Untitled Quiz

BUS 200 - International Financial Markets

• This course covers international financial markets.

Learning Objectives

• Describe the features and key elements of the international capital market.
• Understand the workings and potential risks of foreign exchange markets.
• Identify various currency exchange rates and associated instruments.
• Examine the structure of foreign exchange markets and currency convertibility.

The International Capital Market

• A system for allocating financial resources (debt and equity) based on their most efficient use.
• Two main ways to finance externally:
  • Debt (bonds).
  • Equity (stock and dividends).

The International Capital Market: Benefits

• A network of individuals, companies, financial institutions, and governments investing and borrowing internationally.
• Expands opportunities for borrowers.
• Reduces risks for lenders.

The International Capital Market: Bonds

• International bond market deals with bonds issued by companies, governments, or organizations outside their home countries.
• Issuing bonds is a common method for securing needed funding.

Types of International Bonds

• Eurobonds: issued outside the country whose currency they're denominated in.
• Foreign bonds: issued in the borrower's country and denominated in that country's currency.

Culture Insights: Big Results from Microfinance

• Microfinance provides small loans and financial services to underbanked entrepreneurs, small businesses, and families, helping them overcome challenges in developing economies.
• Loans can be difficult to obtain and high interest rates may deplete profits.
• Peer pressure and support among borrowers can help prevent defaults.
• Microfinance assists minority entrepreneurs in developed nations.
• Additional support can include job training, savings accounts, and basic healthcare.

The International Capital Market: Equity

• International equity market encompasses stocks bought and sold outside the issuer's home countries.
• Key stock exchanges (Frankfurt, London, and New York) list a large number of companies from outside their jurisdictions.

Factors in International Equity Market Growth

• Privatization in certain developing markets.
• Emerging markets increase investment opportunities.
• International investment banks provide funding.
• Electronic trading platforms facilitate seamless transactions.

The International Capital Market: Eurocurrency

• A market for currencies outside their countries of origin.
• Includes Eurodollars, Europounds, and Euroyen.
• Sources encompass governments, commercial banks, international companies, and wealthy individuals.

The Main Appeal and Risks of the Eurocurrency Market

• The main appeal is the absence of regulation.
• This lowers the cost of banking but increases potential risks due to the lack of regulatory oversight.
• Interbank rates are the interest rates major banks charge each other for loans.
• Key examples include LIBOR (London Interbank Offer Rate) and LIBID (London Interbank Bid Rate).

The Foreign Exchange Market

• A market for buying and selling currencies, setting their exchange rates.
• Exchange rate is the rate at which one currency is traded for another.
• Currency transactions involve bid and ask quotes.
  • Bid quote is the price at which a bank will buy.
  • Ask quote is the price at which a bank will sell.
  • Bid-ask spread is the difference between these two prices.

Exchange Rate Risk Exposure

• Exchange-rate risk is the potential for adverse changes in exchange rates to negatively affect a business.
  • Transaction exposure: How exchange rate changes affect the value of a business transaction.
  • Translation exposure: How exchange rate changes impact a company's financial statements.
  • Economic exposure: How exchange rate changes influence a company's long-term earning potential from international operations.