Podcast
Questions and Answers
What is the primary goal of companies when sourcing global capital?
What is the primary goal of companies when sourcing global capital?
Which of the following is an advantage of sourcing equity financing globally?
Which of the following is an advantage of sourcing equity financing globally?
What does an FX quote of 1.20 for EUR/USD signify?
What does an FX quote of 1.20 for EUR/USD signify?
What is a potential disadvantage of global equity sourcing?
What is a potential disadvantage of global equity sourcing?
Signup and view all the answers
How can companies utilize depository receipts for global equity financing?
How can companies utilize depository receipts for global equity financing?
Signup and view all the answers
Which currency symbol is typically used for the British Pound?
Which currency symbol is typically used for the British Pound?
Signup and view all the answers
What does cross-listing allow companies to achieve?
What does cross-listing allow companies to achieve?
Signup and view all the answers
What are ISO codes used for in the FX market?
What are ISO codes used for in the FX market?
Signup and view all the answers
What aspect of a company's financial structure aids in maximizing shareholder value?
What aspect of a company's financial structure aids in maximizing shareholder value?
Signup and view all the answers
Which of the following is an example of a traditional currency symbol?
Which of the following is an example of a traditional currency symbol?
Signup and view all the answers
What trade-off must companies assess when determining their cost of capital?
What trade-off must companies assess when determining their cost of capital?
Signup and view all the answers
What distinguishes ISO codes from traditional currency symbols?
What distinguishes ISO codes from traditional currency symbols?
Signup and view all the answers
How do FX quotes help market participants?
How do FX quotes help market participants?
Signup and view all the answers
What is one of the key reasons companies seek to list on foreign exchanges?
What is one of the key reasons companies seek to list on foreign exchanges?
Signup and view all the answers
Which of the following is an ISO code for the South African Rand?
Which of the following is an ISO code for the South African Rand?
Signup and view all the answers
Which of the following currencies uses the dollar symbol ($) in its representation?
Which of the following currencies uses the dollar symbol ($) in its representation?
Signup and view all the answers
What is the primary purpose of listing shares on a stock exchange?
What is the primary purpose of listing shares on a stock exchange?
Signup and view all the answers
Which type of listing involves a company placing its shares on multiple exchanges?
Which type of listing involves a company placing its shares on multiple exchanges?
Signup and view all the answers
What characterizes a secondary offering?
What characterizes a secondary offering?
Signup and view all the answers
When does equity issuance typically occur in relation to listing?
When does equity issuance typically occur in relation to listing?
Signup and view all the answers
What is a key requirement for a company to be listed on a stock exchange?
What is a key requirement for a company to be listed on a stock exchange?
Signup and view all the answers
What distinguishes the nature of equity issuance from listing?
What distinguishes the nature of equity issuance from listing?
Signup and view all the answers
What ongoing obligations do companies face after listing their shares?
What ongoing obligations do companies face after listing their shares?
Signup and view all the answers
Which statement correctly differentiates regulatory considerations between equity issuance and listing?
Which statement correctly differentiates regulatory considerations between equity issuance and listing?
Signup and view all the answers
What is a direct quote in the context of retail FX markets?
What is a direct quote in the context of retail FX markets?
Signup and view all the answers
How is an indirect quote expressed?
How is an indirect quote expressed?
Signup and view all the answers
What is the relationship between direct and indirect quotes?
What is the relationship between direct and indirect quotes?
Signup and view all the answers
What does the bid price represent in currency trading?
What does the bid price represent in currency trading?
Signup and view all the answers
What is the bid-ask spread?
What is the bid-ask spread?
Signup and view all the answers
In the example ZAR/BWP = 0.7692, what is the equivalent indirect quote?
In the example ZAR/BWP = 0.7692, what is the equivalent indirect quote?
Signup and view all the answers
What does the ask price indicate in currency trading?
What does the ask price indicate in currency trading?
Signup and view all the answers
What is not true about the GBP and EUR in global FX markets?
What is not true about the GBP and EUR in global FX markets?
Signup and view all the answers
What distinguishes spot transactions from forward transactions in forex?
What distinguishes spot transactions from forward transactions in forex?
