chapter- 8 ifm by keerti saraf

8/10/2019 Chapter- 8 Ifm BY Keerti saraf

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GFM bringing buyers & sellers together

When MNC finalize its foreign investment project,then it needs to

select a particular source or a mix of sources of funds.

Domestic firm gets fund normally from domestic sources. it does

get funds from international financial market too. But it is not easyfor mnc.

Mnc,Parent company funds for its foreign investment project. It

tries to get funds from host country fin.markets & international fin.

Markets.

Discussion for sources of the funds in global financal market should

be based on both the supply aspect and demand aspect.


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Profitability:- exports benefits the higher profit margins in theforeign market

Growth:-

Achieving economies of scale

Risk spread Access to imported inputs

Uniqueness of product or service

Marketing opprtunities due to life cycles

Spreading R&D costs Resource utilization


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Competition & costs

Quality Improvement

Economic integration & free markets

Living standards

Emergence of wto

Utility effect & peace


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Continued growth of global financial assets:-The volume ofglobal financial assets such as government debt securities,corporate debt securities and equity securities will continue toexpand.

Depth of financial markets:-Financial markets have beengrowing faster than the global GDP over the years. Due to thisthe ratio of a countrysfinancial assets to GDP has been risingconstantly over the past few years. In 1990, only 33 countrieshad financial assets whose value exceeded the value of their

GDPs. By 2006, this figure had more than doubled to 72countries. Brazil, China, India are some of the few countrieswhose financial assets have outnumbered the countrysGross

National Product (GNP).


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Raise in the level of foreign investment:- The raise in the level of

investment is making the world more financially interdependent than

it was a few years ago. By the end of 2006, it was around $ 74.5

trillion of assets.

Regulation of International Securities Market:-The worlds capital

markets have continued to undergo dynamic changes, both in terms

of structure and complexity. The huge achievements in informationand telecommunication technologies have virtually eliminated the

boundaries between capital markets of different nations.

Financialization of Economy:-One of the recent developments is the

excessive financialization of economy with greater importance to

financial activity over non-financial economic activity.


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Financial Innovation, Deregulation and Globalization:- Financial

innovation played an important role in changing the dynamics

between finance and real economy. It facilitated the introduction of

new financial instruments (such as derivatives) and increased distancebetween financial instruments and productive assets. Certain kinds of

innovation added to the complexity of the financial system.

The Growing Domination of Speculative Finance Capital

Recently experienced increased securitization.


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The Financial Stability Forum (FSF) met in Rome on 28-29 March.Members discussed the current challenges in financial markets, the

steps that are being taken to address them and policy options going

forward.

Financial system risks & responses:- The financial system faces anumber of significant near-term challenges. With many

securitisation markets effectively closed, assets are accumulating on

bank balance sheets.

Strengthening market and institutional resilience:- The FSF

discussed the report to be delivered to G7 Finance Ministers andCentral Bank Governors in April that identifies the key weaknesses

underlying the turmoil and recommends actions to enhance market

and institutional resilience going forward.


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Hedge fund industry:- In its 2007 report on highly leveraged

institutions the FSF called on the hedge fund industry to review and

enhance sound practice benchmarks.

Sovereign wealth funds:- The FSF discussed work underway at the

IMF and OECD with regard to sovereign wealth funds (SWFs).


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Classified into 3 parts

International

Money

Market

International

capital

market

Global

Foreign

Exchange

Market


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The foreign exchange market(forex, FX, or currency market) isa global decentralized market for the trading of currencies.

foreign exchange market is a place where foreign moneys are

bought and sold. Expoter sell the foreign currencies and importers

buy them. The foreign exchange market assists international trade and

investments by enabling currency conversion.

