BUS 200 – International Financial Markets PDF

| business.gmu.edu BUS 200 – International Financial Markets Learn Here. Lead Anywhere.  | business.gmu.edu Learning Objectives Describe the nature and main components of the international capital market. Outline the main func...

| business.gmu.edu BUS 200 – International Financial Markets Learn Here. Lead Anywhere.  | business.gmu.edu Learning Objectives Describe the nature and main components of the international capital market. Outline the main functions and risks of the foreign exchange market. Explain the different types of currency exchange rates and instruments. Describe the foreign exchange market structure and currency convertibility. Learn Here. Lead Anywhere.  | business.gmu.edu The International Capital Market the stock exchange is a market to buy stocks some companies don't list their shares on the market Capital market System that allocates financial resources in the form of debt and equity according to their most efficient uses Two primary means of obtaining external financing: Debt Bonds Equity Stock Dividends Learn Here. Lead Anywhere.  | business.gmu.edu The International Capital Market: Benefits resource allocation system for capitsl to most efficient use International capital market Network of individuals, companies, financial institutions, and governments that invest and borrow across national boundaries Offers two key benefits: Expands opportunities for borrowers Reduces risk for lenders Learn Here. Lead Anywhere.  | business.gmu.edu The International Capital Market: Bonds International bond market Market consisting of all bonds sold by issuing companies, governments, or other organizations outside their own countries Issuing bonds is a popular way to obtain needed funding Learn Here. Lead Anywhere.  | business.gmu.edu The International Capital Market: Bonds Types of international bonds: Eurobond Bond issued outside the country in whose currency it is denominated Foreign bond Bond sold outside the borrower’s country and denominated in the currency of the country in which it is sold Low interest rates fuel growth in the bond market Learn Here. Lead Anywhere.  | business.gmu.edu Culture Insights: Big Results from Microfinance Microfinance Defined: Microfinance provides small loans and financial services to underbanked entrepreneurs, small businesses, and families without access to traditional providers. Overcoming Obstacles: Loans in developing countries can be difficult to obtain and high interest rates may devour an entrepreneur’s profits. One for All, All for One: Peer pressure and support help prevent defaults. Friends and Family: A variation of microfinance is helping minority entrepreneurs in developed nations. Additional Options: Consider job training, savings accounts, and basic health Learn Here. Lead Anywhere.  | business.gmu.edu The International Capital Market: Equity International equity market Market consisting of all stocks bought and sold outside the issuer’s home country The stock exchanges of Frankfurt, London, and New York list the greatest number of companies from outside their own borders. Learn Here. Lead Anywhere.  | business.gmu.edu The International Capital Market: Equity Factors in the growth of the international equity market: Privatization Telefonica del Peru Emerging markets International markets are a major source of funding Investment banks Bring together borrowers and investors Electronic trading Match buyers and sellers in nanoseconds Learn Here. Lead Anywhere.  | business.gmu.edu The International Capital Market: Eurocurrency Eurocurrency market Market consisting of all the world’s currencies that are banked outside their countries of origin (referred to as Eurocurrency) Eurodollars Europounds Euroyen Sources Governments Commercial banks International companies Wealthy individuals Learn Here. Lead Anywhere.  | business.gmu.edu The International Capital Market: Eurocurrency The main appeal of the Eurocurrency market is a complete absence of regulation Lowers the cost of banking but increases potential risk Interbank interest rates Interest rates that the world’s largest banks charge one another for loans London Interbank Offer Rate (LIBOR) London Interbank Bid Rate (LIBID) Learn Here. Lead Anywhere.  | business.gmu.edu The Foreign Exchange Market Foreign exchange market Market in which currencies are bought and sold and their prices are determined Exchange rate Rate at which one currency is exchanged for another Currency transactions are conducted through a process of bid and ask quotes The bid quote is the price at which the bank will buy The ask quote is the price at which the bank will sell The bid-ask spread is the difference between the two Learn Here. Lead Anywhere.  | business.gmu.edu The Foreign Exchange Market: Functions Currency conversion To facilitate transactions, invest directly abroad, or repatriate profits Currency hedging Practice of insuring against potential losses that result from adverse changes in exchange rates Currency arbitrage Instantaneous purchase and sale of a currency in different markets for profit Interest arbitrage Currency speculation Purchase or sale of a currency with the expectation that its value will change and generate a profit Learn Here. Lead Anywhere.  Figure 10.1: World’s Most Traded Currencies Learn Here. Lead Anywhere.  | business.gmu.edu The Foreign Exchange Market: Exchange Rate Risk - Exposure Exchange-rate risk Potential for adverse changes in exchange rates that could harm a business Transaction exposure Risk that an exchange rate change will affect the value of a business transaction Translation exposure Risk that an exchange rate change will affect a company’s financial statements Economic exposure Risk that an exchange rate change will affect a company’s longer-term earnings potential from international operations Learn Here. Lead Anywhere. Thank You. Learn Here. Lead Anywhere.