1. International Business, 8th Edition
Griffin & Pustay
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Learning Objectives
Describe how demand and supply determine the price of foreign exchange
Discuss the role of international banks in the foreign-exchange market
Assess the different ways firms can use the spot and forward markets to settle international transactions
Summarize the role of arbitrage in the foreign-exchange market
Discuss the important aspects of the international capital market
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3. The Economics of Foreign Exchange
Foreign exchange: a commodity that consists of currencies issued by countries other than one’s own.
Price of foreign exchange: set by demand and supply in the marketplace. (given a flexible exchange rate system)
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4. The Economics of Foreign Exchange: The Market for Yen
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5. The Economics of Foreign Exchange: Foreign Exchange Rate Quotes
Direct Exchange Rate (or Direct Quote)
Indirect Exchange Rate (or Indirect Quote)
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6. Structure of the Foreign Exchange Market: The Role of Banks
Major Players
International Banks
Corporate Treasurers
Pension Funds
Hedge Funds
Insurance Companies
Central Banks
Treasury Departments
International Banks
Spread between the Bid and Ask Prices
Wholesale Market
Retail Market
Interbank Transactions
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7. Functions of the Foreign Exchange Market
Currency Conversion.
Currency Hedging.
Currency Arbitrage.
Currency Speculation.
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8. Structure of the Foreign Exchange Market
Clients
Commercial Customers
Exchange-Rate Speculators
Currency Arbitrageurs
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9. Structure of the Foreign Exchange Market
Types of Currencies
Convertible/Hard
Inconvertible/Soft
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Structure of the Foreign Exchange Market: Hedging Foreign-exchange Risks
Spot Market
Forward Market
Swap Transaction
Currency Futures
Currency Options
Call Option
Put Option
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Structure of the Foreign Exchange Market: Arbitrage and the Currency Market
Arbitrage of Goods
Law of One Price
Purchasing Power Parity (PPP)
Arbitrage of Money
Two-Point/Geographic Arbitrage
Three-Point Arbitrage
Covered Interest Arbitrage
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12. International Capital Market:
Major International Banks
The international banking system is centered in large money market banks headquartered in the world’s financial centers—Japan, the United States, and the European Union. These banks are involved in international commerce on a global scale (see Table 8.1).
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13. International Capital Market
Capital market – system that allocates financial resources in the form of debt and equity according to their most efficient uses.
International capital market – a network of individuals, companies, financial institutions and government that invest across national boundaries.
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14. International Capital Market: Major International Banks
Forms
services
Correspondent Relationship
Subsidiary Bank
Branch Bank
Affiliated Bank
Commercial Banking Services
Investment Banking Services
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15. International Capital Market: Functions.
Expands the money supply for borrowers.
Reduces the cost of money for borrowers.
Reduces risk for lender.
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16. International Capital Market: The main components.
International Bond Market
Eurobond
Foreign bond
Global bond
International Equity Market
Factors for the growth in equity market
Eurocurrency Market
Eurocurrency
Euro loan
LIBOR
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17. International Capital Market: Offshore Financial Centers
Political Stability
Regulatory Climate
Communications Links
Other Expertise
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