For example, it permits a business in the United States to import

goods from the European Union member states,

especially Eurozone members, and pay euros, even though itsincome is inUnited States dollars. It also supports direct speculation

and evaluation relative to the value of currencies, and the carry

trade, speculation based on the interest rate differential between two

currencies.
http://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Currency_conversionhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/European_Unionhttp://en.wikipedia.org/wiki/Eurozonehttp://en.wikipedia.org/wiki/Eurohttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Carry_tradehttp://en.wikipedia.org/wiki/Carry_tradehttp://en.wikipedia.org/wiki/Carry_tradehttp://en.wikipedia.org/wiki/Carry_tradehttp://en.wikipedia.org/wiki/Carry_tradehttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Eurohttp://en.wikipedia.org/wiki/Eurozonehttp://en.wikipedia.org/wiki/European_Unionhttp://en.wikipedia.org/wiki/European_Unionhttp://en.wikipedia.org/wiki/European_Unionhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Currency_conversionhttp://en.wikipedia.org/wiki/Currency_conversionhttp://en.wikipedia.org/wiki/Currency_conversionhttp://en.wikipedia.org/wiki/Currency


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The foreign exchange market is unique because of the following

characteristics:-

its huge trading volume representing the largest asset class in the

world leading to high liquidity; its geographical dispersion;

its continuous operation: 24 hours a day except weekends, i.e.,

trading from 22:00 GMT on Sunday (Sydney) until 22:00 GMT

Friday (New York); the variety of factors that affect exchange rates;

the low margins of relative profit compared with other markets of

fixed income; and

the use of leverage to enhance profit and loss margins and with

respect to account size.
http://en.wikipedia.org/wiki/Liquidityhttp://en.wikipedia.org/wiki/GMThttp://en.wikipedia.org/wiki/Sydneyhttp://en.wikipedia.org/wiki/Exchange_ratehttp://en.wikipedia.org/wiki/Leverage_(finance)http://en.wikipedia.org/wiki/Leverage_(finance)http://en.wikipedia.org/wiki/Exchange_ratehttp://en.wikipedia.org/wiki/Exchange_ratehttp://en.wikipedia.org/wiki/Exchange_ratehttp://en.wikipedia.org/wiki/Sydneyhttp://en.wikipedia.org/wiki/GMThttp://en.wikipedia.org/wiki/Liquidity


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LOWER TRADING COSTS:- The lower trading costs in the forexmarket has made it possible for even small, individual investors to

make decent profits from forex trading. With lower costs, the

possible losses are also much lower.

EXCELLENT TRANSPARENCY:- Transparency means the freeaccess to trading information. Forex trading is a transparent process

because the trader has full access to market data and information

that are necessary to perform successful transactions. The excellent

transparency of the forex market means that forex traders have more

control over their investments and can decide what to do based onthe information available. In a typical foreign exchange transaction,

a party purchases some quantity of one currency by paying for some

quantity of another currency.
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SUPERIOR LIQUIDITY:- In a forex market, traders are free to

buy and sell currencies of their own choosing.

STRONG MARKET TRENDS:- Forex traders make money by

getting accurate market data and then analyzing the direction themarket takes.

Electronic Market:- Fx Market doesnthave a physical place.

Geographical Dispersal:- A redeeming feature of the foreign

exchange market is that it is not to be found in one place. Market isvastly dispersed of the world such as London, New York, Paris,

Zurich, Amesterdam, Tokyo, Hong Kong, Toronto Frankfurt, Milan

and other cities.

Transfer of Purchasing Power:- Fx market aims at permitting the

transfer of purchasing powerdominating in one currency to another.For example:-An indian exporter sells software to a U.S, firm for

dollars and a U.S. firm sells super computers to an indian company

for rupees.


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Intermediary:- The market acts as an intermediary between the

buyers and sellersof foreign exchange.

Volume:- A special feature of foreign excahnge market is that

arround 95% takes form of cross-border purchase and sell of

assets,i.e international capital flows. Only arround 5% relates to the

export and import activities.

Minimising Risks:- Fx market helps the importer and exporter in

the foreign trade to minimizes their risk of trade


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Spot Market

ForwardMarket


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Spot Market:- In which sale & purchase transactions are settled

within 2 days of the deal.

Forward Market:- deal for sale & purchase of foreign currency atsome future date,normally after 90 days of the deal.


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Banks and money

changers(currencies, bank

notes, cheques)

Retail

Market

Inter-bank(bank accounts or

deposits) :- Direct & indirect

Central bank

Wholesale

Market


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Fundamental change in the international monetary system from thefixed exchange rates.

Major financial deregulations

A fundamental change in savings and investments.

Major changes in international trade. Technological advances

New thinking in terms of both theories and practices of finance.


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chapter- 8 ifm by keerti saraf

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