Definizioni Economics of international Markets

The Real Exchange Rate and Currency Exchange

The real exchange rate measures the price of a basket of goods and services available domestically relative to the price of a basket of goods and services available abroad.

Spot rates are exchange rates for currency exchanges "on the spot," or when trading is executed in the present.

Forward rates are exchange rates for currency exchanges that will occur at a future ("forward") date.

Foreign exchange swaps: a combination of a spot sale with a forward repurchase.

Futures contracts: a contract designed by a third party for a standard amount of foreign currency delivered/received on a standard date.

Options contracts: a contract designed by a third party for a standard amount of foreign currency delivered/received on or before a standard date.

Put option: gives you the right to sell the foreign currency at a known exchange rate at any time during the month.

Call option: gives you the right to buy foreign currency at a known exchange rate at any time during the month.

Rate of return: the percentage change in value that an asset offers during a time period.

Real rate of return: inflation‐adjusted rate of return, which represents the additional amount of goods & services that can be purchased with earnings from the asset.

Risk: holding assets also influences decisions about whether to buy them.

Liquidity: of an asset, or ease of using the asset to buy goods and services, also influences the willingness to buy assets.

Money: is the set of assets in an economy that people regularly use to buy goods and services from other people.

Money has 3 functions: medium of exchange, unit of account, store of value.

There are two kinds of Money:

• Commodity money: takes the form of a commodity with intrinsic value.
• Fiat money: is used as money because of government decree.

Money demand: represents the amount of monetary assets that people are willing to hold (instead of illiquid assets).

Monetary Neutrality: the proposition that changes in the money supply do

Cosa porta alle crisi bancarie:

• Eccessiva mobilità del capitale: Periodi di elevata mobilità internazionale del capitale hanno ripetutamente causato crisi bancarie internazionali, non solo famosamente negli anni '90, ma storicamente.
• Prezzi delle materie prime: Nel periodo 1800-1940, picchi nei prezzi delle materie prime sono quasi invariabilmente seguiti da ondate di nuovi default sovrani. I prezzi delle materie prime primarie di solito portano a un aumento dell'indebitamento che collassa in default quando i prezzi scendono.
• Flusso di capitale dai centri finanziari: Esiste una marcata correlazione visiva tra i picchi nel ciclo del flusso di capitale e i nuovi default sul debito sovrano. Quando i flussi di capitale dai centri finanziari diminuiscono precipitosamente, più paesi scivolano nel default.
• Alta inflazione: Le crisi di inflazione e le crisi dei tassi di cambio viaggiano di pari passo nella stragrande maggioranza degli episodi nel tempo e nei paesi (con un legame nettamente più stretto nei paesi con inflazione cronica).

Indicatore della crisi:

Nominal government borrowing spreads over Germany- Real Appreciation in Peripheral Euro Zone Countries- Divergent Real Interest Rates in the Euro Zone- Current Account Balances of Euro Zone Countries, 2005–2009 (percent ofGDP)

As a result, while Germany had growing current account surpluses, the•peripheral countries had growing deficits, in some cases very large ones

So external debts built up, raising the question of how these countries would•ever generate the net export surpluses necessary to repay foreign creditors.

Why EZ Membership Mattered

Monetary Union mattered for two main reasons:

It facilitated the build up of macroeconomic imbalances

The incomplete infrastructure and poor crisis management amplified theinitial loss of confidence in the deficit nations“DoomLoop” and Concentrationof Sovereignrisk

One current problem: concentration of sovereign risk (banks hold too muchdebt of their own sovereign)

«ACT FAST AND DO WHATEVER IT TAKES»

Key: reduce

The accumulation of economic scar tissue - reduce the number of unnecessary personal and corporate bankruptcies, make sure people have money to keep spending even if they are not working.