‡†ǡ•‘–Š‡•ƒ‡“—‘–‡
–Š‘—‰Š–‘ˆƒ•ƒ‘–Š‡”…ƒ–‡‰‘”›‘ˆ‹˜‡•–ƒ„Ž‡ƒ••‡–Ǥ …‘—Ž†„‡‡š’”‡••‡†ƒ•̶USDJPY 100̶
‡”‹˜ƒ–‹˜‡••—…Šƒ•‘’–‹‘•ǡˆ—–—”‡•ǡˆ‘”™ƒ”†•ƒ†•™ƒ’•ƒ”‡ ‡”‡ǡ–Š‡‹•–Š‡base…—””‡…›ǡƒŽ•‘…ƒŽŽ‡†–Š‡ǣ
ƒ‘–Š‡”‹’‘”–ƒ–…ƒ–‡‰‘”›„—–•‹…‡–Š‡›ƒ”‡—•—ƒŽŽ›—•‡†ˆ‘” x ’”‹ƒ”›ǡ–”ƒ•ƒ…–‹‘ǡ’”‹…‡‘”…—””‡…›ͳȋͳȌǤ
Š‡†‰‹‰ƒ†•’‡…—Žƒ–‹‰–Š‡›ƒ”‡‘––Š‘—‰Š–‘ˆƒ•‹˜‡•–ƒ„Ž‡
Š‡
‹•–Š‡term…—””‡…›ǡƒŽ•‘…ƒŽŽ‡†–Š‡ǣ
ƒ••‡–•Ǥ
x “—‘–‡ǡ…‘—–‡”‘”…—””‡…›ʹȋʹȌǤ
‘‡‘–Š‡”‹˜‡•–ƒ„Ž‡ƒ••‡–•™Š‹…Šƒ”‡‘–‹…Ž—†‡†ƒ”‡–Š‹‰•
Ž‹‡Š—ƒ…ƒ’‹–ƒŽ™Š‹…Š‹•–‘‘†‹ˆˆ‹…—Ž––‘‡ƒ•—”‡Ǥ
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‡™ƒ”‡ǡ„‡…ƒ—•‡ƒ›‘ˆ–Š‡‡–Š‘†•‘ˆ“—‘–‹‰…—””‡…‹‡•
ƒ”‡‘–…‘•‹•–‡–™‹–ŠŠ‘™•…‹‡–‹ˆ‹…—‹–•ƒ”‡‘”ƒŽŽ›
“—‘–‡†Ǥ
Scientific Units
ƒ–Š‡ƒ–‹…ƒŽƒ‹’—Žƒ–‹‘•‘ˆˆ‘”‡‹‰…—””‡…›ƒ”‡„‡•–†‘‡
„›Ž‹•–‹‰–Š‡—‹–•after–Š‡—„‡”ǡ•‹‹Žƒ”–‘Š‘™‡‰‹‡‡”•
ƒ†•…‹‡–‹•–•†‘™‹–Šǡ•ƒ›ǡƒ…ƒ”–Šƒ––”ƒ˜‡Ž•ƒ–ƒ•’‡‡†‘ˆͳͲ
Ȁ•ǡ™Š‹…Š‡ƒ•‹–…‘˜‡”•ͳͲ‡–”‡•’‡”•‡…‘†Ǥ‘‹ˆ–Š‡…ƒ”
–”ƒ˜‡ŽŽ‡†ˆ‘”͵•‡…‘†•‹–™‘—Ž†…‘˜‡”ǣ
ͳͲ݉
͵‫ ݏ‬ൈ ൌ ͵Ͳ݉
‫ݏ‬
‘–‹…‡Š‘™–Š‡•‡…‘†•—‹–•…ƒ„‡…ƒ…‡ŽŽ‡†–‘‰‡––Š‡”‡•—Ž–
™Š‹…Š‹•…Ž‡ƒ”Ž›ƒ†‹•–ƒ…‡™‹–Š—‹–•‘ˆ‡–”‡•ȋȌǤ•‹‰–Š‹•
…‘˜‡–‹‘™‡…ƒ‡ƒ•‹Ž›†‘ƒ–Š‡ƒ–‹…ƒŽƒ‹’—Žƒ–‹‘•‘ˆ
ˆ‘”‡‹‰‡š…Šƒ‰‡Ǥ

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Mathematical Manipulations of FX ‘…‘˜‡”–ͷͲ –‘ǣ

