tailieunhanh - Lecture Financial markets and institutions: Chapter 9 - Anthony Saunders, Marcia Millon Cornett

Chapter 9 - Foreign exchange markets. In this chapter, we reviewed foreign exchange markets. Foreign exchange markets have grown to be among the largest of the world's financial markets. We reviewed the trading process in this market, paying particular attention to the role played by financial institutions in the operations of the foreign exchange market. | 8- McGraw-Hill/Irwin Chapter Nine Foreign Exchange Markets 9- McGraw-Hill/Irwin Overview of Foreign Exchange Markets Today’s companies operate globally Events and movements in foreign financial markets can affect the profitability and performance of . firms Foreign trade is possible because of the ease with which foreign currencies can be exchanged . imported $ trillion worth of goods in 2007 . exported $ trillion worth of goods in 2007 Internationally active firms often seek to hedge their foreign currency exposure 9- McGraw-Hill/Irwin Foreign Exchange Foreign exchange markets are markets in which cash flows from the sale of products or assets denominated in a foreign currency are transacted Foreign exchange markets facilitate foreign trade facilitate raising capital in foreign markets facilitate the transfer of risk between market participants facilitate speculation in currency values A foreign exchange rate is the price at which one currency can be exchanged for another currency 9- McGraw-Hill/Irwin Foreign Exchange Foreign exchange risk is the risk that cash flows will vary as the actual amount of . dollars received on a foreign investment changes due to a change in foreign exchange rates Currency depreciation occurs when a country’s currency falls in value relative to other currencies domestic goods become cheaper for foreign buyers foreign goods become more expensive for domestic purchasers Currency appreciation occurs when a country’s currency rises in value relative to other currencies 9- McGraw-Hill/Irwin Foreign Exchange Foreign exchange markets operated under the gold standard through most of the 1800s . was the dominant international trading country until WWII forced it to deplete its gold reserves to purchase arms and munitions from the . 1944: Bretton Woods Agreement fixed exchange rates within 1% bands 1971: Smithsonian Agreement increased bands to 2 ¼% 1973: Smithsonian Agreement | 8- McGraw-Hill/Irwin Chapter Nine Foreign Exchange Markets 9- McGraw-Hill/Irwin Overview of Foreign Exchange Markets Today’s companies operate globally Events and movements in foreign financial markets can affect the profitability and performance of . firms Foreign trade is possible because of the ease with which foreign currencies can be exchanged . imported $ trillion worth of goods in 2007 . exported $ trillion worth of goods in 2007 Internationally active firms often seek to hedge their foreign currency exposure 9- McGraw-Hill/Irwin Foreign Exchange Foreign exchange markets are markets in which cash flows from the sale of products or assets denominated in a foreign currency are transacted Foreign exchange markets facilitate foreign trade facilitate raising capital in foreign markets facilitate the transfer of risk between market participants facilitate speculation in currency values A foreign exchange rate is the price at which one .