Professional Documents
Culture Documents
Ch3 International Financial Market
Ch3 International Financial Market
International Financial
Markets
Direct quotation
Value of £ in ¥ =
value of £ in $
value of ¥ in $
=
$1.50:£1
$.009:1¥
= 166.67¥:£1
Cost and Management
International
Accounting:
FinancialAn
Management,
Introduction,
2nd7edition
th
edition
Jeff
Colin
Madura
Drury
and Roland Fox
ISBN 978-1-40803-213-9
ISBN 978-1-4080-3229-9
© 2011©Cengage
2011 Cengage
Learning
Learning
EMEAEMEA
Currency Futures and
Options Market
• Currency futures contracts specify a
standard volume of a particular currency to
be exchanged on a specific settlement date.
They are sold on exchanges, unlike forward
contracts.
• Currency call (put) options give the right to
buy (sell) a specific currency at a specific
price (called the strike or exercise price)
within a specific period of time.
Cost and Management
International
Accounting:
FinancialAn
Management,
Introduction,
2nd7edition
th
edition
Jeff
Colin
Madura
Drury
and Roland Fox
ISBN 978-1-40803-213-9
ISBN 978-1-4080-3229-9
© 2011©Cengage
2011 Cengage
Learning
Learning
EMEAEMEA
International Money
Market (1)
• Financial institutions in this market serve
MNCs by accepting deposits and offering
loans in a variety of currencies.
D£
Quantity of Quantity of pesos
£’s
• The supply curve is lending, the demand curve is
borrowing.
• The curves are higher for the Mexican peso because of
the higher inflation and greater risk in Mexico.
Cost and Management
International
Accounting:
FinancialAn
Management,
Introduction,
2nd7edition
th
edition
Jeff
Colin
Madura
Drury
and Roland Fox
ISBN 978-1-40803-213-9
ISBN 978-1-4080-3229-9
© 2011©Cengage
2011 Cengage
Learning
Learning
EMEAEMEA
International Stock Markets
(1)
• In addition to issuing stock locally, MNCs can
also obtain funds by issuing stock in
international markets.
• This will enhance the firms’ image and name
recognition, and diversify their shareholder
base.
• A stock offering may also be more easily
digested when it is issued in several markets.
Export/Import
Dividend
Remittance Foreign
& Financing Exchange
Foreign Medium- & Markets
Business Long-Term
Short-Term
Clients Financing
Investment
& Financing Long-Term
Financing
Export/
International
Import International Money Credit Markets International
Markets Stock Markets
Short-Term
Investment & Financing
Foreign
Subsidiarie Medium- & Long-Term Financing
s Long-Term Financing
Cost and Management
International
Accounting:
FinancialAn
Management,
Introduction,
2nd7edition
th
edition
Jeff
Colin
Madura
Drury
and Roland Fox
ISBN 978-1-40803-213-9
ISBN 978-1-4080-3229-9
© 2011©Cengage
2011 Cengage
Learning
Learning
EMEAEMEA
How Financial Markets Affect
an MNC’s Value
• Since interest rates commonly vary
among countries, an MNC may use the
international financial markets to reduce
its cost of capital, thereby achieving a
higher valuation.