Revised Chapter3 Jan 09

C H A P T E R 3C H A P T E R 3

International Financial International Financial MarketsMarkets

To describe the background and To describe the background and corporate use of the following corporate use of the following international financial markets:international financial markets:• Foreign exchange market,Foreign exchange market,• Eurocurrency market,Eurocurrency market,• Eurocredit market,Eurocredit market,• Eurobond market, and Eurobond market, and • International stock markets.International stock markets.

Chapter ObjectivesChapter Objectives

The markets for real or financial assets are The markets for real or financial assets are prevented from complete integration by prevented from complete integration by barriers such as tax differentials, tariffs, barriers such as tax differentials, tariffs, quotas, labor immobility, communication quotas, labor immobility, communication costs, cultural differences, and financial costs, cultural differences, and financial reporting differences.reporting differences.

Yet, these barriers can also create unique Yet, these barriers can also create unique opportunities for specific geographic opportunities for specific geographic markets that will attract foreign investors.markets that will attract foreign investors.

Motives for Using Motives for Using International Financial MarketsInternational Financial Markets

Investors invest in foreign markets:Investors invest in foreign markets:• to take advantage of favorable to take advantage of favorable

economic conditions;economic conditions;• when they expect foreign currencies to when they expect foreign currencies to

appreciate against their own; andappreciate against their own; and• to reap the benefits of international to reap the benefits of international

diversification.diversification.


Creditors provide credit in foreign Creditors provide credit in foreign markets:markets:• to capitalize on higher foreign interest to capitalize on higher foreign interest

rates;rates;• when they expect foreign currencies to when they expect foreign currencies to

appreciate against their own; andappreciate against their own; and• to reap the benefits of international to reap the benefits of international

diversification.diversification.


Borrowers borrow in foreign markets:Borrowers borrow in foreign markets:• to capitalize on lower foreign interest to capitalize on lower foreign interest

rates; andrates; and• when they expect foreign currencies to when they expect foreign currencies to

depreciate against their own.depreciate against their own.


The foreign exchange market allows The foreign exchange market allows currencies to be exchanged in order currencies to be exchanged in order to facilitate international trade or to facilitate international trade or financial transactions.financial transactions.

The system for establishing exchange The system for establishing exchange rates has evolved over time.rates has evolved over time.• From 1876 to 1913, each currency was From 1876 to 1913, each currency was

convertible into gold at a specified rate, convertible into gold at a specified rate, as dictated by the as dictated by the gold standardgold standard..

Foreign Exchange MarketForeign Exchange Market

• This was followed by a period of This was followed by a period of instability, as World War I began and the instability, as World War I began and the Great Depression followed.Great Depression followed.

• The 1944 The 1944 Bretton Woods AgreementBretton Woods Agreement called for fixed currency exchange rates.called for fixed currency exchange rates.

• By 1971, the U.S. dollar appeared to be By 1971, the U.S. dollar appeared to be overvalued. The overvalued. The Smithsonian AgreementSmithsonian Agreement devalued the U.S. dollar and widened devalued the U.S. dollar and widened the boundaries for exchange rate the boundaries for exchange rate fluctuations from ±1% to ±2%.fluctuations from ±1% to ±2%.


• Even then, governments still had Even then, governments still had difficulties maintaining exchange rates difficulties maintaining exchange rates within the stated boundaries. In 1973, within the stated boundaries. In 1973, the official boundaries for the more the official boundaries for the more widely traded currencies were widely traded currencies were eliminated and the eliminated and the floating exchange floating exchange rate systemrate system came into effect. came into effect.


There is no specific building or location There is no specific building or location where traders exchange currencies. where traders exchange currencies. Trading also occurs around the clock.Trading also occurs around the clock.

The market for immediate exchange is The market for immediate exchange is known as the known as the spot marketspot market..