‫ܻܲܬ‬
ˆƒ“—‘–‡‘ˆ̶USDJPY 100̶‹•‰‹˜‡ǡ–Š‹•‡ƒ•–Šƒ–ͳ ͷͲ‫ ܻܲܬ‬ൌ ͷͲ‫ ܻܲܬ‬ൊ ͳͲͲ 
ܷܵ‫ܦ‬
‡“—ƒŽ•ͳͲͲ Ǥ
ͳͲͲ‫ܻܲܬ‬
Š‡‡š…Šƒ‰‡”ƒ–‡ƒ•ƒƒ–Š‡ƒ–‹…ƒŽ“—ƒ–‹–›™‘—Ž†„‡ǣ ൌ ͷͲ‫ܻܲܬ‬Ȁ൬
ͳܷܵ‫ܦ‬
൰
ͳͲͲ ȀǤ ͳܷܵ‫ܦ‬
ൌ ͷͲ‫ ܻܲܬ‬ൈ ൬ ൰
‘ƒ˜‘‹†…‘ˆ—•‹‘ǡ•‘‡‡…‘‘‹•–•™”‹–‡–Š‹•ƒ•ǣ ͳͲͲ‫ܻܲܬ‬
ͳͲͲ ’‡”ǡ™Š‡”‡’‡”‡ƒ•†‹˜‹†‡Ǥ ͷͲ
ൌ ܷܵ‫ܦ‬
ͳͲͲ
‘…‘˜‡”–ͷͲ–‘ ǣ
ൌ ͲǤͷܷܵ‫ܦ‬
‫ܻܲܬ‬
ͷͲܷܵ‫ ܦ‬ൌ ͷͲܷܵ‫ ܦ‬ൈ ͳͲͲ 
ܷܵ‫ܦ‬
ൌ ͷͲ ൈ ͳͲͲ‫ ܻܲܬ‬ൌ ͷǡͲͲͲ‫ܻܲܬ‬
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Currency Quotes: European Terms and ‘˜‡”•‡Ž›ǡ…—””‡…‹‡•“—‘–‡†‹̵‡”‹…ƒ–‡”•̵ƒ”‡
‡š’”‡••‡†ƒ•–Š‡—„‡”‘ˆ’‡”‘‡—‹–‘ˆ–Š‡…—””‡…›Ǥ
American Terms ›…‘˜‡–‹‘ǡ–Š‡̵—‡‡̵•…—””‡…‹‡•̵ȋ
ǡǡȌƒ†
”ƒ†‡”•‹–Š‡‹–‡”Ǧ„ƒ ƒ”‡–‘ˆ–‡“—‘–‡…—””‡…‹‡• –Š‡‡—”‘ȋȌƒ”‡‘”ƒŽŽ›“—‘–‡†‹‡”‹…ƒ–‡”•Ǥ
ƒ‰ƒ‹•––Š‡ƒ†–Š‡•‡“—‘–‡•ƒ›„‡‰‹˜‡‹̵—”‘’‡ƒ šƒ’Ž‡•ƒ”‡ǣ
–‡”•̵‘”̵‡”‹…ƒ–‡”•̵Ǥ x ͳǤͷ’‡”
Ǣ
›…‘˜‡–‹‘ǡ‘•–…—””‡…‹‡•ƒ”‡“—‘–‡†‹̵—”‘’‡ƒ x ͲǤ͹͵’‡”Ǣ
–‡”•̵ǡ•—…Šƒ•ͳͲͲ αͳƒ†ͲǤͻ͸͵ͲαͳǤ x ͲǤ͸͹’‡”Ǣƒ†
‘ˆ—•‹‰Ž›ǡ “—‘–‡•‹̵—”‘’‡ƒ–‡”•̵Šƒ˜‡‘–Š‹‰–‘†‘ x ͳǤͳ’‡”Ǥ 
™‹–Š–Š‡…—””‡…›‘”—”‘’‡ƒ–ƒŽŽǤ–‘Ž›‡ƒ•–Šƒ––Š‡
“—‘–‡‹•‰‹˜‡ƒ•–Š‡ƒ‘—–‘ˆ…—””‡…›–Šƒ–…ƒ„‡–”ƒ†‡†
ˆ‘”‘‡Ǥ–Š‡”‡šƒ’Ž‡•ƒ”‡‘”͸Ǥͺαͳƒ†Ͷ͹
αͳǤ

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Currency Quotes: Direct and Indirect Š‡ˆ‘ŽŽ‘™‹‰ƒ”‡ƒŽŽ‰‹˜‡‹̵‡”‹…ƒ–‡”•̵ȋ‘”̵‹̵Ȍ

™Š‹…Šƒ”‡indirect“—‘–‡•‘ˆ–Š‡ …—””‡…›ˆ”‘ƒ ƒ’ƒ‡•‡
‹”‡…–“—‘–‡ǣ†‘‡•–‹……—””‡…›’‡”‘‡—‹–‘ˆˆ‘”‡‹‰ ’‡”•‘̵•’‡”•’‡…–‹˜‡ǡƒ†ƒdirect“—‘–‡ˆ”‘ƒ‡”‹…ƒ̵•
…—””‡…›Ǥ ’‡”•’‡…–‹˜‡ǣ
†‹”‡…–“—‘–‡ǣˆ‘”‡‹‰…—””‡…›’‡”‘‡—‹–‘ˆ†‘‡•–‹…  ͲǤͲͳȀ     ͲǤͲͳ’‡” 
…—””‡…›Ǥ
 ͲǤͲͳαͳ    ͲǤͲͳ
Š‡ˆ‘ŽŽ‘™‹‰ƒ”‡ƒŽŽ‰‹˜‡‹̵—”‘’‡ƒ–‡”•̵ȋ‘”̵’‡”̵Ȍǡ
 
™Š‹…Šƒ”‡direct“—‘–‡•‘ˆ–Š‡ …—””‡…›ˆ”‘ƒ ƒ’ƒ‡•‡
’‡”•‘̵•’‡”•’‡…–‹˜‡ǡƒ†indirect“—‘–‡•ˆ”‘ƒ‡”‹…ƒ̵•
’‡”•’‡…–‹˜‡ǣ
 ͳͲͲ Ȁ    ͳͲͲ ’‡”
 ͳͲͲ αͳ    ͳͲͲ

