StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...

International Capital Markets and Finance - Assignment Example

Comments (0) Cite this document
Summary
The author of this assignment "International Capital Markets and Finance" touches upon the currency volatility in 2008 that is increasing and it is possible that some countries may see very substantial changes in the value of their currency as a result of the current global financial crisis…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER98.1% of users find it useful
International Capital Markets and Finance
Read Text Preview

Extract of sample "International Capital Markets and Finance"

Download file to see previous pages In a foreign exchange contract, one member agrees to sell and the other agrees to buy at a future date at an exchange rate which is prevailing at the time of the agreement. Such contracts can involve a foreign currency of the party involved against the domestic currency or any other foreign currency as might be found appropriate. Generally, in a forward exchange contract, the two parties in consideration are the concerned bank and the customer. While forward exchange contracts are generally accepted, currency futures are preferred more due to their innate characteristic of flexibility which we will take up subsequently. The forward currency market is comprised of the following players.
"A forward contract is an agreement to buy or sell an asset on a specified date for a specified price. One of the parties to the contract assumes a long position and agrees to buy the underlying asset on a certain specified future date for a certain specified price. The other party assumes a short position and agrees to sell the asset on the same date for the same price. Other contract details like delivery date, price and quantity are negotiated bilaterally by the parties to the contract" (Securities Market).
(b) Critically evaluate the potential risks each of these participants face when dealing in the forward exchange markets, particularly in the current financial crisis, and discuss what strategies can be used to manage such risks.
The following problems/risks are common to all forward market across the world.
Lack of centralization of trading, Illiquidity, and Counterparty risk.
The basic problem/risk with forwarding contract is that they are neither standardized nor liquid. This results in too much flexibility and generality and lack of confidence among participants. A forward contract for a currency can be made by any two parties on the basis of their mutual understanding. The counter party risk arises from this non-standardized form of agreement. The high chance of counterparty risk of this form of derivative made to think about alternative tools like options and futures. In a forward exchange contract, when one of the two parties to the transaction is declared bankruptcy, the other is bound to suffer. Even when forward markets trade standardized contracts, and hence avoid the problem of illiquidity, still the counterparty risk remains a very serious issue.
Banks
Banks play a major role in the derivative trading of a country. In a forward market for currencies, banks role is to grant short term financial arrangements to the original parties involved in the transaction. In a forward exchange market, the buyer undertakes to purchase a certain amount of a foreign currency against his/her domestic currency at an agreed exchange rate. In case the rate is not favorable to him in the future, he will incur an opportunity loss, which ultimately affects the banks from where the buyer arranged the financial resource.
Speculators
They are traders with a view and objective of making profits. They are willing to take risks on the anticipation of making a profit out of the exchange rate fluctuations. They are making the scene most badly as their involvement will affect genuine transactions and parties. The risk involved in their participation is that they also incur losses in case the rates come to their expectations. ...Download file to see next pages Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(International Capital Markets and Finance Assignment, n.d.)
International Capital Markets and Finance Assignment. Retrieved from https://studentshare.org/macro-microeconomics/1503961-international-capital-markets-and-finance
(International Capital Markets and Finance Assignment)
International Capital Markets and Finance Assignment. https://studentshare.org/macro-microeconomics/1503961-international-capital-markets-and-finance.
“International Capital Markets and Finance Assignment”, n.d. https://studentshare.org/macro-microeconomics/1503961-international-capital-markets-and-finance.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF International Capital Markets and Finance

International Banking Law and Capital Markets

... of severe recessions. The mentioned scenario culminates the shrinkage of economy up to the significant extent. This state of affairs adds up considerable losses to the economy, which will take time to recover all these losses. Bibliography Books Bernd P. Delahaye, Basel III: Capital Adequacy and Liquidity after the Financial Crisis (Harvard Law School 2011) Greg N. Gregoriou, Operational Risk toward Basel III: Best Practices and Issues in Modeling, Management, and Regulation (John Willey & Sons 2009) L Egaire Humphrey, Basel III (International Book Marketing Service Limited 2011) Richard Barfield, A Practitioners Guide to Basel III and Banking Reform (Sweet & Maxwell Limited 2011) Walter W. Eubanks, Status of the Basel III Capital Adequacy...
16 Pages (4000 words) Assignment