The The forward marketforward market enables an MNC to enables an MNC to lock in the exchange rate at which it lock in the exchange rate at which it will buy or sell a certain quantity of will buy or sell a certain quantity of currency on a specified future date.currency on a specified future date.

Foreign Exchange TransactionsForeign Exchange Transactions

Hundreds of banks facilitate foreign Hundreds of banks facilitate foreign exchange transactions, though the top 20 exchange transactions, though the top 20 handle about 50% of the transactions.handle about 50% of the transactions.

At any point in time, arbitrage ensures At any point in time, arbitrage ensures that exchange rates are similar across that exchange rates are similar across banks.banks.

Trading between banks occurs in the Trading between banks occurs in the interbank marketinterbank market. Within this market, . Within this market, foreign exchange brokerage firms foreign exchange brokerage firms sometimes act as middlemen.sometimes act as middlemen.


The following attributes of banks are The following attributes of banks are important to foreign exchange important to foreign exchange customers:customers:• competitiveness of quotecompetitiveness of quote• special relationship between the bank special relationship between the bank

and its customerand its customer• speed of executionspeed of execution• advice about current market conditionsadvice about current market conditions• forecasting adviceforecasting advice


Banks provide foreign exchange services for Banks provide foreign exchange services for a fee: the bank’s a fee: the bank’s bidbid (buy) quote for a foreign (buy) quote for a foreign currency will be less than its currency will be less than its askask (sell) quote. (sell) quote. This is the This is the bid/ask spreadbid/ask spread..

bid/ask % spreadbid/ask % spread = = ( (ask rate – bid rate) ask rate – bid rate)

ask rateask rate Suppose:Suppose:

bid price for £ = $1.52, bid price for £ = $1.52, ask price = $1.60.ask price = $1.60.bid/ask % spread = [(1.60–1.52)/1.60]*100 = bid/ask % spread = [(1.60–1.52)/1.60]*100 = 5%5%


The bid/ask spread is normally larger The bid/ask spread is normally larger for those currencies that are less for those currencies that are less frequently traded.frequently traded.

The spread is also larger for “retail” The spread is also larger for “retail” transactions than for “wholesale” transactions than for “wholesale” transactions between banks or large transactions between banks or large corporations.corporations.


Exchange rate quotations for widely Exchange rate quotations for widely traded currencies are frequently traded currencies are frequently listed in the news media on a daily listed in the news media on a daily basis. Forward rates may be quoted basis. Forward rates may be quoted too.too.

The quotations normally reflect the The quotations normally reflect the ask prices for large transactions.ask prices for large transactions.

InterpretingInterpretingForeign Exchange QuotationsForeign Exchange Quotations

Direct quotationsDirect quotations represent the value of a represent the value of a foreign currency in dollars, while foreign currency in dollars, while indirect indirect quotationsquotations represent the number of units represent the number of units of a foreign currency per dollar.of a foreign currency per dollar.

Note that exchange rate quotations Note that exchange rate quotations sometimes include IMF’s special drawing sometimes include IMF’s special drawing rights (SDRs).rights (SDRs).

The same currency may also be used by The same currency may also be used by more than one country.more than one country.


A A cross exchange ratecross exchange rate reflects the reflects the amount of one foreign currency per amount of one foreign currency per unit of another foreign currency.unit of another foreign currency.

Given the value of any two Given the value of any two currencies in terms of the U.S. dollar, currencies in terms of the U.S. dollar, one can express the price of one one can express the price of one currency with respect to another currency with respect to another without the intervening dollar and without the intervening dollar and

That is called the cross-exchange That is called the cross-exchange rate rate


Check out these foreign exchange Check out these foreign exchange sites:sites:• http://pacific.commerce.ubc.ca/xr/http://pacific.commerce.ubc.ca/xr/• http://www.oanda.com/http://www.oanda.com/

Online ApplicationOnline Application

A A currency futures contractcurrency futures contract specifies a specifies a standard volume of a particular currency standard volume of a particular currency to be exchanged on a specific settlement to be exchanged on a specific settlement date. Unlike forward contracts however, date. Unlike forward contracts however, futures contracts are sold on exchanges.futures contracts are sold on exchanges.

