Test Your Knowledge of International Financial Markets

Overview of International Financial Markets

• Eurocurrency market offers higher interest rates on currency deposits and lower interest rates on borrowings due to lack of government regulation
• Drawbacks of eurocurrency market include higher risk of bank failure for depositors and exposure to foreign exchange risk for borrowers
• Global bond market includes foreign bonds sold outside borrower's country and denominated in the currency of the country where issued and eurobonds issued by multinational corporations, large domestic corporations, sovereign governments, and international institutions
• Eurobonds are attractive due to lower cost of issuance, less stringent disclosure requirements, and favorable tax status
• Global equity market emerged in the 1980s and 1990s, allowing firms to raise capital from international investors, list stock on multiple exchanges, and issue equity or debt around the world
• $6.5 trillion a year flows across national borders in the mid-2000s
• Foreign exchange risk can increase the cost of foreign currency loans, as seen in the 1997-98 Asian financial crisis
• South Korean firms borrowed in U.S. dollars at low interest rates but suffered when the won depreciated sharply against the U.S. dollar
• Borrowers can hedge against exchange rate risk by entering into a forward contract
• Many Asian borrowers did not hedge their dollar-denominated short-term debt, leading to increased cost of capital
• Firms must weigh the benefits of lower interest rates against the risks of increased real cost of capital due to exchange rate movements
• Internationalization of corporate ownership led to companies broadening their stock ownership by listing their stock in the equity markets of other nations to tap into liquidity, facilitate future acquisitions, and increase visibility.

Test your knowledge of the global financial markets with this quiz! From the eurocurrency market to the global equity market, this quiz covers the basics of international financial markets. Learn about the benefits and drawbacks of different markets, the risks of foreign exchange, and how firms can hedge against these risks. Whether you're a finance expert or just starting to learn about global markets, this quiz will challenge and expand your knowledge.