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Š‡—•–”ƒŽ‹ƒ‘ŽŽƒ”ȋȌ‹•—•—ƒŽŽ›‰‹˜‡‹‡”‹…ƒ Currency Quote Types
American terms: USD in numerator
–‡”•ȋͲǤͻ͸ͺ͸Ȁ‘”ͲǤͻ͸ͺ͸αͳȌ™Š‹…Š‹•ƒ Indirect quote from local's perspective. Direct quote from American's perspective
‹†‹”‡…–“—‘–‡ˆ”‘–Š‡’‡”•’‡…–‹˜‡‘ˆƒ—•–”ƒŽ‹ƒǤ–‹•ƒ Currency Algebraic ratio form Per or ratio form Equality form Trader form
JPY 0.01USD/JPY 0.01 USD per JPY 0.01 USD = 1 JPY JPYUSD0.01
†‹”‡…–“—‘–‡ˆ”‘ƒ‡”‹…ƒ̵•’‡”•’‡…–‹˜‡Ǥ AUD* 0.8USD/AUD 0.8 USD per AUD 0.8 USD = 1 AUD AUDUSD0.8
GBP* 2USD/GBP 2 USD per GBP 2 USD = 1 GBP GBPUSD2
‹…‡–Š‡•ƒ‡—‡”‹…ƒŽ“—‘–‡…ƒ„‡̵†‹”‡…–̵–‘‘‡’‡”•‘ RMB 0.1666USD/RMB 0.1666 USD per RMB 0.1666 USD = 1 RMB RMBUSD0.1666
ƒ†̵‹†‹”‡…–̵–‘ƒ‘–Š‡”ǡ‹–̵•„‡•––‘ƒ˜‘‹†–Š‡•‡Žƒ„‡Ž•Ǥ
European terms: USD in denominator
•–‡ƒ†ǡƒ›„ƒ•ƒ† †‡ƒŽ‡”•’”‡ˆ‡”–‘•–ƒ–‡ƒ…—””‡…› Direct quote from local's perspective. Indirect quote from American's perspective
Currency Algebraic ratio form Per or ratio form Equality form Trader form
“—‘–‡ƒ•‡‹–Š‡”ǣ JPY* 100JPY/USD 100 JPY per USD 100 JPY = 1 USD USDJPY100
AUD 1.25AUD/USD 1.25 AUD per USD 1.25 AUD = 1 USD USDAUD1.25
x ̵’‡”̵™Š‹…Š‹•—”‘’‡ƒ–‡”•ǡŽ‹‡ͳͲͲ αͳǡ‘” GBP 0.5GBP/USD 0.5 GBP per USD 0.5 GBP = 1 USD USDGBP0.5
x ̵‹̵™Š‹…Š‹•‡”‹…ƒ–‡”•ǡŽ‹‡ͲǤͺαͳǤ RMB* 6RMB/USD 6 RMB per USD 6 RMB = 1 USD USDRMB6

  * Normal methods of quotation.


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Appreciations and Depreciations If the currency quote number rises, the

Š‡”‹•‡‹˜ƒŽ—‡‘ˆƒ…—””‡…›ƒ‰ƒ‹•–ƒ‘–Š‡”‹•…ƒŽŽ‡†ƒ denominator currency has appreciated
ƒ’’”‡…‹ƒ–‹‘Ǥ‹…‡˜‡”•ƒˆ‘”ƒ†‡’”‡…‹ƒ–‹‘Ǥ
x ˆ–Š‡ ƒ’ƒ‡•‡‡š…Šƒ‰‡”ƒ–‡‘˜‡•ˆ”‘ͳͲͲ–‘ͳͲͳ 
‘–‡–Šƒ–‘–ƒŽŽ…—””‡…‹‡•…ƒƒ’’”‡…‹ƒ–‡ƒ–‘…‡•‹…‡–Š‡› ’‡”ǡ–Š‡–Š‡Šƒ•ƒ’’”‡…‹ƒ–‡†ƒ‰ƒ‹•––Š‡ •‹…‡
ƒ”‡‡ƒ•—”‡†”‡Žƒ–‹˜‡–‘‘‡ƒ‘–Š‡”ǡƒ–Ž‡ƒ•–‘‡—•–ˆƒŽŽ‹ˆ –Š‡‹•‹–Š‡†‡‘‹ƒ–‘”ǣ
ƒŽŽ–Š‡‘–Š‡”•ƒ’’”‡…‹ƒ–‡Ǥ ͳͲͲ
௃௉௒ሺ௡௨௠௘௥௔௧௢௥ሻ
–‘ͳͲͳ
௃௉௒ሺ௡௨௠௘௥௔௧௢௥ሻ

௎ௌ஽ሺௗ௘௡௢௠௜௡௔௧௢௥ሻ ௎ௌ஽ሺௗ௘௡௢௠௜௡௔௧௢௥ሻ
–‹•‡ƒ•‹‡”–‘—†‡”•–ƒ†ƒ’’”‡…‹ƒ–‹‘•ƒ††‡’”‡…‹ƒ–‹‘•‘ˆ
x ˆ–Š‡‡š…Šƒ‰‡”ƒ–‡‘˜‡•ˆ”‘ͲǤͺ–‘ͲǤͻ’‡”ǡ
…—””‡…‹‡•„›ˆ‘…—•‹‰‘–Š‡†‡‘‹ƒ–‘”…—””‡…›‹ƒ 
–Š‡–Š‡Šƒ•ƒ’’”‡…‹ƒ–‡†ƒ‰ƒ‹•––Š‡•‹…‡–Š‡
“—‘–‡Ǥˆ–Š‡—„‡”‹…”‡ƒ•‡•ǡ‹–̵•„‡…ƒ—•‡–Š‡†‡‘‹ƒ–‘”
‹•‹–Š‡†‡‘‹ƒ–‘”ǣ
…—””‡…›‹•ƒ’’”‡…‹ƒ–‹‰Ǥ ௎ௌ஽ሺ௡௨௠௘௥௔௧௢௥ሻ ௎ௌ஽ሺ௡௨௠௘௥௔௧௢௥ሻ
ͲǤͺ –‘ͲǤͻ 
஺௎஽ሺௗ௘௡௢௠௜௡௔௧௢௥ሻ ஺௎஽ሺௗ௘௡௢௠௜௡௔௧௢௥ሻ