Currency options contractsCurrency options contracts give the right give the right to buy or sell a specific currency at a to buy or sell a specific currency at a specific price within a specific period of specific price within a specific period of time. They are sold on exchanges too.time. They are sold on exchanges too.

Currency Futures & Options MarketCurrency Futures & Options Market

It’s It’s notnot the Euro! It is any currency banked the Euro! It is any currency banked outside its country of origin. outside its country of origin.

1950s. Eastern Europeans afraid US would 1950s. Eastern Europeans afraid US would seize deposits to reimburse claims for seize deposits to reimburse claims for business losses as a result of Communist business losses as a result of Communist takeover of Eastern Europe.takeover of Eastern Europe.

Also, US bank regulation in the 60s and 70s Also, US bank regulation in the 60s and 70s limited foreign lending by US banks: Euro limited foreign lending by US banks: Euro currency markets helped the foreign currency markets helped the foreign subsidiaries of US MNCs to obtain Us dollars subsidiaries of US MNCs to obtain Us dollars from Europe.from Europe.

Eurocurrency MarketEurocurrency Market

Interest rate ceilings on deposits that prevailed in Interest rate ceilings on deposits that prevailed in the 60s in the US led to the transfer of $s to the 60s in the US led to the transfer of $s to Europe seeking higher interest ratesEurope seeking higher interest rates

U.S. dollar deposits placed in banks in Europe and U.S. dollar deposits placed in banks in Europe and other continents are called other continents are called EurodollarsEurodollars..

In the 1960s and 70s, the Eurodollar market, or In the 1960s and 70s, the Eurodollar market, or what is now referred to as the what is now referred to as the Eurocurrency Eurocurrency marketmarket, grew to accommodate increasing , grew to accommodate increasing international business.international business.


The Eurocurrency market is made up The Eurocurrency market is made up of several large banks called of several large banks called EurobanksEurobanks that accept deposits and that accept deposits and provide loans in various currencies.provide loans in various currencies.

For example, the Eurocurrency For example, the Eurocurrency market has historically recycled the market has historically recycled the oil revenues (petrodollars) from oil-oil revenues (petrodollars) from oil-exporting (OPEC) countries to other exporting (OPEC) countries to other countries.countries.


Although the Eurocurrency market Although the Eurocurrency market focuses on large-volume transactions, focuses on large-volume transactions, there are times when no single bank is there are times when no single bank is willing to lend the needed amount.willing to lend the needed amount.

A A syndicatesyndicate of Eurobanks may then be of Eurobanks may then be composed to underwrite the loans. composed to underwrite the loans. Front-end management and Front-end management and commitment fees are usually charged commitment fees are usually charged for such syndicated Eurocurrency loans.for such syndicated Eurocurrency loans.


0

200

400

600

800

1000

1200

1400

1600

1961 1998

1 Billion

1.5 Trillion

Growth in Eurocurrency FundsGrowth in Eurocurrency Funds


Participants:Participants:• MNCsMNCs• Large BanksLarge Banks• Central BanksCentral Banks• IndividualsIndividuals

Size of the LoanSize of the Loan::• Large, minimum $1 millionLarge, minimum $1 million• Helps in reducing transactions costsHelps in reducing transactions costs• Often large loans are syndicated to reduce the risk Often large loans are syndicated to reduce the risk

to the banks.to the banks.

Characterized by a lack of regulation Characterized by a lack of regulation compared to domestic financial markets.compared to domestic financial markets.

This means that you don’t have to This means that you don’t have to paypay for for the cost of regulation.the cost of regulation.

Hence, cheap (or cheaper) money.Hence, cheap (or cheaper) money. Downside:Downside:

• Banks could be more likely to fail (not Banks could be more likely to fail (not probable)probable)

• Because you are getting foreign money, you Because you are getting foreign money, you have currency exchange risks.have currency exchange risks.


