International Financial Markets

Flashcards covering key concepts from Chapter 9 on International Financial Markets.

What is the International Capital Market?

A network of individuals, companies, financial institutions, and governments investing and borrowing across national boundaries.

What is Securitization?

The process of converting an illiquid asset into a security.

What is a Eurobond?

A bond issued outside the country in whose currency it is denominated.

What is a Foreign Bond?

A bond sold outside the borrower’s country and denominated in the currency of the country in which it is sold.

What is the Eurocurrency Market?

A market consisting of all the world’s currencies that are banked outside their countries of origin.

What does LIBOR stand for?

London Interbank Offer Rate; a benchmark interest rate for loans between banks.

What is a Spot Rate?

Exchange rate requiring delivery of the traded currency within two business days.

What is a Forward Rate?

Exchange rate at which two parties agree to exchange currencies on a specified future date.

What is a Currency Swap?

Simultaneous purchase and sale of foreign exchange for two different dates.

What is Countertrade?

A practice of selling goods or services that are paid for, in whole or in part, with other goods or services.

How do international capital markets facilitate global trade?

By providing avenues for investment and capital flow across borders.

What role do financial institutions play in the International Capital Market?

They act as intermediaries that help facilitate borrowing and lending between parties.

How does securitization impact liquidity in financial markets?

It increases liquidity by converting less liquid assets into tradable securities.

What currency is typically used in Eurobonds?

The currency of the country in which they are issued, not the borrower's country.

What are the benefits of investing in Foreign Bonds?

Potential for diversification and higher returns than domestic bonds.

Why is the Eurocurrency Market significant?

It allows for the trading of currencies outside their country of origin, enhancing global liquidity.

How is the LIBOR rate determined?

It is based on the interest rates at which major global banks are willing to lend to one another.

What is the risk associated with Spot Rates?

They can fluctuate rapidly, leading to potential losses if rates change unfavorably.

What advantages does a Forward Rate agreement offer?

It allows parties to lock in exchange rates for future transactions, reducing uncertainty.

What is a primary reason for engaging in Countertrade?

It can facilitate trade between countries with currency restrictions or balance of payments issues.