Chapter 2

International Financial Market

 Internat Foreign
INTRODUCTION
ional exchan
stock ge
market market

Eurobo Euro
nd money
Market market
Euro
credit
Market
INTERNATIONAL FINANCIAL MARKETS
 FOREIGN EXCHANGE MARKET

The market in which participants are able to buy, sell,

exchange and speculate on currencies
 FOREIGN EXCHANGE MARKET

GMT

0 12 24

Sydney
Tokyo
Frankfurt

London

New York
 FOREIGN EXCHANGE MARKET

Telephone, fax…

Effective market

USD is most popular

Sensitive to political, economic, social,

psychological, events.

London, New York, Tokyo, Singapore…

 FOREIGN EXCHANGE RATE

 When a currency increases in value, it experiences

appreciation;
Today: 1USD = 22.000 VND Tomorrow: 1USD = 22.050 VND

→ USD is appreciated

 When it falls in value and is worth fewer U.S. dollars, it

undergoes depreciation
Today: 1USD = 22.000 VND Tomorrow: 1USD = 21.950 VND

→ USD is depreciated
CLASSIFICATION OF FOREIGN EXCHANGE
RATE

Bid Ask

Spot Derivative

Open Close

Cash Interbank transfer

Electric Mail

Cross rate
 QUOTATION REGULATIONS
1 commodity currency = x quote currency

Price quotation
1 foreign currency = x home currency
USD/JPY = 121.12
USD: commodity currency
USD, GBP,
JPY: quote currency EUR, AUD,
NZD and SDR

Volume quotation
1 home currency = y foreign currency
EUR/USD = 1.3615
EUR: commodity currency
USD: quote currency
 SPECIAL DRAWING RIGHTS

The Special Drawing Right (SDR) is an unconditional

claim to the hard-currency reserves of other International
Monetary Fund (IMF) members and certain other
prescribed holders
 SPECIAL DRAWING RIGHTS
• SDRs are set up in 1969 under request of the 10
countries in Paris Club .
• At first time, SDRs is high international reserve to
supplement reserves of member countries
• With the development of trade and international finance,
large reserves of gold and dollars of the country became
unable to meet the demand. SDRs was born to give
member countries an additional resource to maintain the
exchange rate of home currency .
 HOME WORK

In group, describe the process of calculating the value

of SDRs according to the IMF
 DISCUSSION

1. If euro’s price quotation is 1,25 USD, so how much its volume

quotation?
2. You just return from Canada where 1 Canada dollar equal 0,7 USD.
You still have 200 Canada dollar since the journey and change them to
USD, but the bank quote is 1 Canada dollar equal 0,6 USD. Next week,
you will go to Mexico and you need peso. Bank quote 1 peso equal 0,1
USD. You meet a traveler from Mexico, he is on the way to Canada. He
is willing buy your 200 Canada dollar with the price 1.300 peso. Do you
accept this suggestion ? Explain.
 CROSS RATE

 GBP/USD = 1.8216 – 1.8220

 EUR/USD = 1.4398 – 1.4401

GBP USD GBP/USD

 GBP/EUR =  
USD EUR EUR/USD

 GBP/EUR = 1.2649 – 54
 EUR/GBP = 0.7903 – 06
 CROSS RATE

 USD/JPY = 105.10 – 105.13

 USD/CAD = 1.0631 – 1.0633

CAD USD USD/JPY

 CAD/JPY =  
USD JPY USD/CAD

 CAD/JPY = 098.84/89
 JPY/CAD = 0.010112/17
 CROSS RATE

 USD/JPY = 105.10 – 105.13

 EUR/USD = 1.4398 – 1.4401

 EUR/JPY = EUR USD


USD JPY
 EUR/JPY = 151.32 – 151.40
 JPY/EUR = 0.006605 – 0.006609
 QUESTION

Information of the exchange rate in the market as following:

 E (USD/SGD) =1,2050 – 1,2060

 E (NZD/USD) = 0,6075 - 0,6085

 E (USD/VND) = 21.125 – 21.135

Caculating
1. E (SGD/VND)
2. E (NZD/VND)
3. E (NZD/SGD)
 EUROPEAN MONEY MARKET
European Money
Market
US domestic European
Euro dollar European market domestic
market
market market
Foreign
exchange

Japan
Yen market domestic
market

European bond market European bill market

 EUROPEAN MONEY MARKET
European money market was born when US firms
deposited US dollars in European banks

Dollar deposits in banks in Europe and other continents

are called Eurodollars or Eurocurrency.

European dollar is not adjusted by US legal

as dollar in home country
EUROPEAN MONEY MARKET

Struture Famous banks (European banks)

which accept deposits and loans

Transaction of deposits or loans are

often large, from one million dollars
or more
The interest rate of each currency in
Europe represents the country’s
interest rate
 EUROCREDIT MARKET

Eurocredit Market: loans denominated in home

currency or other currencies often maturities of 5
years.
INTERNATIONAL BOND MARKET

Eurobond
market

Foreign
bond
market
 EUROBOND MARKET

Eurobond market is the market in which bonds

sold in other countries than the country of the
currency denominating the bond
 EUROBOND MARKET

Feature

Bearer bonds Annual coupon payments

Convertible Callable

Few Interest rate adjustable

 FOREIGN BOND MARKET

 Foreign bonds: issued by borrower foreign to

the country where the bond is placed

 Home currency value decrease => invest in

strong currency bonds
 INTERNATIONAL STOCK
MARKETS
Issuance of Foreign Stock in the United States

Diversifies
its
shareholder Satisfy
base, which stringent
can reduce disclosure
share price rules on
volatility their
caused financial
when large condition
investors
sell shares.
 INTERNATIONAL STOCK
MARKETS
Issuance of Stock in Foreign Markets

Invest Economic conditions

Stock in
Foreign
Markets
Money expectation

Diversify portfolio
 GROUP WORK

Questions 4, 22, 24 page 73