Rate of Interest

DomesticLending Rate

0%

Interest Rate Spreads in Domestic Interest Rate Spreads in Domestic and Eurocurrency Marketsand Eurocurrency Markets

DomesticDeposit Rate

EurocurrencyLending Rate

EurocurrencyDeposit Rate

The recent standardization of regulations The recent standardization of regulations around the world has promoted the around the world has promoted the globalization of the banking industry.globalization of the banking industry.

In particular, the In particular, the Single European ActSingle European Act has has opened up the European banking industry. opened up the European banking industry.

The 1988 The 1988 Basel AccordBasel Accord signed by G-10 signed by G-10 central banks outlined common capital central banks outlined common capital standards, such as the structure of risk standards, such as the structure of risk weights, for their banking industries. weights, for their banking industries.


The Eurocurrency market in Asia is The Eurocurrency market in Asia is sometimes referred to separately as sometimes referred to separately as the the Asian dollar marketAsian dollar market..

The primary function of banks in the The primary function of banks in the Asian dollar market is to channel Asian dollar market is to channel funds from depositors to borrowers.funds from depositors to borrowers.

Another function is interbank lending Another function is interbank lending and borrowing.and borrowing.


Loans of one year or longer are extended by Loans of one year or longer are extended by Eurobanks to MNCs or government agencies in the Eurobanks to MNCs or government agencies in the Eurocredit marketEurocredit market. These loans are known as . These loans are known as Eurocredit loansEurocredit loans..

Floating rates are commonly used, since the banks’ Floating rates are commonly used, since the banks’ asset and liability maturities may not match - asset and liability maturities may not match - Eurobanks accept short-term deposits but sometimes Eurobanks accept short-term deposits but sometimes provide longer term loans.provide longer term loans.

Interest rates on Euro-credit loans are floating and Interest rates on Euro-credit loans are floating and are linked to the LIBOR (London Inter-bank Offer are linked to the LIBOR (London Inter-bank Offer RateRate))

Now, there is also the EURIBAR (Euro Inter-Bank Now, there is also the EURIBAR (Euro Inter-Bank Offer Rate) Offer Rate)

Eurocredit MarketEurocredit Market

Loans of more than one year, but less than Loans of more than one year, but less than five years or extended by Eurobanks to five years or extended by Eurobanks to MNCs or government agencies are called MNCs or government agencies are called Eurocredit loans. These loans are provided Eurocredit loans. These loans are provided in the in the Eurocredit marketEurocredit market..

Eurocredit loans often have a floating rate, Eurocredit loans often have a floating rate, to lessen the risk resulting from a mismatch to lessen the risk resulting from a mismatch in the banks’ asset and liability maturities.in the banks’ asset and liability maturities.

Syndicated Eurocredit loansSyndicated Eurocredit loans are popular are popular among big borrowers too.among big borrowers too.


There are two types of international bonds:There are two types of international bonds: Foreign bonds or parallel bonds.Foreign bonds or parallel bonds.

• Sold outside the borrower’s country and in Sold outside the borrower’s country and in currency of country where issued.currency of country where issued.

EurobondsEurobonds• underwritten by an international syndicate.underwritten by an international syndicate.• issued by large corporations, international issued by large corporations, international

institutions and governments.institutions and governments.• placed in country other than country of currency placed in country other than country of currency

and its residents.and its residents.

The International Bond MarketThe International Bond Market

The emergence of the Eurobond market is The emergence of the Eurobond market is partially due to the 1963 Interest Equalization partially due to the 1963 Interest Equalization Tax imposed in the U.S. Tax imposed in the U.S.

The tax discouraged U.S. investors from The tax discouraged U.S. investors from investing in foreign securities, so non-U.S. investing in foreign securities, so non-U.S. borrowers looked elsewhere for funds.borrowers looked elsewhere for funds.

