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Unformatted text preview: 1 Suggested Solutions for Tutorial 10 Please note that following suggested solutions are only very basic points and you need to read the textbook and other reference materials for better understanding. 2. Importers, exporters, investors and borrowers may all be participants in the FX markets. Explain why each of these parties would be involved in FX market transactions. Firms conducting international trade transactions (importers and exporters): businesses that export goods or services in the international markets generally receive payments in a foreign currency also businesses that import goods and services need to pay for those goods and services, usually in a foreign currency the dominant currency of international trade is the USD, but other currencies, such as the GBP, JPY and the EUR, are also prominent typically, an exporter is likely to sell foreign currency received and buy the local currency through an FX market importers have to buy foreign currency in order to pay for their imports Investors and borrowers in the international financial markets: deregulation of the international financial markets has resulted in an enormous increase in the volume of capital flows around the world large corporations, financial institutions and governments raise funds in the international capital markets borrowers with good credit ratings are able to diversify their funding sources in the international capital markets, such as the euromarkets a large proportion of funds borrowed in the international markets is converted from the currency borrowed back into the home currency, using the FX market other corporations and financial institutions invest overseas for example, funds managers for pension or superannuation funds will invest a proportion of their investment portfolios in international stocks and debt securities the funds managers need to purchase FX in order to make the investments...
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- Three '11