International Finance & Capital Markets

...?International Finance & Capital Markets Executive Summary Growth of any business internally can encounter high risk in this dynamic world of business. Thus there is always a need for acquiring existing business by the entrepreneurs. The strategy is less risky and it eradicates the problems that are encountered if the business is going to get started from scratch (i.e. acquiring new customer base, recruiting efficient employees and also development of new products). Thus it is quite profitable for the companies if they go for acquiring efficient firms. The essay highlights the valuation of an acquisition plan that is done by United Kingdom’s leading engineering support service company, Babcock International Group PLC. The company has...
24 Pages (6000 words) Essay

The Performance of International Capital Markets

... signs included rapidly rising ratios of foreign and domestic debt to GDP as a consequence of external deficits readily financed by capital inflows (at least for a time), together with maturity and currency imbalances in national balance sheets. Standard market practices pushed local financial sectors toward taking long positions in domestic assets and short positions in foreign holdings. A private sector build-up of foreign currency borrowing (without proper hedging, despite the alleged ability of international capital markets to provide such services) was an immediate precursor of both the Mexican and East Asian crises. It was abetted by pro-cyclical financial regulation. Efforts made to improve National competitiveness: Creating...
7 Pages (1750 words) Case Study

Managing Capital Markets and finance/ Calculation

...Managing Capital Markets and finance/ Calculation Normally when the fed increases the money supply, they buy the securities in the open market to increase the reserves of private banks. Private Banks with increased reserves at their disposal can easily lend this money to borrowers at lower interest rates. Hence when the fed increases money supply, interest rates are expected to go down. 2. The relationship between the expected inflation and nominal interest rates is: Nominal interest rate = Real interest rate + Expected Inflation The logic behind this equation is that if the lenders do not charge premium for the expected inflation they might actually be giving the borrower cost of using lender’s money rather than charging the cost...
4 Pages (1000 words) Essay

International Corporate Finance and Financial Markets

Even the companies considered to be the biggest bet in the international business arena are going down with bankruptcy. Several others have asked their respective governments to provide a bail out for their failing financial situation. In such a scenario so filled with uncertainty and risks, it becomes extremely important for us to understand the complete scope of international business, the mergers and acquisitions, the bail outs and special schemes provided for the corporate finance by the government and the likes of it all. In the sections to follow in this paper, we will discuss all of the key points spanning the arena of international corporate finance and financial markets.
International investments have increased manifo...
14 Pages (3500 words) Essay

International Corporate Finance and Financial Markets

...International Corporate Finance and Financial Markets International Corporate Finance and Financial Markets Introduction Globalization is increasingly becoming a modern business strategy in the world today as companies as companies struggle to compete for the global market (Sercu, 2011). This has seen many large companies internationalize their operations. As a result, company managers, whether international or domestic, must have the knowhow required of multinational companies. This is reverberated by the increase in capital market integration taking place in the global market. This paper explores the significance of the international corporate finance and financial markets to global finance. To begin with, international corporate...
2 Pages (500 words) Essay

International Banking Law: Capital Markets and Loans

... (World Bank Publications 2001) Kapstein E.B., Essays in International Finance: Supervising International Banks: Origins and Implications of the Basle Accord (International Finance Section, Department of Economics, Princeton University 1991) Kwaw E.M.A, The Law & Practice of Offshore Banking & Finance (Praeger Publishers 1996) LIBF, International Banking Legal & Regulatory Aspects (Macmillan Publishers India Limited 2007) Roberts G., Law Relating to International Banking (first published 1998, Woodhead Publishing 1998) Articles Bondt G.D. and Lichtenberger J., ‘The Euro Are Corporate Bond Market: Where do we Stand Since the Introduction of the Euro?’ (2003) 4(4) E.B.O.R. 517-539 Clifford Chance Briefing Note, ‘Covered Bonds: Changes...
16 Pages (4000 words) Essay

