Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Chapter 3
International Financial Markets
Lecture Outline
Foreign Exchange Market
History of Foreign Exchange
Foreign Exchange Transactions
Foreign Exchange Quotations
Interpreting Foreign Exchange Quotations
Currency Derivatives
International Money Market
Origins and Development
Money Market Interest Rates Among Countries
International Credit Market
Regulations in the Credit Market
Syndicated Loans in the Credit Market
Impact of the Credit Crisis on the Credit Market
International Bond Market
Eurobond Market
Development of Other Bond Markets
Global Integration of Bond Yields
Risk of International Bonds
Impact of the Greece Crisis on Bonds
International Stock Markets
Issuance of Stock in Foreign Markets
Issuance of Foreign Stock in the U.S.
Investing in Foreign Stock Markets
How Financial Markets Serve MNCs
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
International Financial Markets 2
Chapter Theme
This chapter identifies and discusses the various international financial markets used by MNCs. These
markets facilitate day-to-day operations of MNCs, including foreign exchange transactions, investing in
foreign markets, and borrowing in foreign markets.
Topics to Stimulate Class Discussion
1. Why do international financial markets exist?
2. How do banks serve international financial markets?
3. Which international financial markets are most important to a firm that consistently needs short-term
funds? Which international markets enable MNCs to obtain long-term funding?
POINT/COUNTER-POINT:
Should Firms That Go Public Engage in International Offerings?
POINT: Yes. When a U.S. firm issues stock to the public for the first time in an initial public offering
(IPO), it is naturally concerned about whether it can place all of its shares at a reasonable price. It will be
able to issue its stock at a higher price by attracting more investors. It will increase its demand by
spreading the stock across countries. The higher the price at which it can issue stock, the lower is its cost
of using equity capital. It can also establish a global name by spreading stock across countries.
COUNTER-POINT: No. If a U.S. firm spreads its stock across different countries at the time of the IPO,
there will be less publicly-traded stock in the U.S. Thus, it will not have as much liquidity in the
secondary market. Investors desire stocks that they can easily sell in the secondary market, which means
that they require that the stocks have liquidity. To the extent that a firm reduces its liquidity in the U.S. by
spreading its stock across countries, it may not attract sufficient U.S. demand for the stock in the U.S.
Thus, its efforts to create global name recognition may reduce its name recognition in the U.S.
WHO IS CORRECT? Use the Internet to learn more about this issue. Which argument do you support?
Offer your own opinion on this issue.
ANSWER: The key is that students recognize the tradeoff involved. A firm that engages in a relatively
small IPO will have limited liquidity even when all of the stock is issued in the U.S. Thus, it should not
consider issuing stock internationally. However, firms with larger stock offerings may be in a position to
issue a portion of their shares outside the U.S. They should not spread the stocks across several countries,
but perhaps should target one or two countries where they conduct substantial business. They want to
ensure sufficient liquidity in each of the foreign countries where they sell shares.
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
International Financial Markets 3
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
