Académique Documents
Professionnel Documents
Culture Documents
3
International Financial Markets
3-2
1. The Foreign Exchange Market
3-3
Key Players in FX Markets
3-4
The Foreign Exchange Market
3-5
The Spot Market for Foreign
Exchange
3-6
The Forward Market for Foreign
Exchange
3-7
Foreign Exchange Transactions
3-8
The bid-ask Spread
3-9
Foreign Exchange Quotations
3-10
Cross Rates
value of in $
Value of in =
value of in $
$1.50/
=
$.009/
= 166.67/
3-11
Motives for Using the
International Money & Capital Markets
3-12
Motives for Using the
International Money & Capital Markets
3-13
Motives for Using the
International Money & Capital Markets
3-15
The Eurocurrency Market
3-16
International Banking
3-17
3. International Capital Markets
3-20
International Bond Market
3-21
Comparing Interest Rates
Among Currencies
Interest rates are crucial because they affect the
MNCs cost of financing.
The interest rate for a specific currency is
determined by the demand for and supply of funds
in that currency.
As the demand and supply schedules for a
specific currency change over time, the
equilibrium interest rate will also change.
3-22
International Stock Markets
3-23
International Stock Markets
3-24
MNC Use of International
Money and Capital Markets
The foreign cash flow movements of a typical
MNC can be classified into:
Foreign trade flows exports and imports
Direct foreign investment (DFI) activity acquisition of
foreign real assets
Short-term investment or working capital needs
Longer-term financing in the international bond or stock
markets
3-25
Foreign Cash Flow Chart of an MNC
Foreign
MNC Parent Exchange
Transactions
Export/Import Dividend
Remittance Foreign
Foreign & Financing Exchange
Business Short-Term Medium- & Markets
Clients Investment Long-Term
& Financing Financing Long-Term
Financing
Export/Import
International Money
Markets International
International
Credit Markets
Short-Term Stock Markets
Foreign Investment & Financing
Subsidiaries
Medium- & Long-Term Financing
Long-Term Financing
3-26
How Financial Markets Affect
an MNCs Value
Since interest rates commonly vary among
countries, an MNC may use the international
financial markets to reduce its cost of capital,
thereby achieving a higher valuation.
3-27