Finance lecture 5课件.ppt

Copyright ? 2009 Pearson Addison-Wesley. All rights reserved. 17-* Interest Rate Differentials For many countries, the expected rates of return are not the same: R R*+(Ee –E)/E . Why? Default risk: The risk that the country’s borrowers will default on their loan repayments. Lenders therefore require a higher interest rate to compensate for this risk. Exchange rate risk:If there is a risk that a country’s currency will depreciate or be devalued, then domestic borrowers must pay a higher interest rate to compensate foreign lenders. 认纪趾愿京蔚郴蝉态瘫涂康拙绩奸痈债尸严清宛木拿馏黍瞪哟粱川密诛召Finance lecture 5课件Fixed Exchange Rates and Foreign Exchange Intervention Copyright ? 2009 Pearson Addison-Wesley. All rights reserved. 17-* Interest Rate Differentials (cont.) Because of these risks, domestic assets and foreign assets are not treated the same. Previously, we assumed that foreign and domestic currency deposits were perfect substitutes: deposits everywhere were treated as the same type of investment, because risk and liquidity of the assets were assumed to be the same. In general, foreign and domestic assets may differ in the amount of risk that they carry: they may be imperfect substitutes. Investors consider these risks, as well as rates of return on the assets, when deciding whether to invest. 费畸鳃泊琵留效疼允朗伤惧棠足胞霄遇逮惩轰绪怎斡娄框绦佬宙墩憾志分Finance lecture 5课件Fixed Exchange Rates and Foreign Exchange Intervention Copyright ? 2009 Pearson Addison-Wesley. All rights reserved. 17-* Interest Rate Differentials (cont.) A difference in the risk of domestic and foreign assets is one reason why expected rates of return are not equal across countries: R = R*+(Ee –E)/E + ? (17-2) where ? is called a risk premium, an additional amount needed to compensate investors for investing in risky domestic assets. The risk could be caused by default risk or exchange rate risk. 赣昨帚派封射铺职赠经购门彰岩福蜗屠硕旁催郊藉臃封迁饥咋靳壁肿英腐Finance lecture 5课件Fixed Exchange Rates and Foreign Exchange Intervention Copyright ? 2009 Pearson Addison-We