19 20
Mathematics of Appreciations and FX Forward Agreements
Depreciations —›‹‰ˆ‘”‡‹‰…—””‡…›”‹‰Š–‘™‹•…ƒŽŽ‡†ƒ•’‘––”ƒ•ƒ…–‹‘
„‡…ƒ—•‡‹–Šƒ’’‡•‹‡†‹ƒ–‡Ž›ȋ–αͲȌǤ
‘‹ˆ–Š‡ƒ’’”‡…‹ƒ–‡•ƒ‰ƒ‹•––Š‡
ǡ–Š‡ǣ
—–‹–‹•ƒŽ•‘’‘••‹„Ž‡–‘„—›ˆ‘”‡‹‰…—””‡…›‹–Š‡ˆ—–—”‡ƒ–
x 100 JPY/USD™‹ŽŽincrease•‹…‡–Š‡‹•‹–Š‡
ƒƒ‰”‡‡†‡š…Šƒ‰‡”ƒ–‡–Šƒ–‹•ˆ‹š‡†”‹‰Š–‘™ǤŠ‹•‹•…ƒŽŽ‡†ƒ
†‡‘‹ƒ–‘”‘ˆ–Š‡ˆ”ƒ…–‹‘Ǥ
ˆ‘”‡‹‰‡š…Šƒ‰‡ˆ‘”™ƒ”†ƒ‰”‡‡‡–Ǥ
x 0.01 USD/JPY™‹ŽŽdecrease•‹…‡–Š‡
‹•‹–Š‡
†‡‘‹ƒ–‘”‘ˆ–Š‡ˆ”ƒ…–‹‘ƒ†–Š‡
‹•†‡’”‡…‹ƒ–‹‰ ‘”‡šƒ’Ž‡ǡ›‘—‹‰Š–„‡ƒ„Ž‡Ž‘…‹–‘•‡ŽŽͳ‹ŽŽ‹‘ƒ–
ƒ‰ƒ‹•––Š‡Ǥ ƒ‡š…Šƒ‰‡”ƒ–‡‘ˆ
ͳͲʹ‹ŽŽ‹‘‹‘‡›‡ƒ”ǤŠ‡…‘—–‡”Ǧ
’ƒ”–›–‘›‘—” ˆ‘”™ƒ”†”ƒ–‡ƒ‰”‡‡‡–ǡ—•—ƒŽŽ›ƒ„ƒǡ™‹ŽŽ

‰‹˜‡›‘—ͳ‹ŽŽ‹‘‹‡š…Šƒ‰‡ˆ‘”
ͳͲʹ‹ŽŽ‹‘‹‘‡
 
’‡”̶Ǥ
21
Š‡ˆ‘”™ƒ”† ”ƒ–‡ƒ‰”‡‡†–‘„›–Š‡Ž‘‰ƒ†•Š‘”– 
ˆ‘”™ƒ”†–”ƒ†‡”•™‹ŽŽ„‡–Š‡‡š’‡…–‡†ˆ—–—”‡•’‘–‡š…Šƒ‰‡
”ƒ–‡ǤŠ‹•‹•™Š›–Š‡˜ƒŽ—‡‘ˆƒ ˆ‘”™ƒ”†‹•œ‡”‘™Š‡‹–‹•
ˆ‹”•–‡–‡”‡†‹–‘ǡˆ‘”„‘–Š–Š‡Ž‘‰ƒ†•Š‘”– ˆ‘”™ƒ”†
–”ƒ†‡”•Ǥ
ˆ–‡”‹–̵•ˆ‹”•–ƒ‰”‡‡†–‘ǡ–Š‡‡š’‡…–‡†ˆ—–—”‡•’‘–”ƒ–‡ƒ›ǡˆ‘”
‡šƒ’Ž‡ǡ‹…”‡ƒ•‡ǡƒ‹‰–Š‡ ˆ‘”™ƒ”†ƒ‰”‡‡‡–™‘”–Šƒ
’‘•‹–‹˜‡ƒ‘—––‘–Š‡Ž‘‰–”ƒ†‡”ƒ†ƒ‡‰ƒ–‹˜‡ƒ‘—––‘
ƒ’ƒ™Š‡”‡•Š‘”–Ǧ–‡”
–Š‡•Š‘”––”ƒ†‡”Ǥ
23
›‡ƒ”Ǥ–Š‹•‡šƒ’Ž‡–Š‡ †‡ƒŽ‡”™‘—Ž†•ƒ›–Šƒ–›‘—ƒ”‡
̶•‡ŽŽ‹‰ͳ‹ŽŽ‹‘ˆ‘”™ƒ”†‘‡›‡ƒ”ƒ–ͳͲʹ
22
FX, Interest Rates and the 'Carry Trade'
‡…ƒ—•‡‹–‡”‡•–”ƒ–‡•‘†‡„–˜ƒ”›ˆ”‘…‘—–”›–‘…‘—–”›ǡ
•‘‡‹˜‡•–‘”•–Š‹–Šƒ–„‘””‘™‹‰‹ƒ…‘—–”›™Š‡”‡
‹–‡”‡•–”ƒ–‡•ƒ”‡Ž‘™ƒ†‹˜‡•–‹‰ȋŽ‡†‹‰Ȍ‹ƒ…‘—–”›
™Š‡”‡‹–‡”‡•–”ƒ–‡•ƒ”‡Š‹‰Š‹•ƒ‰‘‘†‹†‡ƒ–‘ƒ‡‘‡›Ǥ
Š‹•‹•…ƒŽŽ‡†ƒ̵…ƒ””›Ǧ–”ƒ†‡̵Ǥ
Š‡…Žƒ••‹……ƒ””›Ǧ–”ƒ†‡‹•–‘„‘””‘™‹
‹–‡”‡•–”ƒ–‡Šƒ˜‡„‡‡…Ž‘•‡–‘œ‡”‘ˆ‘”•‘‡†‡…ƒ†‡•ǡƒ†–‘
‹˜‡•–‹—•–”ƒŽ‹ƒ‘”‡™‡ƒŽƒ†™Š‡”‡‹–‡”‡•–”ƒ–‡•ƒ”‡
Š‹•–‘”‹…ƒŽŽ›—…ŠŠ‹‰Š‡”ǤŠ‹•‹˜‡•–‹‰•–”ƒ–‡‰›‹•‘–Ž‹‡Ž›–‘
„‡•—……‡••ˆ—Ž‹–Š‡ˆ—–—”‡‹–Š‡Ž‘‰”—†—‡–‘–Š‡–Š‡‘”›‘ˆ
…”‘••…—””‡…›‹–‡”‡•–”ƒ–‡’ƒ”‹–›Ǥ
24
Cross-Currency Interest Rate Parity ƒ–Š‡ƒ–‹…ƒŽŽ›ǡ–Š‹•‹•ǣ
ଵ ͳ
”‘••…—””‡…›‹–‡”‡•–”ƒ–‡’ƒ”‹–›ȋ•‘‡–‹‡•”‡ˆ‡””‡†–‘ƒ• ‫݉ͳܻܲܬ‬Ǥ ൫ͳ ൅ ‫ݎ‬௃௉௒ ൯ ൌ ‫݉ͳܻܲܬ‬Ǥ Ǥ ሺͳ ൅ ‫ݎ‬௎ௌ஽ ሻଵ Ǥ ‫ܨ‬ଵǡ௃௉௒Ȁ௎ௌ஽ 
ܵ଴ǡ௃௉௒Ȁ௎ௌ஽
Ȍ‹•ƒ–Š‡‘”›„ƒ•‡†‘ƒ”‹•Ǧˆ”‡‡ƒ”„‹–”ƒ‰‡™Š‹…Š‰‘‡•ƒ•
ˆ‘ŽŽ‘™•ǣ ᇣ ᇣᇧᇤᇧᇥ
ᇧᇤᇧᇥ 

