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International Financial Markets
Copyright © 2014 Pearson Education, Inc.
Chapter Objectives
• Discuss the purposes, development, and financial centers of the international capital market
• Describe the international bond, international equity, and Eurocurrency markets
• Discuss the four primary functions of the foreign exchange market
• Explain how currencies are quoted and the different rates that are given
• Identify the main instruments and institutions of the foreign exchange market
• Explain why and how governments restrict currency convertibility
Copyright © 2014 Pearson Education, Inc. 9 - 2
Nintendo
• Exchange rates affect financial performance • Convert foreign earnings into home currency • Rising home currency means lower earnings
Copyright © 2014 Pearson Education, Inc. 9 - 3
Capital Market
System that allocates financial resources according to their most efficient uses
Debt: Repay principal plus interest
Bond has timed principal & interest payments
Equity: Part ownership of a company
Stock shares in financial gains or losses
Copyright © 2014 Pearson Education, Inc. 9 - 4
International Capital Market
Network of people, firms, financial institutions, and governments borrowing and investing internationally
Borrowers
Expands money supply Reduces cost of money
Lenders
Spread// reduce risk Offset gains//llosses
Copyright © 2014 Pearson Education, Inc. 9 - 5
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