You are on page 1of 2

(a) How would the Walmart outlets in China use the spot market in foreign exchange?

The Wal-Mart outlets in China require other currencies to purchase goods from other nations.
They must therefore convert Yuan, the Chinese currency, into the currency of the country they
wish to buy these goods in the spot market. For example, for a Chinese Walmart outlet to
purchase good from Russia, the spot market will help it convert the Yuan into rubles. Moreover,
Walmart outlets in China can find the spot market useful in converting surplus earnings
denominated in the Chinese currency into dollars that can be sent to the United States parent.
(b) How might Walmart utilize the international money market when it is establishing
other Walmart stores in Asia?
Walmart might be required to keep some bonds in the Eurocurrency market which may be
used to support the expansion of Walmart outlets in several foreign markets. When a Walmart
outlet in foreign market requires funds, then it can borrow from financial institutions in the
currency which is needed. Hence, the Eurocurrency markets acts as a deposits as well as a
loaning source for Walmart outlets and other multinational corporations for short-term funds.
When the bond is denominated in the Eurocurrency, then some of the money generated when
new Wal-Mart outlets are established can be used to pay the loans interest.

Madura, J. 2007. International financial management. Abridged, 8TH edition. Mason, OH:
Thomson South-Western.