International Financial Markets

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Presentation transcript:

International Financial Markets C H A P T E R 3 International Financial Markets

Chapter Overview A. Foreign Exchange Market B. Interpreting Foreign Exchange Quotations C. International Money Markets D. International Credit Market E. International Bond Market F. International Stock Markets

Chapter 3 Objectives This chapter will describe the: A. Foreign exchange market B. International money market C. International credit market D. International bond market E. International stock markets

A. Foreign Exchange Market 1. History of Foreign Exchange a. Gold Standard b. Agreements on Fixed Exchange Rates c. Floating Exchange Rate System

A. Foreign Exchange Market 2. Foreign Exchange Transaction a. Spot Market b. Use of the Dollar in the Spot Market c. Spot Market Time Zones d. Spot Market Liquidity

A. Foreign Exchange Market e. Attributes of Banks That Provide Foreign Exchange 1). Competitiveness of quote. 2). Special relationship with the bank. 3). Speed of execution. 4). Advice about current market conditions. 5). Forecasting advice.

A. Foreign Exchange Market 3. Foreign Exchange Quotations a. Spot Market Interaction Among Banks b. Bid/Ask Spread of Banks c. Comparison of Bid/Ask Spread Among Currencies d. Factors that Affect the Spread

B. Interpreting Foreign Exchange Quotations 1. Direct versus Indirect Quotes: the direct quote is the local currency price of one unit of foreign currency e.g. In New York City $1.38/€ 2. Cross Exchange Rates

B. Interpreting Foreign Exchange Quotations 3. Forward, Futures and Options Markets a. All are methods to hedge against negative exchange rate changes b. All three are contracts that: 1.) specify a fixed amount of currency 2.) to be bought or purchased at a fixed exchange rate 3.) at a specified time

B. Interpreting Foreign Exchange Quotations 4. Currency Futures Contract 5. Currency Options Contract a. options to buy = calls b. options to sell = puts

C. International Money Markets 1. Origins and Development a. European Money Market What is eurocurrency? b. Asian Money Market 2. Money Market Interest Rates Among Currencies

C. International Money Markets 3. Global Bank Regulations: Attempts at Standardization a. Single European Act, 1992 b. Basel Accord, December 1987 c. Basel II Accord, at present

D. International Credit Market 1. Overview: a. Eurocredit loans (medium- term) b. London Interbank Offer Rate (LIBOR) 2. Syndicated Loans When banks are unwilling or unable to process a very large loan they form groups know as syndicates

E. International Bond Market 1. Eurobond Market a. Features of Eurobonds b. Denominations c. Underwriting Process d. Secondary Market 2. Development of Other Bond Markets

F. International Stock Markets 1. Issuance of Stock in Foreign Markets a. Impact of the Euro 2. Issuance of Stock by Non-U.S. Firms in the U.S. 3. Investing in Foreign Stock Market Comparison of Stock Markets 4. Issuance of Foreign Stock in the U.S. American Depository Receipts (ADRs) 5. Stock Market Characteristics Vary Among Countries

Foreign Cash Flow Chart of an MNC Insert Exhibit 3.5 page 71