IFM_IM_ch03 - Chapter 3 International Financial Markets...

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Chapter 3 International Financial Markets Lecture Outline Foreign Exchange Market History of Foreign Exchange Foreign Exchange Transactions Foreign Exchange Quotations Interpreting Foreign Exchange Quotations Forward, Futures, and Options Markets International Money Market Origins and Development Money Market Interest Rates among Currencies Standardizing Global Bank Regulations International Credit Market Syndicated Loans International Bond Market Eurobond Market Development of Other Bond Markets International Stock Markets Issuance of Stock in Foreign Markets Issuance of Foreign Stock in the United States Listing of Stock by Non-U.S. Firms on U.S. Stock Exchanges Investing in Foreign Stock Markets How Stock Market Characteristics Vary among Countries How Financial Markets Facilitate MNC Functions 25
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26 International Financial Management Chapter Theme This chapter identifies and discusses the various international financial markets used by MNCs. These markets facilitate day-to-day operations of MNCs, including foreign exchange transactions, investing in foreign markets, and borrowing in foreign markets. Topics to Stimulate Class Discussion 1. Why do international financial markets exist? 2. How do banks serve international financial markets? 3. Which international financial markets are most important to a firm that consistently needs short-term funds? What about a firm that needs long-term funds? POINT/COUNTER-POINT: Should Firms That Go Public Engage in International Offerings? POINT: Yes. When a U.S. firm issues stock to the public for the first time in an initial public offering (IPO), it is naturally concerned about whether it can place all of its shares at a reasonable price. It will be able to issue its stock at a higher price by attracting more investors. It will increase its demand by spreading the stock across countries. The higher the price at which it can issue stock, the lower is its cost of using equity capital. It can also establish a global name by spreading stock across countries. COUNTER-POINT: No. If a U.S. firm spreads its stock across different countries at the time of the IPO, there will be less publicly-traded stock in the U.S. Thus, it will not have as much liquidity in the secondary market. Investors desire stocks that they can easily sell in the secondary market, which means that they require that the stocks have liquidity. To the extent that a firm reduces its liquidity in the U.S. by spreading its stock across countries, it may not attract sufficient U.S. demand for the stock in the U.S. Thus, its efforts to create global name recognition may reduce its name recognition in the U.S. WHO IS CORRECT? Use the Internet to learn more about this issue. Which argument do you support? Offer your own opinion on this issue. ANSWER: The key is that students recognize the tradeoff involved. A firm that engages in a
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IFM_IM_ch03 - Chapter 3 International Financial Markets...

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