ᇣᇧ ᇧᇧᇧᇧᇤᇧᇧᇧᇧᇧᇥ ᇣᇧ
௏బǡ಻ುೊ ᇧᇧᇧᇧᇤᇧᇧᇧᇧᇧᇥ
௏బǡ಻ುೊ
‡†‹‰
ͳ‹ŽŽ‹‘‹
ƒ’ƒƒ––Š‡
ƒ’ƒ‡•‡‹–‡”‡•–”ƒ–‡
௏భǡ಻ುೊ ᇣᇧᇧᇧᇧᇧᇧᇧᇧᇧᇤᇧᇧᇧᇧᇧᇧᇧᇧᇧᇥ
௏బǡೆೄವ
ȋ‫ݎ‬௃௉௒ Ȍˆ‘”‘‡›‡ƒ”—•–’”‘˜‹†‡ƒ…ƒ•ŠˆŽ‘™‡“—‹˜ƒŽ‡––‘ǣ
ᇣᇧᇧᇧᇧᇧᇧᇧᇧᇧᇧᇧᇧᇤᇧᇧᇧᇧᇧᇧᇧᇧᇧᇧᇧᇧᇥ
௏భǡೆೄವ

x ‘˜‡”–‹‰ ͳ–‘ƒ––Š‡•’‘– ”ƒ–‡ȋ†‹˜‹†‡„› ௏భǡ಻ುೊ

ܵ଴ǡ௃௉௒Ȁ௎ௌ஽ Ȍǡ  
x ‡†‹‰ƒ––Š‡‹–‡”‡•–”ƒ–‡ȋ‫ݎ‬௎ௌ஽ Ȍˆ‘”‘‡›‡ƒ”ǡƒ†
x ‘…‹‰‹ƒˆ‘”™ƒ”† ƒ‰”‡‡‡–‘™–‘…‘˜‡”––‘
‹‘‡›‡ƒ”ƒ––Š‡ˆ‘”™ƒ”† ”ƒ–‡ȋ—Ž–‹’Ž›„›
‫ܨ‬ଵǡ௃௉௒Ȁ௎ௌ஽ ȌǤ
25 26

ƒ…‡ŽŽ‹‰–Š‡ ͳ‹ŽŽ‹‘‘„‘–Š•‹†‡•ƒ†”‡Ǧƒ””ƒ‰‹‰ǡ …‘—–”›ƒ”‡Ž‹‡Ž›–‘„‡Ž‘•–™Š‡›‘—̵”‡Ǧ’ƒ–”‹ƒ–‡̵›‘—”

