International Trade and Financial Markets - Coursework Example

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The author of the paper "International Trade and Financial Markets" will begin with the statement that financial markets are a sector within countries where entities and individual investors can engage in the trade of financial securities, commodities and conduct other financial transactions…
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Download file to see previous pages A financial market is a term utilized to refer to markets used for raising finance (Johnson et al, 2011). The above consists of both short-term finance (money markets) and long-term finance (capital markets) (Levine, 2002). The former (money markets) is when instruments are utilized for short-term lending, or buying with maturities that are usually designated as having a year duration (Hartmann et al, 2001). These instruments usually entail commercial paper (backed by assets), treasury bills, certificates of deposit, asset-backed securities, bills of exchange, deposits and repurchase agreements (Hartmann et al, 2001). The above instruments provide liquidity as they provide different ways for buyers and sellers to conduct transactions (Beck et al, 2000). At the center of money, markets are the activity conducted through inter-bank lending (Cocco et al, 2009). This consists of banks engaged in the process of lending and borrowing between themselves through the use of repurchase agreements, commercial paper and other financial instruments (Cocco et al, 2009). In most instances, the above are priced through referencing (meaning benchmarked) to the London Interbank Offered Rate (LIBOR) in the appropriate currency (McAndrews et al, 2009). Money markets are utilized as a conduit for transferring large amounts of currency, provide governments a vehicle to raise money, aid in setting monetary policies, and help with the determination of setting interest rates over the short-term (Knez et al, 2012). Capital markets are longer-term measures used for raising funds (Malkiel and Fama, 2012). These entail stock markets for financing through share issuance that can be sold and brought on exchanges, along with bonds that companies or municipalities can issue (Malkiel and Fama, 2012). Other forms used in capital markets are commodities, derivatives, futures, and insurance along with foreign exchange (Fama, 2012). In classifying capital markets, Fama (2012) advises they can be divided into primary and secondary markets. Primary markets represent securities that have just been issued for sale, such as an initial public offering (IPO) (Da Rin et al, 2006). Parties interested in buying or selling securities usually conduct their transactions in secondary markets (Da Rin et al, 2006). As shown from the above financial markets a process where buyers and sellers can come together, with banks in some cases representing intermediates (Brav and Gompers, 2012). Banks aid in facilitating monetary transfers, the lending of money from a pool of depositors, and also conduct complex transactions in conjunction with agents, exchanges, and companies (Stigliz, 2000). International trade tends to be self-explanatory; however since it does contain nuances, an understanding of the term is necessary to properly understand the link between it and financial markets. Simply stated, international trade entails the exchange of goods, services or capital that takes place across borders (Dosi et al, 2002). It can consist of the export or import of raw materials, finished or component parts, agricultural products, along with services, which form a significant part of a nation’s Gross Domestic Product (GDP) (Dosi et al, 2002). The reduction of barriers to trade through the use of bilateral/multilateral agreements and the tenets of the World Trade Organization (WTO) are modern-day forces driving globalization (Jensen et al, 2007).  ...Download file to see next pagesRead More
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