INTERNATIONAL FINANCE
1
Dr. Nathan (Thanh Nguyen)
Chapter 2
International Financial Market
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INTRODUCTION
Internati
onal stock
market
Foreign
exchange
market
Eurobond
Market
Euro money
market
Eurocredit
Market
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FOREIGN EXCHANGE MARKET
The market in which participants are able to buy,
sell, exchange and speculate on currencies
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FOREIGN EXCHANGE MARKET
GMT
0
12
24
Sydney
Tokyo
Frankfurt
London
New York
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FOREIGN EXCHANGE MARKET
✓Telephone, fax…
✓Effective market
✓USD is most popular
✓Sensitive
to
political,
economic,
social,
psychological, events.
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✓London, New York, Tokyo, Singapore…
FOREIGN EXCHANGE RATE
✓ When
a
currency
increases
in
value,
it
experiences appreciation;
Today: 1USD = 22.000 VND
VND
→ USD is appreciated
Tomorrow: 1USD = 22.050
✓ When it falls in value and is worth fewer U.S.
dollars, it undergoes depreciation
Today: 1USD = 22.000 VND
VND
→ USD is depreciated
Tomorrow: 1USD = 21.950 7
CLASSIFICATION OF FOREIGN
EXCHANGE RATE
Bid
Ask
Spot
Derivative
Open
Close
Cash
Interbank transfer
Electric
Mail
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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
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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
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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 .
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SPECIAL DRAWING RIGHTS
•The currency value of the SDR is determined by
summing the values in U.S. dollars, based on
market exchange rates, of a basket of major
currencies (the U.S. dollar, Euro, Japanese yen,
pound sterling and the Chinese renminbi).
•The SDR currency value is calculated daily, and
the valuation basket is reviewed and adjusted every
five years
•SDRs are used in a number of agreements ,
international conventions
http://www.imf.org/external/np/fin/data/rms_sdr
12
v.aspx
HOME WORK
In group, describe the process of calculating
the value of SDRs according to the IMF
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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.
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CROSS RATE
▪ GBP/USD = 1.8216 – 1.8220
▪ EUR/USD = 1.4398 – 1.4401
 GBP/EUR =
GBP USD GBP/USD

=
USD EUR EUR/USD
 GBP/EUR = 1.2649 – 54
 EUR/GBP = 0.7903 – 06
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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
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CROSS RATE
▪ USD/JPY = 105.10 – 105.13
▪ EUR/USD = 1.4398 – 1.4401
EUR USD
 EUR/JPY =

USD JPY
 EUR/JPY = 151.32 – 151.40
 JPY/EUR = 0.006605 – 0.006609
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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)
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EUROPEAN MONEY MARKET
European Money
Market
US domestic
market
Euro dollar
market
European
market
Foreign
exchange
Yen market
European bond
market
European
domestic
market
Japan
domestic
market
European bill market
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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
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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 represents21
the country’s interest rate
EUROCREDIT MARKET
Eurocredit Market: loans denominated in home
currency or other currencies often maturities of 5
years.
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INTERNATIONAL BOND MARKET
Eurobond
market
Foreign
bond
market
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EUROBOND MARKET
Eurobond market is the market in which
bonds sold in other countries than the
country of the currency denominating the
bond
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EUROBOND MARKET
Feature
Bearer bonds
Annual coupon
payments
Convertible
Callable
Few
Interest rate
adjustable
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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
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INTERNATIONAL STOCK MARKETS
Issuance of Foreign Stock in the United States
Diversifies its
shareholder base,
which can reduce
share price volatility
caused when large
investors sell shares.
Satisfy stringent
disclosure rules on
their financial
condition
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INTERNATIONAL STOCK MARKETS
Issuance of Stock in Foreign Markets
Invest
Stock in
Foreign
Markets
Economic conditions
Money expectation
Diversify portfolio
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INTERNATIONAL STOCK MARKETS
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GROUP WORK
Questions 4, 22, 24 page 73
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