Topic 4

International Parity
Condition

Refer to Text Book (Chapter 6-page 171-191)

Subtitles
4.1 Purchasing power parity 购买力平价

4.2 Fisher effect 费雪效应

4.3 International Fisher effect 国际费雪效应

4.4 Interest Rate Parity 利率平价

4.5 Forward rate parity 远期汇率平价

 International Parity Conditions (1 of 2)

• Some fundamental questions managers of MNEs, international portfolio investors, importers,

exporters, and government officials must deal with every day are: 一些跨国企业管理者、国际投资者、进口商、出
口商和政府官员每天必须应对的基本问题包括：

• What are the determinants of exchange rates? 汇率的决定因素是什么？

• Are changes in exchange rates predictable? 汇率变化是否可预测？

• The economic theories that link exchange rates, price levels, and interest rates together are called
international parity conditions. 将汇率、物价水平和利率联系在一起的经济理论被称为国际均衡条件。

• These international parity conditions form the core of the financial theory that is unique to
international finance. 这些国际均衡条件构成了国际金融独有的财务理论核心。
 International Parity Conditions (2 of 2)

• These theories do not always work out to be “true” when compared to what students and
practitioners observe in the real world, but they are central to any understanding of how
multinational business is conducted and funded in the world today. 这些理论并不总是与学生和从业
者在现实世界中观察到的情况完全一致，但它们对于理解当今跨国企业的运营和融资方式至关重要。

• The mistake is often not with the theory itself, but with the interpretation and application
of said theories. 错误往往不在于理论本身，而在于对这些理论的解释和应用。
4.1 Purchasing Power Parity
Prices and Exchange Rates (1 of 2)
If the identical product or service can be: 如果相同的产品或服务能够：

• sold in two different markets; and 在两个不同的市场销售；

• no restrictions exist on the sale; and 销售不存在任何限制；

• transportation costs of moving the product between markets are equal, then 在市场之间运输
产品的成本相等，那么

• the product’s price should be the same in both markets. 该产品的价格在两个市场中应当相同。

This is called the law of one price. 这被称为一价定律。

Prices and Exchange Rates (2 of 2)

• A primary principle of competitive markets is that prices will equalize across markets if frictions
(transportation costs) do not exist. 竞争市场的基本原则之一是，如果不存在摩擦（运输成本），价格将在各市场间趋于一致。

• Comparing prices then, would require only a conversion from one currency to the other: 因此，
比较价格仅需将一种货币转换为另一种货币：
P $ S ¥$ P ¥

Where the product price in U.S. dollars is (P $ ), the spot

exchange rate is (S ¥$ ) and the price in Yen is ¥
(P ).
 Purchasing Power Parity and the Law of
One Price
• If the law of one price were true for all goods and services, the purchasing power parity (PPP)
exchange rate could be found from any individual set of prices. 如果一价定律对所有商品和服务都适用，那么购买力平价
（ PPP ）汇率可以通过任何一组价格计算得出。

• By comparing the prices of identical products denominated in different currencies, we could

determine the “real” or PPP exchange rate that should exist if markets were efficient. 通过比较不同货币计价
的相同产品价格，我们可以确定在市场有效的情况下应当存在的“真实”或 PPP 汇率。

• This is the absolute version of the PPP theory. 这就是购买力平价理论的绝对版本。

• A fun example is the Big Mac Index published annually by the Economist. Exhibit 6.1 illustrates. 《》
6.1 所示。
Exhibit 6.1 Selected Rates from the Big
Mac Index

* These exchange rates are stated in U S$ per unit of local currency,

** Percentage under/over valuation against the dollar is calculated as (Implied – Actual)/(Actual), except for the Britain and Euro
area calculations, which are (Actual-Implied)/(Implied)
Source: Data for columns (1) and (2) drawn from “The Big Mac Index,” The Economist, July 13, 2017.
 Relative Purchasing Power
Parity (1 of 2)
• If the assumptions of the absolute version of the PPP theory are relaxed a bit more, we
observe what is termed relative purchasing power parity (relative PPP). 如果对购买力平价（ PPP ）
理论的绝对版本的假设再放宽一些，我们会得到所谓的相对购买力平价（相对 PPP ）。

• Relative PPP holds that PPP is not particularly helpful in determining what the spot rate is
today, but that the relative change in prices between two countries over a period of time
determines the change in the exchange rate over that period. 相对 PPP 认为， PPP 对于确定当前即期汇
率并不特别有帮助，但一段时间内两国价格的相对变化决定了该期间内汇率的变化。

• See Exhibit 6.2 见图表 6.2 。

Relative Purchasing Power
Parity (2 of 2)
• More specifically, with regard to relative PPP:
“If the spot exchange rate between two countries starts in
equilibrium, any change in the differential rate of inflation between
them tends to be offset over the long run by an equal but opposite
change in the spot exchange rate.” “ 如果两国之间的即期汇率起初处于均衡状态，那么
它们之间通货膨胀率的任何差异变化，长期来看都会被相等但方向相反的即期汇率变化所抵消。”
Exhibit 6.2 Relative Purchasing Power
Parity (PPP)
 Empirical Tests of Purchasing Power
Parity
• Empirical testing of PPP and the law of one price has been done but has not
proved PPP to be accurate in predicting future exchange rates. 对购买力平价
（ PPP ）和一价定律的实证测试已经进行，但并未证明 PPP 在预测未来汇率方面是准确的。

