A Model for a Fair Exchange Rate
Financial markets have developed formulas and models to derive fair values for bonds, futures, swaps, options and other securities. This model derives a fair value of an exchange rate, which might be used as a benchmark for a long-term equilibrium level to stabilize currency markets. The model is based on the value-added tax adjusted purchasing power parity exchange rate. This rate is then modified by five components: the macro-economic component, the foreign currency reserve component, the debt component, the interest rate component, and the political stability/leadership component. With respect to the American dollar, the model shows that the Euro and the Japanese Yen are overvalued compared to its current exchange rate, while the Brazilian Real, the Russian Ruble, the Chinese Yuan and the Australian dollar are currently undervalued.
Volume (Year): 09 (2006)
Issue (Month): 01 ()
|Contact details of provider:|| Web page: http://www.worldscinet.com/rpbfmp/rpbfmp.shtml |
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:wsi:rpbfmp:v:09:y:2006:i:01:p:51-66. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tai Tone Lim)
If references are entirely missing, you can add them using this form.