Then in 1984, U.S. corporations were allowed Then in 1984, U.S. corporations were allowed to issue bearer bonds directly to non-U.S. to issue bearer bonds directly to non-U.S. investors, and the withholding tax on bond investors, and the withholding tax on bond purchases was abolished.purchases was abolished.

Eurobond MarketEurobond Market

Eurobonds are underwritten by a multi-national Eurobonds are underwritten by a multi-national syndicate of investment banks and simultaneously syndicate of investment banks and simultaneously placed in many countries through second-stage, and placed in many countries through second-stage, and in many cases, third-stage, underwriters.in many cases, third-stage, underwriters.

Eurobonds are usually issued in bearer form, pay Eurobonds are usually issued in bearer form, pay annual coupons, may be convertible, may have annual coupons, may be convertible, may have variable rates, and typically have few protective variable rates, and typically have few protective covenants.covenants.

Easy negotiability, but could lead to tax evasion. Easy negotiability, but could lead to tax evasion. Many Eurobonds are callableMany Eurobonds are callable

Denominated in various Currencies:Denominated in various Currencies:

Popular Currency is the US $Popular Currency is the US $


Interest rates for each currency and credit Interest rates for each currency and credit conditions in the Eurobond market change conditions in the Eurobond market change constantly, causing the popularity of the constantly, causing the popularity of the market to vary among currencies.market to vary among currencies.

Bonds tend to be fixed rate.Bonds tend to be fixed rate. About 70% of the Eurobonds are About 70% of the Eurobonds are

denominated in the U.S. dollar.denominated in the U.S. dollar. In the secondary market, the market In the secondary market, the market

makers are often the same underwriters makers are often the same underwriters who sell the primary issues.who sell the primary issues.


Eurobonds increased rapidly in volume Eurobonds increased rapidly in volume when in 1984, the withholding tax was when in 1984, the withholding tax was abolished in the U.S. and corporations abolished in the U.S. and corporations were allowed to issue bonds directly to were allowed to issue bonds directly to non-U.S. investors.non-U.S. investors.

In recent years, governments and In recent years, governments and corporations from emerging markets corporations from emerging markets have frequently utilized the Eurobond have frequently utilized the Eurobond market.market.


Euro vs. Foreign BondsEuro vs. Foreign Bonds

0 50 100 150 200

Euro

Foreign

$ (Billions)

No government interference.No government interference. Few disclosure requirements.Few disclosure requirements. Favorable tax status.Favorable tax status.

Attraction of the Eurobond Market?Attraction of the Eurobond Market?

Interest rates vary substantially for Interest rates vary substantially for different countries, ranging from about 1% different countries, ranging from about 1% in Japan to about 60% in Russia.in Japan to about 60% in Russia.

Interest rates are crucial because they Interest rates are crucial because they affect the MNC’s cost of financing.affect the MNC’s cost of financing.

The interest rate for a specific currency is The interest rate for a specific currency is determined by the demand for and supply determined by the demand for and supply of funds in that currency.of funds in that currency.

Comparing Interest RatesComparing Interest RatesAmong CurrenciesAmong Currencies

Quantity of $

InterestRatefor $ S

D

Quantity of Real

InterestRate

for Real

S

D

The curves are further to the right for the The curves are further to the right for the dollar because the U.S. economy is larger.dollar because the U.S. economy is larger.

The curves are higher for the Brazilian Real The curves are higher for the Brazilian Real because of the higherbecause of the higher inflation in Brazil.inflation in Brazil.

Why U.S. Dollar Interest Rates Differ Why U.S. Dollar Interest Rates Differ from Brazilian Real Interest Ratesfrom Brazilian Real Interest Rates

As the demand and supply schedules As the demand and supply schedules change over time for a specific currency, change over time for a specific currency, the equilibrium interest rate for that the equilibrium interest rate for that currency will also change.currency will also change.

