After completing this chapter, students will be able 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. | International Financial Markets 5 Lecture 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. 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. Motives for Using International Financial Markets Investors invest in foreign markets: 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. Motives | International Financial Markets 5 Lecture 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. 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. Motives for Using International Financial Markets Investors invest in foreign markets: 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. Motives for Using International Financial Markets Creditors provide credit in foreign markets: 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. 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. Foreign Exchange Transactions The market for immediate exchange is known as the spot market. Trading between banks occurs in the interbank market. Within this market, brokers sometimes act as intermediaries. Foreign Exchange Transactions The forward market enables an MNC to lock in the .
