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GFM bringing buyers & sellers together

When MNC finalize its foreign investment project,then it needs to


select a particular source or a mix of sources of funds.
Domestic firm gets fund normally from domestic sources. it does
get funds from international financial market too. But it is not easy
for mnc.
Mnc,Parent company funds for its foreign investment project. It
tries to get funds from host country fin.markets & international fin.
Markets.
Discussion for sources of the funds in global financal market should
be based on both the supply aspect and demand aspect.

Profitability:- exports benefits the higher profit margins in the


foreign market
Growth:Achieving economies of scale
Risk spread
Access to imported inputs
Uniqueness of product or service
Marketing opprtunities due to life cycles
Spreading R&D costs
Resource utilization

Competition & costs


Quality Improvement
Economic integration & free markets
Living standards
Emergence of wto
Utility effect & peace

Continued growth of global financial assets:-The volume of


global financial assets such as government debt securities,
corporate debt securities and equity securities will continue to
expand.

Depth of financial markets:-Financial markets have been


growing faster than the global GDP over the years. Due to this
the ratio of a countrys financial assets to GDP has been rising
constantly over the past few years. In 1990, only 33 countries
had financial assets whose value exceeded the value of their
GDPs. By 2006, this figure had more than doubled to 72
countries. Brazil, China, India are some of the few countries
whose financial assets have outnumbered the countrys Gross
National Product (GNP).

Raise in the level of foreign investment:- The raise in the level of


investment is making the world more financially interdependent than
it was a few years ago. By the end of 2006, it was around $ 74.5
trillion of assets.

Regulation of International Securities Market:-The worlds capital


markets have continued to undergo dynamic changes, both in terms
of structure and complexity. The huge achievements in information
and telecommunication technologies have virtually eliminated the
boundaries between capital markets of different nations.

Financialization of Economy:-One of the recent developments is the


excessive financialization of economy with greater importance to
financial activity over non-financial economic activity.

Financial Innovation, Deregulation and Globalization:- Financial


innovation played an important role in changing the dynamics
between finance and real economy. It facilitated the introduction of
new financial instruments (such as derivatives) and increased distance
between financial instruments and productive assets. Certain kinds of
innovation added to the complexity of the financial system.

The Growing Domination of Speculative Finance Capital


Recently experienced increased securitization.

The Financial Stability Forum (FSF) met in Rome on 28-29 March.


Members discussed the current challenges in financial markets, the
steps that are being taken to address them and policy options going
forward.
Financial system risks & responses:- The financial system faces a
number of significant near-term challenges. With many
securitisation markets effectively closed, assets are accumulating on
bank balance sheets.
Strengthening market and institutional resilience:- The FSF
discussed the report to be delivered to G7 Finance Ministers and
Central Bank Governors in April that identifies the key weaknesses
underlying the turmoil and recommends actions to enhance market
and institutional resilience going forward.

Hedge fund industry:- In its 2007 report on highly leveraged


institutions the FSF called on the hedge fund industry to review and
enhance sound practice benchmarks.
Sovereign wealth funds:- The FSF discussed work underway at the
IMF and OECD with regard to sovereign wealth funds (SWFs).

Classified into 3 parts


International International
Money
capital
Market
market

Global
Foreign
Exchange
Market

The foreign exchange market (forex, FX, or currency market) is


a global decentralized market for the trading of currencies.
foreign exchange market is a place where foreign moneys are
bought and sold. Expoter sell the foreign currencies and importers
buy them.
The foreign exchange market assists international trade and
investments by enabling currency conversion.
For example, it permits a business in the United States to import
goods
from
the
European
Union
member
states,
especially Eurozone members, and pay euros, even though its
income is inUnited States dollars. It also supports direct speculation
and evaluation relative to the value of currencies, and the carry
trade, speculation based on the interest rate differential between two
currencies.

The foreign exchange market is unique because of the following


characteristics: its huge trading volume representing the largest asset class in the
world leading to high liquidity;
its geographical dispersion;
its continuous operation: 24 hours a day except weekends, i.e.,
trading from 22:00 GMT on Sunday (Sydney) until 22:00 GMT
Friday (New York);
the variety of factors that affect exchange rates;
the low margins of relative profit compared with other markets of
fixed income; and
the use of leverage to enhance profit and loss margins and with
respect to account size.

LOWER TRADING COSTS:- The lower trading costs in the forex


market has made it possible for even small, individual investors to
make decent profits from forex trading. With lower costs, the
possible losses are also much lower.
EXCELLENT TRANSPARENCY:- Transparency means the free
access to trading information. Forex trading is a transparent process
because the trader has full access to market data and information
that are necessary to perform successful transactions. The excellent
transparency of the forex market means that forex traders have more
control over their investments and can decide what to do based on
the information available. In a typical foreign exchange transaction,
a party purchases some quantity of one currency by paying for some
quantity of another currency.

SUPERIOR LIQUIDITY:- In a forex market, traders are free to


buy and sell currencies of their own choosing.
STRONG MARKET TRENDS:- Forex traders make money by
getting accurate market data and then analyzing the direction the
market takes.
Electronic Market:- Fx Market doesnt have a physical place.
Geographical Dispersal:- A redeeming feature of the foreign
exchange market is that it is not to be found in one place. Market is
vastly dispersed of the world such as London, New York, Paris,
Zurich, Amesterdam, Tokyo, Hong Kong, Toronto Frankfurt, Milan
and other cities.
Transfer of Purchasing Power:- Fx market aims at permitting the
transfer of purchasing powerdominating in one currency to another.
For example:-An indian exporter sells software to a U.S, firm for
dollars and a U.S. firm sells super computers to an indian company
for rupees.

Intermediary:- The market acts as an intermediary between the


buyers and sellersof foreign exchange.
Volume:- A special feature of foreign excahnge market is that
arround 95% takes form of cross-border purchase and sell of
assets,i.e international capital flows. Only arround 5% relates to the
export and import activities.
Minimising Risks:- Fx market helps the importer and exporter in
the foreign trade to minimizes their risk of trade

Spot Market
Forward
Market

Spot Market:- In which sale & purchase transactions are settled


within 2 days of the deal.
Forward Market:- deal for sale & purchase of foreign currency at
some future date,normally after 90 days of the deal.

Retail
Market
Wholesale
Market

Banks and money


changers(currencies, bank
notes, cheques)

Inter-bank(bank accounts or
deposits) :- Direct & indirect
Central bank

Fundamental change in the international monetary system from the


fixed exchange rates.
Major financial deregulations
A fundamental change in savings and investments.
Major changes in international trade.
Technological advances
New thinking in terms of both theories and practices of finance.