Note that the freedom to transfer funds Note that the freedom to transfer funds across countries causes the demand and across countries causes the demand and supply conditions for funds to be supply conditions for funds to be somewhat integrated, such that interest somewhat integrated, such that interest rate movements become integrated too.rate movements become integrated too.

Comparing Interest RatesComparing Interest RatesAmong CurrenciesAmong Currencies

Where investors can buy/sell stocks.Where investors can buy/sell stocks. Made up of many stock exchanges around the world.Made up of many stock exchanges around the world. In addition to issuing stock locally, MNCs can also obtain In addition to issuing stock locally, MNCs can also obtain

funds by issuing stock in international markets. funds by issuing stock in international markets. This will enhance the firm’s image and name recognition, This will enhance the firm’s image and name recognition,

and diversify the shareholder base. The stocks may also be and diversify the shareholder base. The stocks may also be more easily digested.more easily digested.

Note that market competition should increase the efficiency Note that market competition should increase the efficiency of new issues.of new issues.

The proportion of individual versus institutional ownership The proportion of individual versus institutional ownership of shares varies across stock markets. The regulations are of shares varies across stock markets. The regulations are different too.different too.

International Stock MarketsInternational Stock Markets

Stock issued in the U.S. by non-U.S. firms or Stock issued in the U.S. by non-U.S. firms or governments are called governments are called Yankee stock Yankee stock offeringsofferings. Many of such recent stock . Many of such recent stock offerings resulted from privatization offerings resulted from privatization programs in Latin America and Europe.programs in Latin America and Europe.

Non-U.S. firms may also issue Non-U.S. firms may also issue American American depository receipts (ADRs)depository receipts (ADRs), which are , which are certificates representing bundles of stock. certificates representing bundles of stock. ADRs are less strictly regulated. The use of ADRs are less strictly regulated. The use of ADRs circumvents some disclosure ADRs circumvents some disclosure requirements.requirements.


Check out the performance of ADRs Check out the performance of ADRs at at http://www.adr.comhttp://www.adr.com//


The locations of the MNC’s operations can The locations of the MNC’s operations can influence the decision about where to influence the decision about where to place stock, in view of the cash flows place stock, in view of the cash flows needed to cover dividend payments.needed to cover dividend payments.

Market characteristics are important too. Market characteristics are important too. Stock markets may differ in size, trading Stock markets may differ in size, trading activity level, regulatory requirements, activity level, regulatory requirements, taxation rate, and proportion of individual taxation rate, and proportion of individual versus institutional share ownership. versus institutional share ownership.


Electronic communications networks Electronic communications networks (ECNs) have been created to match (ECNs) have been created to match orders between buyers and sellers in orders between buyers and sellers in recent years.recent years.

As ECNs become more popular over As ECNs become more popular over time, they may ultimately be merged time, they may ultimately be merged with one another or with other with one another or with other exchanges to create a single global exchanges to create a single global stock exchange.stock exchange.


Investors seeking to diversify their portfolios.Investors seeking to diversify their portfolios. Companies seeking toCompanies seeking to

• issue stock in the countryissue stock in the country• use stock and options as a form of employee use stock and options as a form of employee

incentivesincentives• satisfy local ownership requirementssatisfy local ownership requirements• create funding for future acquisitionscreate funding for future acquisitions• increase the visibility of the company.increase the visibility of the company.

11-21

Who Uses These Markets?Who Uses These Markets?

The foreign cash flow movements of The foreign cash flow movements of a typical MNC can be classified into a typical MNC can be classified into four corporate functions, all of which four corporate functions, all of which generally require the use of the generally require the use of the foreign exchange markets.foreign exchange markets.

Foreign trade. Exports generate Foreign trade. Exports generate foreign cash inflows while imports foreign cash inflows while imports require cash outflows.require cash outflows.

Comparison ofComparison ofInternational Financial MarketsInternational Financial Markets

Direct foreign investment (DFI). Cash Direct foreign investment (DFI). Cash outflows to acquire foreign assets outflows to acquire foreign assets generate future inflows.generate future inflows.

