Activity 14: 

International Financial Markets and Innovations

1. Explain what is International Financial Market.
  The International Financial Market is a place where people can trade their financial
resources both within and between countries. It can be seen of as a large system of rules
and organizations that govern asset trading between surplus and deficit agents made by
the institutions. Banking and money market services such as trade financing, foreign
exchange, foreign investment, and hedging instruments make up the majority of this
industry.
2. What is Foreign Direct Investment?
 Foreign Direct Investment (FDI) is an international investment that aims to establish a
long-term interest made by a firm or individual in one country into another country where
its business interests located. Basically, when an investor invests in a foreign company,
he or she establishes overseas business activities or purchases foreign business assets.
3. Explain the process of Currency Exchange.
 A currency exchange is a regulated business with the legal ability to convert one currency
into another for the benefit of its clients. These businesses can be located in physical
venues like banks and airports, but they can also be reach over the internet. So, the
process starts when an individual goes to these businesses and hand over their money to
the teller be exchanged for the currency they want. After the transaction is being
processed, the individual can have its desired currency where its currency exchange fees,
fluctuate or deflate and do not have a fixed rate. For instance, a Filipina want to exchange
her Philippine peso to US dollar, she can exchange it through going to the currency
exchange company in order to convert her money and get it quickly as soon as the teller
completed the transaction.
4. Explain what is cryptocurrency.
 A cryptocurrency is a digital or virtual money that uses cryptography to safeguard and
authenticate transactions as well as govern the generation of new units of the currency.
Because of their decentralized structure, they can exist independently of governments and
central authorities. Individuals typically purchase cryptocurrency online in order to trade
it on various online trading platforms.

5. Explain the effect of risk premium in international market.

 A risk premium is a measure of additional return required by an individual to compensate
for higher risk exposure. Investors seek higher returns to compensate for the risk of
losing some of their cash when they make riskier investments. Thereof, borrowers might
expect to pay more as a result, while investors face a higher risk of default. The most
significant effect would be that less attractive countries would have to charge a higher
premium to attract larger investments from international investors.

6. What is the essence of offshore banking?

 Offshore banking jurisdiction reduces risk by allowing you to diversify your assets over
several channels, nations, accounts, and currencies. This protects your money and
 reduces the chance of being caught off guard in case of bank failures, currency
depreciation, or economic collapse. Moreover, it offers favorable interest rate, asset
protection, convenient since you can access it anywhere and anytime, high security and
privacy, lastly it offers high interest rates.

7. Differentiate the role of WB and IFC.

 The functions of the World Bank and the International Finance Corporation are
substantially different. The World Bank helps in developing countries and strengthen
their economies by providing financial aid, technical assistance, and research. Its primary
purpose is to help low and middle-income nations fight poverty by providing
development assistance. On the other hand, the International Finance Corporation (IFC)
provides investment, advisory, and asset management services to developing countries as
its function. Moreover, it promotes economic development by investing in for-profit and
commercial firms for poverty reduction and development.