Two general conclusions can be made from these tests: 从这些测试中可以得出两个普遍结论：

• PPP holds up well over the very long run but poorly for shorter time periods.
PPP 在长期内表现较好，但在较短时期内表现较差。

• The theory holds better for countries with relatively high rates of inflation and
underdeveloped capital markets. 该理论在通货膨胀率较高且资本市场不发达的国家中更适用。
 Exchange Rate Indices: Real and Nominal
• Individual national currencies often need to be evaluated against other currency
values to determine relative purchasing power to discover whether a nation’s
exchange rate is “overvalued” or “undervalued” in terms of PPP. 各国货币通常需要与其他货
币价值进行比较，以确定相对购买力，从而判断一个国家的汇率在购买力平价（ PPP ）意义上是“高估”还是“低估”。

• This problem is often dealt with through the calculation of exchange rate indices
such as the nominal effective exchange rate index. 这个问题通常通过计算汇率指数来处理，例如名
义有效汇率指数。
C$
E R = E N  FC
$ $

• Exhibit 6.3 illustrates real effectives exchange rate indexes for

Japan, the euro area, and the U.S.
Exhibit 6.3 Real Effective Exchange Rate
Indexes (Base Year 2010 = 100)

Source: Bank for International Settlements, [Link]/statistics/eer/. BIS effective exchange rate (E ER), Real (CPI-based),
narrow indices, monthly averages, January 1980–November 2017.
 Exchange Rate Pass-Through
• Exchange rate pass-through is a measure of the response of imported and exported
product prices to changes in exchange rates. 汇率传递效应是衡量进口和出口产品价格对汇率变化反应的指标。

• Price elasticity of demand is an important factor when determining pass-through levels. 需

求价格弹性是决定汇率传递水平的重要因素。

• The own-price elasticity of demand for any good is the percentage change in quantity of the
good demanded as a result of the percentage change in the good’s price. 某种商品的自身价格弹性是
指该商品需求量相对于其价格变动的百分比变化。
%Qd
Price elasticity of demand εp 
%P
Exchange Rate Pass-Through (2 of 2

• A number of emerging market countries have chosen in recent years to change their objectives
and choices. 近年来，一些新兴市场国家选择改变其目标和决策。

• These countries have shifted from choosing a pegged exchange rate and independent
monetary policy over the free flow of capital (point A in Exhibit 6.4) to policies allowing more
capital flows at the expense of a pegged or fixed exchange rate (toward point C in Exhibit 6.4).
这些国家已从选择盯住汇率和独立货币政策而牺牲资本自由流动（图 6.4 中的 A 点），转向允许更多资本流动但放弃盯住或固定汇率的政
策（朝向图 6.4 中的 C 点）。
Exhibit 6.4 Pass-Through, the Impossible Trinity, and Emerging Markets

For long description, see slide 47: Appendix 7

 4.2 Fisher Effect
• The Fisher effect states that nominal interest rates in each country are equal to the required
real rate of return plus compensation for expected inflation. 费雪效应指出，每个国家的名义利率等于所需的
实际回报率加上对预期通胀的补偿。

• This equation reduces to (in approximate form): 该方程可简化为（近似形式）：

i r  
Where i = nominal interest rate, r = real interest rate and 
= expected inflation.
• Empirical tests (using ex-post) national inflation rates have shown the Fisher effect usually
exists for short-maturity government securities (treasury bills and notes). 实证测试（使用事后国家通
胀率）表明，费雪效应通常适用于短期政府证券（国库券和票据）。
 4.3 International Fisher Effect
• The relationship between the percentage change in the spot exchange rate over time and
the differential between comparable interest rates in different national capital markets is
known as the international Fisher effect. 随时间变化的即期汇率百分比变化与不同国家资本市场中可比利率差之间的
关系被称为国际费雪效应。

• “Fisher-open,” as it is termed, states that the spot exchange rate should change in an equal
amount but in the opposite direction to the difference in interest rates between two
countries. 所谓的“费雪开放”理论指出，即期汇率的变化应与两国之间的利率差变化相等但方向相反。
 • More formally:

• Where i $ and i ¥ are the respective national interest rates

and S is the spot exchange rate using indirect quotes (¥/$).

