11 - instruments The foreign exchange market is used fo r(1...

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Chapter 10 -- International Monetary and Financial Environments These chapters discuss the two systems that comprise international financial markets: the international capital market and the foreign exchange market. The International Capital Market offers advantages over domestic capital markets because it 1) increases the supply of funds available to borrowers and lowers the cost of capital and 2) provides a wider range of investment opportunities that allows investors to diversify their risk. There has been dramatic growth in the international capital market because of information technology, deregulation by governments, and innovations in financial
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Unformatted text preview: instruments. The foreign exchange market is used fo r (1) currency conversion, (2) currency hedging, (3) currency arbitrage, and (4) currency speculation. The gold standard was a monetary system that pegged currencies to gold and guaranteed convertibility to gold. The Bretton Woods system of fixed exchange rates was established in 1944. Toda y, the international monetary system remains in large part a managed-float system whereby most nations’ currencies float against one another with government intervention to realign exchange rates when necessary....
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