Chapter 12 - International markets. This chapter examines the major economic and political forces that influence foreign exchange markets. To reduce currency risk, foreign exchange markets developed so people can convert their cash to different currencies as they conduct business or personal affairs. | Power Point Slides for: Financial Institutions, Markets, and Money, 9th Edition Authors: Kidwell, Blackwell, Whidbee & Peterson Prepared by: Babu G. Baradwaj, Towson University and Lanny R. Martindale, Texas A&M University CHAPTER 12 INTERNATIONAL MARKETS The Difficulties of International Trade Information Asymmetry between Suppliers and Customers. Information about customers and suppliers is lacking or incorrect. Third party information gatherers are necessary and expensive. Differences in Legal & Business Systems Foreign trade and funds flow involve different legal systems and business procedures. The Role of Currency Conversion Foreign trade and funds flow must involve a conversion from one currency to another. Foreign Exchange Rates Foreign exchange rate - the price of a unit of one currency in terms of another. Foreign exchange rates are market determined. The increased (decreased) cost of a unit of foreign currency in terms of the . dollar refers to the depreciation (appreciation) of the dollar. The U. S. dollar is considered to have depreciated relative to the Euro (€) if more dollars are required to purchase one €. The U. S. dollar is said to have appreciated if fewer dollars are required to buy one Euro. The relative value of all currencies to one another is maintained by continuous trading by arbitragers. Currency Quotation Currency quotations are shown in Exhibit . Typically, quotes are provided in two forms – direct & indirect. Direct Quote - . $ / foreign currency unit. Indirect Quote - Foreign currency unit / $. In practice, bank dealers quote in either the American term or European term. This is valid for deals between themselves. For non-bank customers, a direct quote is usually given. For major currencies like the yen, Swiss Franc, British pound, Canadian dollar, etc, not only is the spot rate provided, but also forward quotes for one month, three month and six month. The Euro (€) The Euro (€) is the new common currency . | Power Point Slides for: Financial Institutions, Markets, and Money, 9th Edition Authors: Kidwell, Blackwell, Whidbee & Peterson Prepared by: Babu G. Baradwaj, Towson University and Lanny R. Martindale, Texas A&M University CHAPTER 12 INTERNATIONAL MARKETS The Difficulties of International Trade Information Asymmetry between Suppliers and Customers. Information about customers and suppliers is lacking or incorrect. Third party information gatherers are necessary and expensive. Differences in Legal & Business Systems Foreign trade and funds flow involve different legal systems and business procedures. The Role of Currency Conversion Foreign trade and funds flow must involve a conversion from one currency to another. Foreign Exchange Rates Foreign exchange rate - the price of a unit of one currency in terms of another. Foreign exchange rates are market determined. The increased (decreased) cost of a unit of foreign currency in terms of the . dollar refers to the depreciation .
