international money market

Chapter

3

International Financial Markets

South-Western/Thomson Learning © 2006

Chapter Objectives


To describe the background and corporate use of the following international financial markets:  foreign exchange market,
 international money market,
 international credit market,
 international bond market, and
 international stock markets.
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Motives for Using
International Financial Markets
• The markets for real or financial assets are prevented from full integration by barriers like tax differentials, tariffs, quotas, labor immobility, communication costs, cultural and financial reporting differences.

• Yet, such market imperfections also create unique opportunities for specific geographic markets, helping these markets attract foreign creditors and investors.
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Motives for Using
International Financial Markets
• Investors invest in foreign markets:
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¤
¤

to take advantage of favorable economic conditions; when they expect foreign currencies to appreciate against their own; and to reap the benefits of international diversification. 3-4

Motives for Using
International Financial Markets
• Creditors provide credit in foreign markets:
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¤
¤

to capitalize on higher foreign interest rates; when they expect foreign currencies to appreciate against their own; and to reap the benefits of diversification.

• Borrowers borrow in foreign markets:
¤
¤

to capitalize on lower foreign interest rates; and when they expect foreign currencies to depreciate against their own.
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Foreign Exchange Market
• The foreign exchange market allows currencies to be exchanged in order to facilitate international trade or financial transactions. • The system for exchanging foreign currencies has evolved from the gold standard, to agreements on fixed exchange rates, to a floating rate system.

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Foreign Exchange
Transactions
• The market for immediate exchange is known as