MBA 713 - Chapter 08
-
date post
14-Sep-2014 -
Category
Economy & Finance
-
view
736 -
download
1
description
Transcript of MBA 713 - Chapter 08
![Page 1: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/1.jpg)
Chapter 8 - 1
Chapter 8
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Foreign Exchange and International Financial
Markets
![Page 2: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/2.jpg)
Chapter 8 - 2
Learning Objectives
• Describe how demand and supply affect the price of foreign exchange
• Discuss the role of international banks in the foreign-exchange market
• Learn how firms use the spot and forward markets to settle international transactions
• Discuss arbitrage in foreign exchange• Explore the international capital market
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
![Page 3: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/3.jpg)
Chapter 8 - 3
The Economics of Foreign Exchange
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
![Page 4: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/4.jpg)
Chapter 8 - 4
Demand for Yen
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
The demand for yen is derived from foreigner’s demand for Japanese
products
![Page 5: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/5.jpg)
Chapter 8 - 5
Supply of Yen
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
The supply of yen is derived from Japanese demand for foreign
products
![Page 6: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/6.jpg)
Chapter 8 - 6
The Market for Yen
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Equilibrium is reached when supply and demand are equal
![Page 7: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/7.jpg)
Chapter 8 - 7
Foreign Exchange Rate Quotes
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
IndirectQuote
DirectQuote
![Page 8: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/8.jpg)
Chapter 8 - 8
Summary of Discussion
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
![Page 9: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/9.jpg)
Chapter 8 - 9
Structure of the Foreign Exchange Market
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
![Page 10: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/10.jpg)
Chapter 8 - 10
Currencies Involved in Foreign-Exchange Market Transactions
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
![Page 11: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/11.jpg)
Chapter 8 - 11
The Role of Banks
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Foreign-Exchange Market
Speculation and Arbitrage
Spread Between Bid and Ask Prices
![Page 12: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/12.jpg)
Chapter 8 - 12
Types of Markets
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Wholesale Retail
![Page 13: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/13.jpg)
Chapter 8 - 13
Foreign-Exchange Clients
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
•Commercial Customers
•Exchange-Rate Speculators
•Currency Arbitrageurs
![Page 14: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/14.jpg)
Chapter 8 - 14
Types of Currencies
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Convertible vs. Inconvertible
![Page 15: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/15.jpg)
Chapter 8 - 15
Summary of Discussion
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
![Page 16: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/16.jpg)
Chapter 8 - 16
Spot and Forward Markets
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
![Page 17: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/17.jpg)
Chapter 8 - 17
Types of Markets
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
•Spot Market•Forward Market
![Page 18: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/18.jpg)
Chapter 8 - 18
Futures Transactions
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
•Swap Transactions•Currency Futures•Currency Options
![Page 19: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/19.jpg)
Chapter 8 - 19
Forward Pricing of Foreign Currency
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Current Price of the British Pound (£)
Firm’s Holdings of (£) Assets
Firm’s Holdings of (£) Liabilities
• Selling at Forward Discount
• Selling at Forward Premium
Reduce Increase
Increase Reduce
![Page 20: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/20.jpg)
Chapter 8 - 20
Summary of Discussion
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
![Page 21: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/21.jpg)
Chapter 8 - 21
Arbitrage and the Currency Market
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
![Page 22: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/22.jpg)
Chapter 8 - 22
Arbitrage of Goods
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
The Law of One Price
Buy in “Cheap” Market
Sell in “Expensive” Market
![Page 23: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/23.jpg)
Chapter 8 - 23
Purchasing Power Parity
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
PPP
ExpensiveMarket
CheapMarket
Cost of Currency “B”
Price of Good “X”
Cost of Currency “A”
Price of Good “X”
![Page 24: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/24.jpg)
Chapter 8 - 24
Arbitrage of Money
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Professional Traders
Covered Interest
Three-PointTwo-Point
![Page 25: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/25.jpg)
Chapter 8 - 25
Two-Point Arbitrage
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Risk-Free Profit
![Page 26: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/26.jpg)
Chapter 8 - 26
Three-Point Arbitrage
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
$2 = £1 £1 = ¥200
$1 = ¥120
Sell £1, G
et $2
Sell $2, Get ¥240
Sell ¥240, Get £1.2
Step 2
Step 1 Step 3
New York Tokyo
London
Gain£0.2
![Page 27: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/27.jpg)
Chapter 8 - 27
Covered-Interest Arbitrage
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Currencies of Two Countries
Interest Rate Differences
Forward Discount/Premium≠
![Page 28: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/28.jpg)
Chapter 8 - 28
The International Fisher Effect
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Country’s Inflation Rate
Expected to Increase
Expected to Decrease
Nominal Interest
Forward Premium
Forward Discount
Higher Shrink Widen
Lower Widen Shrink
![Page 29: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/29.jpg)
Chapter 8 - 29
Summary of Discussion
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
![Page 30: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/30.jpg)
Chapter 8 - 30
The International Capital Market
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
![Page 31: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/31.jpg)
Chapter 8 - 31
The Eight Largest Banks
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Rank Company Country Revenues ($Mil)
1 ING Group Netherlands 147,052
2 Bank of America United States 134,194
3 BNP Paribas France 128,726
4 J.P. Morgan Chase & Co United States 115,475
5 Citigroup United States 111,055
6 Crédit Agricole France 105,003
7 HSBC Holdings United Kingdom 102,680
8 Banco Santander Spain 100,350
![Page 32: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/32.jpg)
Chapter 8 - 32
International Banking
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
CorrespondentRelationship
SubsidiaryBank
Affiliated BankBranch Bank
![Page 33: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/33.jpg)
Chapter 8 - 33
International Commercial Banking
Services
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Everyday Transactions
Currency Exchange
![Page 34: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/34.jpg)
Chapter 8 - 34Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Mergers andAcquisitions
Long-TermDebt and Equity
Investment Banking
![Page 35: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/35.jpg)
Chapter 8 - 35
Eurocurrency Market
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Foreign Currency on Deposit
London Interbank Offer Rate (LIBOR)
International Banking Facility (IBF)
![Page 36: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/36.jpg)
Chapter 8 - 36
• Foreign Bonds• Eurobonds• Global Bonds
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
The International Bond Market
![Page 37: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/37.jpg)
Chapter 8 - 37
Global Equity Markets
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
•Capital Markets
•Country Funds
•Financial Services
![Page 38: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/38.jpg)
Chapter 8 - 38
Offshore Financial Centers
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Bahamas
Bahrain
Cayman Islands
Luxembourg
Bermuda
Netherlands Antilles
Singapore
Switzerland
![Page 39: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/39.jpg)
Chapter 8 - 39
Summary of Discussion
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
![Page 40: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/40.jpg)
Chapter 8 - 40
Chapter 8
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Foreign Exchange and International Financial
Markets
![Page 41: MBA 713 - Chapter 08](https://reader033.fdocuments.us/reader033/viewer/2022051207/541654ed8d7f72336c8b4a4d/html5/thumbnails/41.jpg)
Chapter 8 - 41Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.