International Money and Capital Markets

... policies hinder market flexibility and affect investors’ confidence negatively (Harberger, 2003; UNCTAD, 2013). Definition of current account and impact of exchange rate on current account The current account is an essential component of the balance of payment. In the international finance, balance of payment is defined as a record of all international monetary transactions of a country for a specific period of time, generally a year. All these transactions are further classified in current account and capital account. The current account reports transactions in terms of import and export of goods and services in an economy with other economies in the world. The current account focuses on net exchange of goods, net exchange of services...
8 Pages (2000 words) Research Paper

Accounting and capital markets

...% in last two years. In 2014, the quoted value of the stock was determined to be £7.85. the main reason for the poor performance can be loss of revenue in 2014 due to tarrif freeze and poor performance of Viridor (Yahoo finance, 2015a; Pennon Group Plc, 2015). Severn Trent: Severn Trent was recognised as a growth stock in 2012 even when its share price was undervalued. Severn Trent had the high P/E ratio suggesting strong growth prospect. It was however, observed recently that the stock did not performed really well in past two years. The rise in its market value was determined to be only by 9% in 2014. The raise was as low as £1.50. arguably, it did not perform as it was expected by its investors (Severn Trent, 2015; Yahoo finance, 2015b...
8 Pages (2000 words) Essay

International Trade Theory

 Further to this, it is also believed that international trade can bring substantial economic welfare to the countries however still most of the countries do not view it as a favorable thing. Despite having a very promising and bright outlook, international trade has been largely viewed with suspension and it is because of this that governments impose barriers to restrict international trade. There can be many reasons behind this act of imposing restrictions or blocking international trade however there are also benefits on the other side too.

International trade has driven the attention of many of the brilliant minds in economics therefore the origins of the economic theory on international trade owe much to the c...
6 Pages (1500 words) Case Study

Globalization and International Business: Starbucks Corporation

The Small Business Encyclopedia defines globalization as the process by which the economies of countries around the world become increasingly integrated over time. This integration occurs as technological advances expedite the trade of goods and services, the flow of capital, and the migration of people across international borders (globalization, Answers.com).
The shreds of evidence of globalization are all around us. For example, Hill (2005) cites an example of an American driving a car designed and produced in Germany that was assembled in Mexico from components made in Japan fabricated by Korean steel and Malaysian rubber. The car is filled with gasoline from oil pumped from off the coast of Africa, at a service station o...
12 Pages (3000 words) Case Study

Potential Benefits of International Trade

Conditions set for international trade have also changed in various nations. Today, interdependent is evident due to various global distributions. Examples are; transportation systems, the internet as well as satellite communication systems.
The establishment of WTO (World Trade Organisation) promoting equity in nations’ status, the international monetary Fund (IMF) besides the World Bank, has made stronger the anchorage of international trade. These organisations aid in reducing the trade barriers across boundaries. Nelson (2000). This is a study set out to make a comprehensive and vivid answer to the question, “Which are the benefits of international trade and why are trade restrictions imposed by countries?&rdq...
6 Pages (1500 words) Coursework

Project Planning Human Capital

Project planning involves a lot of factors and areas that we need to address for the effective management and handling of the project. The aim of this report is to provide a deep insight into some of the main areas that we need to address for the project of Adams's family farmhouse renovation. These issues are project team communication, project risk management, and deadline handling. Effective communication in a project provides a huge advantage regarding the better working and handling of the project. I have selected a very significant project regarding the preservation of the old and historical places. Here we require effective communication to provide better interaction among the designer, developers, and history preservation...
8 Pages (2000 words) Coursework

International Security Studies: Examination

Globalization affects international security in the sense that problems involving terrorism, the environment, religious extremism, weapons of mass destruction, and the economic crises have become more universal and widespread in character (Ivanov “Article”). As a result, these issues pose a greater threat to national and international stability and safety. More lives are now affected by threats to international security; these threats did not seem too ominous before the entry of globalization. Consequently, some extremists justify the use of mass weapons of destruction in order to guarantee their security. And as globalization continues to expand and to grow bigger as a phenomenon, threats to international security are...
7 Pages (1750 words) Assignment