’”‘ˆ‹–•ǡ™Š‹…Š‹•™Š‡›‘—…‘˜‡”––Š‡„ƒ…–‘›‘—”†‘‡•–‹…
൫ͳ ൅ ‫ݎ‬௃௉௒ ൯
‫ܨ‬ଵǡ௃௉௒Ȁ௎ௌ஽ ൌ ܵ଴ǡ௃௉௒Ȁ௎ௌ஽ Ǥ …—””‡…›Ǥ
ሺͳ ൅ ‫ݎ‬௎ௌ஽ ሻ
‘‹ˆ‹–‡”‡•–”ƒ–‡•‹ ƒ’ƒƒ”‡Ž‡••–Šƒ‹–Š‡ǡ–Š‡–Š‡ 
Š‡”‡–Š‡ˆ‘”™ƒ”† ”ƒ–‡‹•ˆ‘”‘‡›‡ƒ”ƒ†–Š‡‹–‡”‡•– •Š‘—Ž†ƒ’’”‡…‹ƒ–‡ƒ‰ƒ‹•––Š‡ǡ•‘–Š‡ˆ‘”™ƒ”† ”ƒ–‡
”ƒ–‡•ƒ”‡‡ˆˆ‡…–‹˜‡ƒ—ƒŽ”ƒ–‡•ƒ†”‹•Ǧˆ”‡‡Ǥ ‫்ܨ‬ǡ௃௉௒Ȁ௎ௌ஽ ‹•Ž‹‡Ž›–‘„‡Ž‘™‡”ǡ•‘‹–Š‡ˆ—–—”‡ͳ‹•Ž‹‡Ž›–‘
Š‡—Ž–‹Ǧ’‡”‹‘†˜‡”•‹‘‘ˆ–Š‡…”‘••Ǧ…—””‡…›‹–‡”‡•–”ƒ–‡ „—›Ž‡•• Ǥ
’ƒ”‹–›–Š‡‘”‡‹•ǣ
 
்
൫ͳ ൅ ‫ݎ‬௃௉௒ ൯
‫்ܨ‬ǡ௃௉௒Ȁ௎ௌ஽ ൌ ܵ଴ǡ௃௉௒Ȁ௎ௌ஽ Ǥ
ሺͳ ൅ ‫ݎ‬௎ௌ஽ ሻ்
‘‘•‡•‡Ǧ™‹•‡ǡ…”‘••…—””‡…›‹–‡”‡•–”ƒ–‡’ƒ”‹–›ȋȌ
•ƒ›•–Šƒ–‡š’‡…–‡†‰ƒ‹•‘‹–‡”‡•–”ƒ–‡•„›„‘””‘™‹‰‹ƒ
Ž‘™Ǧ‹–‡”‡•–”ƒ–‡…‘—–”›ƒ†Ž‡†‹‰‹ƒŠ‹‰Š‹–‡”‡•–”ƒ–‡
27 28
Calculation Example: Cross-Currency Answer:‹…‡—•–”ƒŽ‹ƒ‹–‡”‡•–”ƒ–‡•ƒ”‡‘”‡–Šƒ‹–Š‡
ǡ™‡‡š’‡…––Š‡–‘†‡’”‡…‹ƒ–‡ƒ‰ƒ‹•––Š‡ǡ•‘–Š‡͵Ǧ
Interest Rate Parity ›‡ƒ”ˆ‘”™ƒ”† ”ƒ–‡‫ܨ‬ଷǡ௎ௌ஽Ȁ஺௎஽ •Š‘—Ž††‡…”‡ƒ•‡Ǥ‡‡„‡”
Question:Š‡…—””‡–‡š…Šƒ‰‡”ƒ–‡‹•ƒ–’ƒ”‹–›ǡ•‘ǣ –Šƒ––Š‡‹•‹–Š‡†‡‘‹ƒ–‘”‹–Š‹•ˆ‘”™ƒ”†“—‘–‡‘ˆ–Š‡
1 USD = 1 AUDǤ ǡ•‘ƒ†‡…”‡ƒ•‡‹–Š‡—„‡”™‹ŽŽ„‡ƒ†‡’”‡…‹ƒ–‹‘‘ˆ–Š‡
†‡‘‹ƒ–‘”…—””‡…›ǡ–Š‡Ǥ
Š‡‘‡›ƒ”‡–”ƒ–‡‹ǣ
‘ˆ‹†–Š‡‡šƒ…–͵›‡ƒ”ˆ‘”™ƒ”† ”ƒ–‡ǣ
x —•–”ƒŽ‹ƒ‹‹•4Ψ’ƒǢ
x ‹‹–ǯ•3Ψ’ƒǤ ሺͳ ൅ ”୙ୗୈ ሻ୘
୘ǡ୙ୗୈȀ୅୙ୈ ൌ ଴ǡ୙ୗୈȀ୅୙ୈ Ǥ
ሺͳ ൅ ”୅୙ୈ ሻ୘
••—‡ƒˆŽƒ–›‹‡Ž†…—”˜‡ǡ–Šƒ––Š‡”ƒ–‡•ƒ”‡‡ˆˆ‡…–‹˜‡ȋ‘–
•‹’Ž‡Ȍƒ—ƒŽ‹–‡”‡•–”ƒ–‡•ƒ†–Šƒ–›‘—…ƒ„‘””‘™ƒ† ሺͳ ൅ ͲǤͲ͵ሻଷ
ଷǡ୙ୗୈȀ୅୙ୈ ൌ ͳȀǤ
Ž‡†ƒ–‡‹–Š‡””ƒ–‡Ǥ ሺͳ ൅ ͲǤͲͶሻଷ

Šƒ–‹•–Š‡‹’Ž‹‡†3 year ˆ‘”™ƒ”†ˆ‘”‡‹‰‡š…Šƒ‰‡”ƒ–‡ǫ ൌ ͲǤͻ͹ͳͶ͵Ͳ͵ʹͶȀ

29 30

‘–‡–Šƒ––Š‹•‹•ƒ̵‡”‹…ƒ–‡”•̵“—‘–‡ǡ‹–ǯ•Dz‹dz Central Bank Monetary Policy and FX

‘–Dz’‡”dzǤŠ‹•‹•Š‘™‹–ǯ•‘”ƒŽŽ›“—‘–‡†‹—•–”ƒŽ‹ƒǤ
Š‡‹–‡”‡•–”ƒ–‡•‰‹˜‡‹–Š‡…”‘••…—””‡…›‹–‡”‡•–”ƒ–‡
̵—”‘’‡ƒ–‡”•̵™Š‹…Š‹•Dz’‡”dz‹–™‘—Ž†„‡
ͳǤͲʹͻͶͲͻͻͲͺȀǡŒ—•––Š‡‹˜‡”•‡‘ˆ–Š‡ƒ„‘˜‡Ǥ
 
