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ch07 - Multinational Financial Management Alan Shapiro 9th...

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1 Multinational Financial Management Alan Shapiro 9 th Edition J.Wiley & Sons Power Points by Joseph F. Greco, Ph.D. California State University, Fullerton
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2 CHAPTER 7 The Foreign Exchange Market
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3 INTRODUCTION I. INTRODUCTION A. The Currency Market Definition: a place where money denominated in one currency is bought and sold with money denominated in another currency
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4 INTRODUCTION B. International Trade and Capital Transactions: facilitated with the ability to transfer purchasing power between countries
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5 INTRODUCTION C. Location 1. OTC-type: no specific location 2. Most trades by phone, telex, or SWIFT SWIFT: Society for Worldwide Interbank Financial Telecommunications
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6 ORGANIZATION OF THE FOREIGN EXCHANGE MARKET I. PARTICIPANTS IN THE FOREIGN EXCHANGE MARKET A. Participants at 2 Levels 1. Wholesale Level (95%) - major banks 2. Retail Level - business customers
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7 ORGANIZATION OF THE FOREIGN EXCHANGE MARKET B.Two Types of Currency Markets 1. Spot Market: - immediate transaction - recorded by 2nd business day
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8 ORGANIZATION OF THE FOREIGN EXCHANGE MARKET 2. Forward Market: - transactions take place at a specified future date
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9 ORGANIZATION OF THE FOREIGN EXCHANGE MARKET C. Participants by Market 1. Spot Market a. commercial banks b. brokers c. customers of commercial and central banks
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10 ORGANIZATION OF THE FOREIGN EXCHANGE MARKET 2. Forward Market a. arbitrageurs b. traders c. hedgers d. speculators
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