國際商務(wù)ch07

1、1chapter 7financial markets2learning objectives to understand how currencies are traded and quoted on world financial markets to examine the links between interest rates and exchange rates to understand the similarities and differences between domestic sources of capital and international sources of

2、 capital to examine how the needs of individual borrowers have changed the nature of the instruments traded on world financial markets in the past decade to understand how the debt crises of the 1980s and 1990s are linked to the international financial markets and exchange rates3the market for curre

3、ncies the price of any one countrys currency in terms of another countrys currency is called a foreign currency exchange rate every market, every country, and every firm may have its own set of currency symbols4exchange rate quotations and terminologydirect quotation: when the subject currency is st

4、ated firstindirect quotation: when the subject currency is stated second spot rates: when the exchange of currencies takes place immediatelyforward rates: when the currency exchange takes place at a later date and at an agreed upon exchange rate5direct and indirect quotations most currencies are quo

5、ted in direct quotes versus the u.s. dollar the major exceptions are currencies associated with the british commonwealth and the european euro when an exchange rate of a currency is stated without using the u.s. dollar as a reference, it is referred to as a cross rate6foreign currency market structu

6、re the market for foreign currencies is a worldwide market that is informal in structure the “market” is actually the thousands of telecommunications links among financial institutions around the globe and it is open nearly 24 hours a day7market size and composition until recently there was little d

7、ata on the actual volume of trading on world foreign currency markets in the spring of 1986, the federal reserve bank of new york along with others started surveying the activity of currency trading every three years growth of foreign currency trading has been nothing less than astronomical the majo

8、rity of the worlds trading in foreign currencies is still taking place in the cities where international financial activity is centered, london, new york, and tokyo8market size and composition three reasons typically given for the enormous growth in foreign currency trading are:deregulation of inter

9、national capital flowsgains in technology and transaction cost efficiency the world is a risky place9the purpose of exchange rates if countries are to trade, they must be able to exchange currencies the exchange of one countrys currency for another should be relatively simple, but its not10what is a

10、 currency worth? the exchange rate between currencies should equalize its purchasing power the theory of purchasing power parity (ppp) is simply the rate that equalizes the price of the identical product or service in two different currencies the version of purchasing power parity that estimates the

11、 exchange rate between two currencies using just one good or service as a measure of the proper exchange for all goods and services is called the law of one price11monetary systems of the 20th century mixed/fixed floating exchange rate system is in operation today prior to this, the gold standard wa

12、s in effect prior to that, the bretton woods agreement was in effect12the gold standard the gold standard began sometime in the 1880s it was premised on three basic ideas:a system of fixed rates of exchange existed between participating countriesmoney issued by member countries had to be backed by g

13、old reservesgold acted as an automatic adjustment under this standard, each countrys currency would be set in value per ounce of gold13the bretton woods agreement the governments of 44 of the allied powers gathered together in bretton woods, new hampshire in 1944 to plan for the postwar internationa

14、l monetary system this agreement called for the following:fixed exchange rates between member countriesthe establishment of a fund of gold and currencies for stabilization of their currencies, the international monetary fundthe establishment of a bank, the world bank, that would provide funding for

15、long-term development projects14floating exchange rates since march 1973, the worlds major currencies have floated in value versus each other the inability of a country to control the value of its currency on world markets has been a harsh reality for mostdirect interventioncoordinated intervention1

16、5the european monetary system and the euroin 1979 a formalized structure was put in place among many of the major members of the european communitythe european monetary system (ems) officially began operation in march 1979 and once again established a grid of fixed parity rates among member currenci

17、esthe ems consisted of three elements:first, all countries that were committing their currencies and their efforts to the preservation of fixed exchange rates entered the exchange rate mechanism (erm)second, was the actual grid of bilateral exchange rates with their specialized band limitsthird, was

18、 the creation of the european currency unit (ecu)16international money markets international money markets, often termed the eurocurrency markets, constitute an enormous financial market that is in many ways outside the jurisdiction and supervision of world financial and governmental authorities17eu

19、rocurrency markets and eurocurrency interest rates a eurocurrency is any foreign currency denominated deposit or account at a financial institution outside the country of the currencys issue while there are hundreds of different major interest rates around the globe, the international financial mark

20、ets focus on the interbank interest rates18defining international financing the definition of what constitutes an international financial transaction is dependent on two characteristics:whether the borrower is domestic or foreignwhether the borrower is raising capital denominated in the domestic currency or a foreign currency19defining international financing the two characteristics that define an international financial transaction form four categories:domestic borrower/domestic currencyforeign borr