International Law: Child Soldiers

Using children to fight wars is not only morally abhorrent but very bad very the physical and mental health of the children in question. That is in part why a series of international laws and treaties have come into effect to try to deal with this scourge. But the issue is more complicated than that. While child soldiers are victims of war crimes, they too can also perpetrate serious breaches of the law of armed conflict. Under normal circumstances, individuals who commit such acts, be they combatants or not,2 would be vulnerable to prosecution. However, because children in such situations are victims as well as perpetrators and because of the special protections afforded to children under international law, many have questioned w...
8 Pages (2000 words) Case Study

International Affairs v. Liberalism

As a matter of fact, Hoffman’s statement that “international affairs is the nemesis of liberalism” has a grain of truth in it and this is especially so after the 9/11 incident.
There are two schools of thought or perspectives that are used to view international affairs: liberalism and realism. The study of these two perspectives is significant to the idea posed by Stanley Hoffman because they determine the reasons why international affairs, according to him, does not only see eye-to-eye with liberalism but seems to stand on the opposing side of it.
Liberalism can be defined as having four elements: citizens; the legislature; property rights, and; a market-driven economy (Dunne 186). Realism, on the othe...
6 Pages (1500 words) Assignment

Capital Asset Pricing Model and Recent Developments

It is the most essential aspect of any venture. The important considerations that finance has within it, is that of profit and loss. The business as a whole or a person as an individual always strives to earn a profit. To earn a profit, one has to undertake uncertainties that are known as risks. Therefore, profit is also known as the reward for incurring risks.
In the present world of today, the capital market has come up as a viable investment opportunity for individuals all across the globe. People invest their hard money only with the expectation to earn profit or return. The stocks of various companies that are traded in the capital market are also known as capital assets. Prior to investing in any of the stock or capital...
7 Pages (1750 words) Assignment

Real Cost of Capital

Also, other academics criticize the models' failure to incorporate other determinants of risks such as firm size, book-to-market ratio, etc. then the plain correlation of the risk of the assets to the market. Despite these criticisms, many practitioners in the corporate world still use CAPM for capital budgeting. These issues are probed in this paper.
CAPM or the capital asset pricing model has been a tool in modern finance that has been extensively used for capital budgeting. The capital asset pricing model is useful in estimating the required return on an equity stock of a company (Perold 2004). Under the principle of finance that rational investors will require higher returns to compensate them when they undertake projects...
8 Pages (2000 words) Assignment

International Business: World Economic Forum and Davos 2010

... sense power consumption and power quality. A modest sheet of paper, 50,000 thinner than human hair, when stacked, nets a material 500 times stronger than steel and is changing the way airplanes, automobiles and electronics are made (Alpern, 2009). International Technological collaborations are taking place in the form of strategic alliances, joint ventures and intimate supplier-producer relationships. Such collaborations include activities such as joint development agreements, technology sharing and R&D contracts amongst others (Rycroft, 2002). ICT has pervaded every aspect of business and today the value chain depends on the use of technology to link the customers and suppliers. In the current dynamic and global markets, technology...
7 Pages (1750 words) Coursework

The Functions of International Financial Capital Markets

...International Financial Markets Assignment Question The function of Capital Markets in India “Capital markets channel savings to finance the longer-term investment plans of business, individuals and governments” (Viney, 2009). These are institutions that provide a market to raise capital for longer-term investments and also facilitate trading of financial assets. Capital markets include markets for stocks, bonds and derivatives. It has two mutually supporting and indivisible segments: the primary market and the secondary market. In the primary market companies issue new securities to raise funds. Hence it is also referred to the new issue market. The secondary market deals with securities that have already been issued by companies...
7 Pages (1750 words) Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Assignment on topic International Capital Markets and Finance for FREE!

Contact Us