’ƒ”‹–›‡“—ƒ–‹‘ƒ”‡‘ˆ–‡–Š‘—‰Š––‘„‡•Š‘”–Ǧ–‡””‹•ˆ”‡‡
”ƒ–‡•™Š‹…Šƒ”‡•‡–„›ƒ…‘—–”›̵•…‡–”ƒŽ„ƒǤ
Š‡•‡•Š‘”––‡””‹•ˆ”‡‡”ƒ–‡•ƒ”‡…ƒŽŽ‡†̵’‘Ž‹…›”ƒ–‡•̵•‹…‡
–Š‡›ǯ”‡—•‡†–‘•‡–‘‡–ƒ”›’‘Ž‹…›ǤŠ‡’‘Ž‹…›”ƒ–‡‹ǣ
x —•–”ƒŽ‹ƒ‹•–Š‡‹–‡”„ƒ‘˜‡”‹‰Š–…ƒ•Š”ƒ–‡ȋȌǡ™Š‹…Š
‹•–Š‡”ƒ–‡–Šƒ–„ƒ•Ž‡†–‘‡ƒ…Š‘–Š‡”ˆ‘”‘‡†ƒ›ǡ
—•‡…—”‡†ǤŠ‡–ƒ”‰‡–•–Š‹•”ƒ–‡ǡŠ‡…‡‹–̵•‘ˆ–‡ƒŽ•‘
…ƒŽŽ‡†–Š‡̵–ƒ”‰‡–”ƒ–‡̵Ǥ
x ‹•–Š‡ˆ‡†‡”ƒŽˆ—†•”ƒ–‡ǡ–Š‡‘˜‡”‹‰Š–—•‡…—”‡†
Ž‡†‹‰”ƒ–‡„‡–™‡‡„ƒ•Ǥ

31 32
‡–”ƒŽ„ƒ•†‡–‡”‹‡ƒ…‘—–”›̵•‘‡–ƒ”›’‘Ž‹…›™Š‹…Š‹• ‘‡–ƒ”›’‘Ž‹…›‹•…‘†—…–‡†—•‹‰̵‘’‡ƒ”‡–‘’‡”ƒ–‹‘•̵
ƒ†Œ—•–‡†–‘•’‡‡†—’‘”•Ž‘™†‘™–Š‡‡…‘‘›ƒ†–Š‡”‡„› –‘ƒ†Œ—•––Š‡˜‡”›•Š‘”––‡”‹–‡”‡•–”ƒ–‡ǡƒŽ•‘…ƒŽŽ‡†–Š‡…ƒ•Š
Š‡Ž’…‘–”‘Ž‹ˆŽƒ–‹‘Ǥ‹…‡–Š‡ͳͻͻͲ̵•‘•–…‡–”ƒŽ„ƒ• ”ƒ–‡ǡ‘˜‡”‹‰Š–”ƒ–‡‘”’‘Ž‹…›”ƒ–‡Ǥ
Šƒ˜‡ƒ’‘Ž‹…›‘ˆ̵‹ˆŽƒ–‹‘–ƒ”‰‡–‹‰̵–‘–”›–‘‡‡’‹ˆŽƒ–‹‘‹ƒ  
ƒ””‘™ǡ’”‡†‹…–ƒ„Ž‡„ƒ†„‡…ƒ—•‡–Š‡›„‡Ž‹‡˜‡–Šƒ––Š‹•Š‡Ž’•
’”‘‘–‡Ž‘‰Ǧ–‡”‡…‘‘‹…‰”‘™–ŠǤ
‹ˆˆ‡”‡–…‘—–”‹‡•ǯ…‡–”ƒŽ„ƒ•ǣ
x Š‡‹–‡†–ƒ–‡•Šƒ•–Š‡ ‡†‡”ƒŽ‡•‡”˜‡ȋ–Š‡ ‡†ȌǤ
x Š‡—”‘Ǧƒ”‡ƒ̵•‹•–Š‡—”‘’‡ƒ‡–”ƒŽƒȋȌǤ
x ƒ’ƒ̵•‹•–Š‡ƒ‘ˆ ƒ’ƒȋ‘ ȌǤ
x Š‹ƒ̵•‹•–Š‡‡‘’Ž‡•̵ƒ‘ˆŠ‹ƒȋ‘ȌǤ
x ‰Žƒ†̵•‹•–Š‡ƒ‘ˆ‰Žƒ†ȋ–Š‡‘‘”̵Ž†ƒ†›̵ȌǤ
x —•–”ƒŽ‹ƒ̵•‹•–Š‡‡•‡”˜‡ƒ‘ˆ—•–”ƒŽ‹ƒȋȌǤ
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Surprise Central Bank Policy Rate Changes Theory Example: Short and Long Term
‡š’‡…–‡†…Šƒ‰‡•‹ƒ…‡–”ƒŽ„ƒ̵•‘‡–ƒ”›’‘Ž‹…›Šƒ˜‡ Effects
ƒ‹•–ƒ–‡ˆˆ‡…–‘‡š…Šƒ‰‡”ƒ–‡•Ǥˆ•Š‘”–Ǧ–‡”‹–‡”‡•–”ƒ–‡•
Question:ˆ–Š‡ ‡†‡”ƒŽ‡•‡”˜‡—‡š’‡…–‡†Ž›†‡…‹†‡•–‘
ƒ”‡—‡š’‡…–‡†Ž›”ƒ‹•‡†ǡ–Š‡‡š…Šƒ‰‡”ƒ–‡™‹ŽŽ‹•–ƒ–Ž›
‹…”‡ƒ•‡‹–•ˆ‡†‡”ƒŽˆ—†•”ƒ–‡ǡ™Šƒ–™‹ŽŽŠƒ’’‡–‘–Š‡
ƒ’’”‡…‹ƒ–‡Ǥ
’‡”‡š…Šƒ‰‡”ƒ–‡‹‡†‹ƒ–‡Ž›and‹–Š‡‡š–›‡ƒ”ǫ