• Justification for the international Fisher effect is that investors must be rewarded or
penalized to offset the expected change in exchange rates. 国际费雪效应的依据是，投资者必须获得奖励或受
到惩罚，以抵消预期的汇率变化。
4.3 Interest Rate Parity (IRP)
• The theory of Interest Rate Parity (I R P) provides the linkage between the foreign
exchange markets and the international money markets. 利率平价（ I R P ）理论提供了外汇市场与
国际货币市场之间的联系。
• The theory states, “The difference in the national interest rates for securities of similar
risk and maturity should be equal to, but opposite in sign to, the forward rate discount
or premium for the foreign currency, except for transaction costs.” 该理论指出：“具有相似风险
和期限的证券在不同国家的利率差异，应等于但符号相反于外币的远期汇率折扣或升水，除去交易成本。”
• See Exhibit 6.6 参见图表 6.6 。
The Forward Rate
• Formulaic representation of the forward rate:

  SF 90  
 1   i 360  
  
F SF/$
90 =S SF/$

  $ 90  
 1   i 360  
  
The Forward Rate
• The forward premium or forward discount is the percentage difference
between the spot and forward exchange rate, stated in annual percentage
terms. 远期升水或远期贴水是即期汇率与远期汇率之间的百分比差异，并以年度百分比形式表示。

Spot  Forward 360

f SF   100
Forward days

• This is the case when the foreign currency price of the home
currency is used (SF/$).
• See Exhibit 6.5
Exhibit 6.6 Interest Rate Parity (I RP)

For long description, see slide 52: Appendix 12

 Covered Interest Arbitrage (CIA)
• The spot and forward exchange rates are not constantly in the state of equilibrium
described by interest rate parity. 即期汇率和远期汇率并非始终处于利率平价所描述的均衡状态。

• When the market is not in equilibrium, the potential for “risk-less” or arbitrage profit
exists. 当市场处于非均衡状态时，存在“无风险”或套利利润的潜力。

• The arbitrager will exploit the imbalance by investing in whichever currency offers the
higher return on a covered basis. 套利者将通过投资于提供更高回报的货币来利用这一不平衡，前提是采用套期保
值的方式。

• See Exhibit 6.7 参见图表 6.7 。

Exhibit 6.7 Covered Interest Arbitrage (C I
A)

For long description, see slide 53: Appendix 13

 Uncovered Interest Arbitrage (UIA)
• In the case of uncovered interest arbitrage (U I A), investors borrow in countries and
currencies exhibiting relatively low interest rates and convert the proceed into currencies
that offer much higher interest rates. 在无套期利率套利（ U I A ）的情况下，投资者在利率相对较低的国家和货币中
借款，并将所得资金转换为利率更高的货币。

• The transaction is “uncovered” because the investor does not sell the higher yielding
currency proceeds forward, choosing to remain uncovered and accept the currency risk of
exchanging the higher yield currency into the lower yielding currency at the end of the
period. 该交易被称为“无套期”是因为投资者未将高收益货币的收益进行远期出售，而是选择不进行套期保值，并接受在期末将高收益货
币兑换回低收益货币的汇率风险。

• See Exhibit 6.8 参见图表 6.8 。

Exhibit 6.8 Uncovered Interest Arbitrage (U IA): The Yen Carry Trade
 Equilibrium Between Interest Rates and
Exchange Rates
• Exhibit 6.9 illustrates the conditions necessary for equilibrium between interest rates and
exchange rates. 图表 6.9 说明了利率与汇率之间实现均衡所需的条件。

• The disequilibrium situation, denoted by point U, is located off the interest rate parity line.
非均衡状态由点 U 表示，该点位于利率平价线之外。

• However, the situation represented by point U is unstable because all investors have an
incentive to execute the same covered interest arbitrage, which is virtually risk-free. 然而，由点
U 代表的情况是不稳定的，因为所有投资者都具有执行相同的套期利率套利交易的动机，而该交易几乎是无风险的。
Exhibit 6.9 Interest Rate Parity and
Equilibrium
 4.5 Forward Rate Parity
• Some forecasters believe that forward exchange rates are unbiased predictors of future spot
exchange rates. 一些预测者认为远期汇率是未来即期汇率的无偏预测值。

• Intuitively this means that the distribution of possible actual spot rates in the future is
centered on the forward rate. 直观上，这意味着未来实际即期汇率的可能分布以远期汇率为中心。

• Unbiased prediction simply means that the forward rate will, on average, overestimate and
underestimate the actual future spot rate in equal frequency and degree. 无偏预测仅意味着远期汇率
在平均情况下，高估和低估实际未来即期汇率的频率和程度是相等的。

• Exhibit 6.10 illustrates this theory. 图表 6.10 说明了这一理论。

Exhibit 6.10 Forward Rate as an Unbiased Predictor of Future
Spot

The forward rate available “today” (Ft) for delivery at a future time (t + 1) is used as a forecast or predictor of
the spot rate at time t + 1. The difference between the spot rate which then occurs and the forward rate is the
forecast error. When the forward rate is termed an “unbiased predictor of the future spot rate,” it means that
the errors are normally distributed around the mean future spot rate (the sum of the errors equals zero).
Prices, Interest Rates, and Exchange
Rates in Equilibrium
• Exhibit 6.11 illustrates all of the fundamental parity relations simultaneously, in
equilibrium, using the U.S. dollar and the Japanese yen.
Exhibit 6.11 International Parity Conditions in
Equilibrium (Approximate Form)