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Question 1

Functions International financial markets

Answer 1

• Maturity transformation: Short-term savings are converted into long-term investments.
• Risk transformation: Funds lent are split up into shares or bonds being a small part of the overall loan
• Liquidity: A financial market enables small savings to be added together to enable borrowers to borrow amounts that are beyond the means of any one investor
• Valuation: determining the worth of an asset

Question 2

Motives for using financial markets

Answer 2

Market imperfections (different interest rates, currencies, etc.) make investors and creditors look for opportunities in foreign markets

Question 3

Foreign exchange market

Answer 3

The foreign exchange market allows currencies to be exchanged to facilitate international trade or financial transactions.

Question 4

Spot market

Answer 4

if a buyer wants to purchase a particular currency in the spot market, they will pay the current market price and receive the currency immediately.

Question 5

futures contracts ( two parties )

Answer 5

Currency to be exchanged on a specific settlement date on a specific rate > hedge exchange rates

Question 6

Forward contract

Answer 6

Lock the exchange rate at which it will buy or sell the currency.