Signup and view all the answers
Which of the following accurately describes swap transactions?
Which of the following accurately describes swap transactions?
Signup and view all the answers
Which statement correctly describes future contracts in forex?
Which statement correctly describes future contracts in forex?
Signup and view all the answers
What is the key characteristic of non-deliverable forwards (NDFs)?
What is the key characteristic of non-deliverable forwards (NDFs)?
Signup and view all the answers
Which electronic settlement system is specifically used for settling USD transactions?
Which electronic settlement system is specifically used for settling USD transactions?
Signup and view all the answers
What is primarily the role of electronic settlement systems in forex transactions?
What is primarily the role of electronic settlement systems in forex transactions?
Signup and view all the answers
How do multinational corporations (MNCs) primarily engage with the forex market?
How do multinational corporations (MNCs) primarily engage with the forex market?
Signup and view all the answers
Which is true about the value date in forex transactions?
Which is true about the value date in forex transactions?
Signup and view all the answers
What is the primary characteristic of European Terms Quotes?
What is the primary characteristic of European Terms Quotes?
Signup and view all the answers
In European Terms, if a trader wants to convert Botswana Pula (BWP) to South African Rand (ZAR), what is the first step in the conversion process?
In European Terms, if a trader wants to convert Botswana Pula (BWP) to South African Rand (ZAR), what is the first step in the conversion process?
Signup and view all the answers
Which statement about USD as the reference currency in European Terms Quotes is accurate?
Which statement about USD as the reference currency in European Terms Quotes is accurate?
Signup and view all the answers
How would you express USD/ZAR = 16.0000 in European Terms?
How would you express USD/ZAR = 16.0000 in European Terms?
Signup and view all the answers
What distinguishes American Terms Quotes from European Terms Quotes?
What distinguishes American Terms Quotes from European Terms Quotes?
Signup and view all the answers
Which of the following currency pairs would be typically quoted in American Terms?
Which of the following currency pairs would be typically quoted in American Terms?
Signup and view all the answers
What is a cross-rate in the context of currency exchange?
What is a cross-rate in the context of currency exchange?
Signup and view all the answers
Study Notes
Chapter 6: Sourcing Finance/Capital Globally
- Firms often seek capital beyond their domestic markets to enhance growth and financial stability.
- Understanding global finance dynamics is critical.
- Optimum cost of capital: Companies aim for the lowest possible cost of capital while maintaining an efficient capital structure (balancing debt and equity). This involves assessing risk and return trade-offs.
- Financial/Capital structure: A well-structured capital framework supports growth strategies, manages risk, and maximizes shareholder value.
- Global equity sourcing: Companies can list their shares on foreign exchanges for broader investor bases and potentially lower costs.
- Cross-Listing: Listing shares on multiple exchanges increases visibility and liquidity, attracting global investors.
- Depository Receipts (ADRs/GDRs): Represent company shares in foreign markets without full listing.
Advantages of Global Equity Sourcing
- Access to greater capital.
- Diversification of investment risks across markets.
- Enhanced company profile and reputation, attracting more investors.
Disadvantages of Global Equity Sourcing
- Complex and costly regulatory environments.
- Increased scrutiny from international investors.
- Exposure to market volatility.
Raising Global Equity Financing
- Conduct thorough market research: Understand investor preferences, regulations, and the competitive landscape.
- Engage financial advisors; consult investment banks and legal advisors.
- Develop a compelling investor pitch; clearly articulate value proposition, growth strategy, and risk management.
Different Methods for Raising Global Equity Financing
- Private Placements
- Venture Capital/Private Equity
- Strategic Partnerships/Alliances
Chapter 5: Summary of the Foreign Exchange Market
- The foreign exchange market (FX market) is a decentralized global marketplace for trading national currencies.
- Operates 24 hours a day, 5 days a week.
- Participants: Central banks, commercial banks, investment banks, financial institutions, corporations, brokers, and retail traders.
- Currency Pairs: Currencies are traded in pairs (e.g., EUR/USD).
- The first currency is the base currency, the second is the quote currency.
- Types of transactions:
- Spot transactions: Immediate currency exchange at the current market rate.
