chapter6 of gib
DESCRIPTION
the course name global/ international businessTRANSCRIPT
FOREIGN EXCHANGE AND FOREIGN EXCHANGE AND INTERNATIONAL INTERNATIONAL FINANCIAL MARKETSFINANCIAL MARKETS
8-2
Foreign Exchange
Foreign exchange is a commodity that consists of currencies issued by
countries other than one’s own.
8-3
Figure 8.1 Demand for Yen
Demand for Japanese Yen is Derived from Foreigner’s Demand for Japanese Products
8-4
Figure 8.2 Supply of Yen
Supply for Japanese Yen is Derived from Japanese Demand for Foreign Products
8-5
Figure 8.3 The Market for Yen
8-6
Foreign-Exchange Rates
• Direct exchange rate
– Direct quote
– Price of the foreign currency in terms of home currency
• Indirect exchange rate
– Indirect quote
– Price of the home country in terms of the foreign currency
8-7
The Role of Banks
• Commercial Customers
• Speculators
• Arbitrageurs
8-8
Bank Foreign Exchange Clients
Commercial customers
Speculators
Arbitrageurs
8-9
Spot and Forward Markets
Currency U.S. $ Equivalent
per U.S. $
Wed. Tues. Wed. Tues.
Britain (Pound) 1.8765 1.8762 .5329 .5330
30-Day Forward 1.8778 1.8775 .5325 .5326
90-Day Forward 1.8802 1.8798 .5319 .5320
180-Day Forward 1.8832 1.8829 .5310 .5311
8-10
Mechanisms for Future Foreign Exchanges
• Currency future
• Currency option
– Call option
– Put option
8-11
Arbitrage
Arbitrage is the riskless purchase of a product in one market for
immediate resale in a second market in order to profit from a price
discrepancy. There are two types of arbitrage activities that affect the
foreign-exchange market: arbitrage of goods and arbitrage of money.
8-12
Arbitrage
Arbitrage of Goods
Arbitrage of Money
8-13
Arbitrage of Money
Two-point
Covered-interestThree-point
8-14
Establishment of Overseas Banking Operations
Subsidiary bank
Affiliated bankBranch bank
8-15
The International Bond Market
• Major source of debt financing for
– World’s governments
– International organizations
– Larger firms
• Two types of bonds
– Foreign bonds
– Eurobonds
8-16
Global Equity Markets
• Start-up companies are no longer restricted to raising new equity only from domestic sources
• Development of country funds
– Mutual fund specializing in a given country’s funds
8-17
Offshore Financial Centers
• Focus on offering banking and other financial services to nonresident customers
• Locations
– Bahamas, Bahrain, the Cayman Islands, Bermuda, the Netherlands Antilles, Singapore, Luxembourg, Switzerland