••—‡–Šƒ––Š‡ǣ
x ˆ‡†‡”ƒŽˆ—†•”ƒ–‡ƒ†–Š‡—•–”ƒŽ‹ƒ‹–‡”„ƒ
‘˜‡”‹‰Š–…ƒ•Š”ƒ–‡ƒ”‡‡“—ƒŽǡ•‘ǣ‫ݎ‬௎ௌ஽ ൌ ‫ݎ‬஺௎஽ 
x —•–”ƒŽ‹ƒ†‘ŽŽƒ”ƒ†‘ŽŽƒ”ȋȌƒ”‡ƒ–’ƒ”‹–›ǡ•‘
ͳαͳ‘”–Š‡”‡̵•ͳ’‡”Ǥ
x ƒ”‡–•ƒ”‡‡ˆˆ‹…‹‡–Ǥ

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Answer:—‡–‘–Š‡•—”’”‹•‡ˆ‡†‡”ƒŽˆ—†•”ƒ–‡hikeǡ–Š‡ Theory Examples: Short Term Effects Only
™‹ŽŽ‹•–ƒ–Ž›appreciateƒ‰ƒ‹•––Š‡ǡƒŽŽ–Š‹‰•
”‡ƒ‹‹‰‡“—ƒŽǤŠ‡”‡ˆ‘”‡–Š‡™‹ŽŽ‹•–ƒ–Ž›depreciate x ˆ–Š‡‘ —‡š’‡…–‡†Ž›†‡…‹†‡•–‘‹…”‡ƒ•‡‹–•’‘Ž‹…›”ƒ–‡ǡ
ƒ‰ƒ‹•––Š‡Ǥ –Š‡ ƒ’ƒ‡•‡‡™‹ŽŽƒ’’”‡…‹ƒ–‡ƒ‰ƒ‹•–‘–Š‡”…—””‡…‹‡•Ǥ
x ˆ–Š‡ ‡†—‡š’‡…–‡†Ž›†‡…‹†‡–‘†‡…”‡ƒ•‡–Š‡‹”’‘Ž‹…›”ƒ–‡ǡ
—–†—‡–‘…”‘••Ǧ…—””‡…›‹–‡”‡•–”ƒ–‡’ƒ”‹–›ȋȌǡ•‹…‡–Š‡
–Š‡–Š‡‘ŽŽƒ”™‹ŽŽ†‡’”‡…‹ƒ–‡ƒ‰ƒ‹•–‘–Š‡”…—””‡…‹‡•Ǥ
ˆ‡†ˆ—†•”ƒ–‡‹•‘™‰”‡ƒ–‡”–Šƒ–Š‡—•–”ƒŽ‹ƒ‘˜‡”‹‰Š–
x ˆ–Š‡ƒ”‡–‡š’‡…–•–Š‡–‘†‡…”‡ƒ•‡”ƒ–‡•ƒ†–Š‡
…ƒ•Š”ƒ–‡ȋ‫ݎ‬௎ௌ஽ ൐ ‫ݎ‬஺௎஽ Ȍǡ–Š‡’‡”ˆ‘”™ƒ”†‡š…Šƒ‰‡
†‘‡•†‡…”‡ƒ•‡‹–•’‘Ž‹…›”ƒ–‡–Š‡–Š‡—•–”ƒŽ‹ƒ‘ŽŽƒ”
”ƒ–‡™‹ŽŽ„‡Š‹‰Š‡”–Šƒ–Š‡‡™•’‘–‡š…Šƒ‰‡”ƒ–‡
™‹ŽŽ‘–”‹•‡‘”ˆƒŽŽ•‹…‡–Š‡†‡…”‡ƒ•‡‹’‘Ž‹…›”ƒ–‡•™‘—Ž†
ȋ‫்ܨ‬ǡ௎ௌ஽Ȁ஺௎஽ ൐ ܵ଴ǡ௎ௌ஽Ȁ஺௎஽ ȌǤŠ‡”‡ˆ‘”‡ǡƒŽŽ–Š‹‰•”‡ƒ‹‹‰
ƒŽ”‡ƒ†›„‡”‡ˆŽ‡…–‡†‹–Š‡’”‹…‡Ǥ‘–Š‡”™‘”†•ǡ–Š‡
‡“—ƒŽǡƒ•–‹‡‰‘‡•„›–Š‡™‹ŽŽ•Ž‘™Ž›appreciateƒ‰ƒ‹•–
—•–”ƒŽ‹ƒ‘ŽŽƒ”™‘—Ž†Šƒ˜‡ˆƒŽŽ‡ƒ–ƒ‡ƒ”Ž‹‡”–‹‡™Š‡
–Š‡Ǥ
–Š‡ƒ”‡–ˆ‹”•–ˆ‘—†‘—––Šƒ––Š‡—•–”ƒŽ‹ƒ’‘Ž‹…›”ƒ–‡
  ™ƒ•Ž‹‡Ž›–‘ˆƒŽŽǤ

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