- Forward contracts: Agreements to exchange currencies at a predetermined rate on a future date; used to hedge against currency risk.
- Futures contracts use standardized contracts on exchanges for speculation and hedging.
- Market Mechanics: The FX market operates on a network of banks, brokers, and electronic trading platforms; prices influenced by economic indicators, geopolitical events, and market sentiment.
- Speculators/Arbitrageurs:
- Speculators: Profit from currency fluctuations.
- Arbitrageurs: Exploit price discrepancies across markets by executing simultaneous buy and sell orders.
- Central Bank Impact: Central banks intervene in the market to stabilize or influence their currency's value.
Chapter 9: Functions of the FX market
- The FX market facilitates the conversion of one country's currency into another.
- This allows buyers from one country to buy goods, services, or assets from another.
- Currency transactions are often made in the seller's currency, but both parties can decide on a mutually agreed currency.
- Access to the FX market is necessary when one party needs to convert their currency into required currency for the transaction to complete.
Chapter 10: The Need for Credit in Trade
- Manufacturing and shipping goods take time and require working capital.
- Exporters often need financing to produce and deliver goods to the buyer.
- Exporters use letters of credit (LCs) issued by the buyer's bank to secure loans.
- LCs guarantee payment to the exporter once the goods are shipped, providing security for both the exporter and buyer.
- Bankers' Acceptances (B Acc): are a financial instrument issued by a bank representing a promise to pay a specified amount on a future date. Used by importers/buyers to assure payment to exporters.
- Credit instruments (LCs and B Accs) streamline international trade, reduce risks, and enable smooth cross-border transactions.
Chapter 11: Hedging - The Foreign Exchange Market
- Hedging involves transferring Foreign Exchange (FX) risk from one party to another.
- Hedging techniques in FX markets use financial contracts like spot contracts, futures contracts, options contracts, and swap contracts.
- The purpose of hedging is to protect against unfavorable movements in exchange rates.
Chapter 12: Participants in FX Market
- Liquidity Seekers: Trade based on operational needs, facilitating transactions (not profits).
- Profit Seekers: Trade for financial gain, taking advantage of currency fluctuations (speculators/arbitragers).
- Bank Dealers: Large international banks; actively buying/selling currencies to "make the market."
- Non-Bank Dealers: Smaller banks and currency exchange offices; primarily focused on closing customer positions to manage liquidity needs.
Chapter 7: Direct Investment
- Foreign Direct Investment (FDI) is an investment by individuals, companies, or governments from one country into business activities in another country.
- Includes establishing subsidiaries, joint ventures, new facilities, etc.
- Common Types: Greenfield, Brownfield, and Joint Ventures
- Greenfield: Establishing brand-new operations.
- Brownfield: Aquiring/leasing existing facilities.
- Joint Ventures: Partnering with local firms to share resources.
- FDI decisions are influenced by factors like: long-term investments, control/influence, and availability of natural resources, cheaper labor, etc.
- Potential benefits for the home country include: access to foreign capital, job creation, and infrastructure development.
- Potential challenges for the host country include loss of domestic control, risk of profit repatriation, and environmental/cultural impacts.
Chapter 7: Summary of FDI
- Acquisition: Purchasing an existing business/assets; it's quicker, but riskier.
- Greenfield: Establishing entirely new operations; more control, but slower, riskier.
Chapter 8: Forms of International Trade (Exporting, Import. Licensing, Franchising, Joint Ventures, Acquisitions)
-
Exporting: Selling goods/services to another country (minimal risk, minimal cost).
-
Importing: Buying goods/services from another country.
-
Licensing: Granting a license to another firm to use intellectual property, technology or trademarks (low-cost entry).
-
Franchising: Granting a franchise to an independent firm with rights to use a company's brand (minimal entry cost).
-
Joint Venture (JV): A partnership between companies to pursue a common goal.
-
Acquisition: Taking over an existing company/operations in another country (provides immediate market share and established relationships; but can be risky).
-
New Subsidiary: Establishing a brand, new company or operation in a foreign country (Provides complete control to the MNC; high startup cost).
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
