MODULE 2 Flashcards
systems of institutions, instruments, and practices that facilitate the transfer of capital between nation
International Financial Markets
the markets enable companies,
governments, and other organizations to
obtain financing and manage financial risks
across border
International Financial Markets
Structure of International Financial Markets
Capital Markets
Money Market
Foreign Exchange Markets
Derivatives Markets
Commodity Markets
These markets involve the trading of longterm debt and equity securities. They include stock markets (e.g., NYSE, London Stock
Exchange) and bond marke
Capital Market
Short-term debt instruments, such as Treasury bills and commercial paper, are traded in _____. These markets are crucial for managing short-term liquidity need
Money Market
These markets facilitate the exchange of currencies, allowing for international
trade and investment
- include London, New York, and
Tokyo
Foreign Exchange Market
Financial derivatives such as futures,
options, and swaps are traded in these
markets. They are used for hedging
risk or speculation
Derivatives Markets
These involve the trading of physical
goods like oil, gold, and agricultural
products, often linked to international
trade and investment
Commodity Markets
Functions of International Financial Markets
Capital Allocation
Risk Management
Price Discovery
Liquidity Provision
Facilitation of Trade and Investment
International financial markets help
allocate capital across borders, ensuring that resources flow to where they are most needed
Capital Allocation
These markets offer instruments to
hedge against currency risk,
interest rate risk, and other financial
risks
Risk Management
International financial markets play
a key role in determining the prices
of financial instruments and
commodities through the interaction
of supply and demand
Price Discovery
They provide liquidity by allowing
investors to buy and sell financial
instruments, thereby facilitating
investment and consumption
Liquidity Provision
These markets enable international
trade and investment by providing the
necessary financing and risk
management tool
Facilitation of Trade and Investment
A multinational corporation like Apple
Inc. uses international financial markets
to issue bonds in different currencies to
finance its global operations. It may
also use _____ to hedge
against currency risk associated with its
revenues in multiple countri
derivatives markets
is a global decentralized
market for the trading of currencies.
It is the largest financial market in
the world, with a daily trading
volume exceeding $6 t
foreign exchange market
Currency Dynamics
Exchange Rates
Currency Pairs
Spot Market
Forward and Futures Markets
The price of one currency in terms of
another, which fluctuates due to
various factors including interest
rates, inflation, political stability, and
economic performance
Exchange Rates
Currencies are traded in pairs (e.g.,
EUR/USD), with the first currency
being the base and the second
being the quote
Currency Pairs
Where currencies are traded for
immediate delivery. Most forex
transactions occur in the _____
Spot Market
These markets allow participants to
buy or sell currencies at a set price
for future delivery, helping manage
the risk of currency fluctuation
Forward and Future
Companies engaged in ____ use forex markets to convert currencies and manage exchange rate risk
international trade
Traders use ____ to speculate on currency movements to profit from changes in exchange rates
forex markets
Traders exploit ____ in different markets or forms of a currency to make a profit without risk
price differences