Short-term investment or financing in Short-term investment or financing in foreign securities, usually in the foreign securities, usually in the Eurocurrency market.Eurocurrency market.

Longer-term financing in the Longer-term financing in the Eurocredit, Eurobond, or Eurocredit, Eurobond, or international stock markets.international stock markets.

Comparison ofComparison ofInternational Financial MarketsInternational Financial Markets

MNC Parent

Foreign Subsidiaries

Foreign Business

Clients

Eurocurrency Market

Eurocredit & Eurobond Markets

International Stock

Markets

Foreign Exchange Markets

Export/Import

Export/Import

Short-TermInvestment& Financing

Long-TermFinancing

ForeignExchange

Transactions

Medium- &Long-TermFinancing

DividendRemittance& Financing

Long-Term Financing

Medium- & Long-Term Financing

Short-TermInvestment & Financing

Foreign Cash Flow Chart of an MNCForeign Cash Flow Chart of an MNC

For the latest information from For the latest information from financial markets around the world, financial markets around the world, visit:visit:• http://www.bloomberg.com/http://www.bloomberg.com/• http://finance.yahoo.com/http://finance.yahoo.com/• http://money.cnn.com/http://money.cnn.com/• http://www.reuters.com/http://www.reuters.com/


Impact of Global Financial MarketsImpact of Global Financial Marketson an MNC’s Valueon an MNC’s Value

n

tt

m

jtjtj

k1=

1 , ,

1

ER ECF E

= Value

E (CFj,t ) = expected cash flows in currency j to be received by the U.S. parent at the end of period tE (ERj,t ) = expected exchange rate at which currency j can be converted to dollars at the end of period tk = weighted average cost of capital of the parent

Cost of parent’s funds borrowed in global markets

Cost of borrowing funds in global markets

Improved global image from issuing stock in global markets

Cost of parent’s equity in global markets

Motives for Using International Motives for Using International Financial MarketsFinancial Markets• Motives for Investing in Foreign MarketsMotives for Investing in Foreign Markets• Motives for Providing Credit in Foreign Motives for Providing Credit in Foreign

MarketsMarkets• Motives for Borrowing in Foreign Motives for Borrowing in Foreign

MarketsMarkets

Chapter ReviewChapter Review

Foreign Exchange MarketForeign Exchange Market• History of Foreign ExchangeHistory of Foreign Exchange• Foreign Exchange TransactionsForeign Exchange Transactions• Interpreting Foreign Exchange Interpreting Foreign Exchange

QuotationsQuotations• Currency Futures and Options MarketsCurrency Futures and Options Markets


Eurocurrency MarketEurocurrency Market• Development of the Eurocurrency Development of the Eurocurrency

MarketMarket• Composition of the Eurocurrency MarketComposition of the Eurocurrency Market• Syndicated Eurocurrency LoansSyndicated Eurocurrency Loans• Standardizing Bank Regulations within Standardizing Bank Regulations within

the Eurocurrency Marketthe Eurocurrency Market• Asian Dollar MarketAsian Dollar Market



Eurobond MarketEurobond Market• Development of the Eurobond MarketDevelopment of the Eurobond Market• Underwriting ProcessUnderwriting Process• FeaturesFeatures

Comparing Interest Rates Among Comparing Interest Rates Among CurrenciesCurrencies• Global Integration of Interest RatesGlobal Integration of Interest Rates


International Stock MarketsInternational Stock Markets• Issuance of Foreign Stock in the U.S.Issuance of Foreign Stock in the U.S.• Issuance of Stock in Foreign MarketsIssuance of Stock in Foreign Markets

Comparison of International Financial Comparison of International Financial MarketsMarkets

How Financial Markets Affect An How Financial Markets Affect An MNC’s ValueMNC’s Value


Economy & Finance

Revised Chapter3 Jan 09