Ch3 PP 06 (1)

Ch3 PP 06 (1) - Chapter 3 International Financial Markets...

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3 - 1 The markets for real or financial assets are prevented from full integration by barriers like tax differentials, tariffs, quotas, labor immobility, communication costs, cultural and financial reporting differences. Yet, such market imperfections also create unique opportunities for specific geographic markets, helping these markets attract foreign creditors and investors. Chapter 3 International Financial Markets Motives for Using International Financial Markets
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3 - 2 Investors invest in foreign markets: ¤ to take advantage of favorable economic conditions; ¤ when they expect foreign currencies to appreciate against their own; and ¤ to reap the benefits of international diversification. Motives for Using International Financial Markets
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3 - 3 Motives for Using International Financial Markets Creditors provide credit in foreign markets: ¤ to capitalize on higher foreign interest rates; ¤ when they expect foreign currencies to appreciate against their own; and ¤ to reap the benefits of diversification. Borrowers borrow in foreign markets: ¤ to capitalize on lower foreign interest rates; ¤ and when they expect foreign currencies to depreciate against their own.
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3 - 4 Foreign Exchange Market The foreign exchange market allows currencies to be exchanged in order to facilitate international trade or financial transactions. The system for exchanging foreign currencies has evolved from the gold standard , to agreements on fixed exchange rates , to a floating rate system .
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3 - 5 Foreign Exchange Transactions The market for immediate exchange is known as the spot market . Trading between banks occurs in the interbank market . Within this market, brokers sometimes act as intermediaries.
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The forward market enables an MNC to lock in the exchange rate at which it will buy or sell a certain quantity of currency on a specified future date. Customers in need of foreign exchange are concerned with quote competitiveness, special banking relationship, speed of execution, advice about current market conditions, and forecasting advice. Foreign Exchange
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Ch3 PP 06 (1) - Chapter 3 International Financial Markets...

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