Intl Finance Ch1

Intl Finance Ch1 - INTRODUCTION TO THE STUDY OF...

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INTRODUCTION TO THE STUDY OF INTERNATIONAL FINANCIAL MARKETS -------------------------- International Finance as a "Game" The Changing Financial Landscape The Expanding Menu of Financial Choices Greater Volatility as a Feature of Financial Markets Increased Competition Within and Among Financial Markets Major Themes Prices in International Financial Markets Policy Issues in International Financial Markets Challenges in the Study of International Financial Markets The Importance of Foreign Exchange Outside of the United States The Importance of Foreign Exchange in the United States The Study of International Financial Markets: More Demanding The Practice of International Financial Management: More Demanding -------------------------- Richard M. Levich
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International Finance as a "Game" "International finance is a game with two sets of players: the politicians and bureaucrats in national governments, and the presidents and treasurers of giant, large, medium, and small firms." Robert Z. Aliber, The International Money Game, (1987, p. 3). 1. National policymakers have dual objectives Manage home economy (e.g. achieve growth, full employment, income distribution, export or inflation targets, etc.) International commitments (e.g. pegged exchange rate, exchange rate variability [EMS], current account balance, etc.) These objectives often lead to inconsistencies Exchange rate changes are inevitable 2. Regulatory differences across countries and across markets Private investors and firms take account of regulatory differences ¤ Design new market places and securities to circumvent regulations, hedge undesired risks, improve financial efficiency, lower cost of financial intermediation ¤ Search out lower regulated environments if risks and costs are not too great Public policymakers also take regulation into account ¤ Respond to competition from other, low regulatory markets ¤ Concern that negative spill over effects from low regulation markets
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International Finance as a "Game" - concluded 3. The game of international finance is dynamic - it goes on forever Investors continuously monitor the behavior of national policymakers, regulators, firms, and market prices Investors are searching for inconsistencies in ¤ National policies ¤ Market regulations ¤ Market prices any of which could signal a profit opportunity or risky situation Both markets (countries) and issuers of securities (firms and sovereigns) build
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This note was uploaded on 09/28/2011 for the course FINA 363 taught by Professor Masoudie during the Fall '10 term at South Carolina.

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Intl Finance Ch1 - INTRODUCTION TO THE STUDY OF...

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