1
Q
Functions International financial markets
A
- Maturity transformation: Short-term savings are converted into long-term investments.
- Risk transformation: Funds lent are split up into shares or bonds being a small part of the overall loan
- Liquidity: A financial market enables small savings to be added together to enable borrowers to borrow amounts that are beyond the means of any one investor
- Valuation: determining the worth of an asset
2
Q
Motives for using financial markets
A
Market imperfections (different interest rates, currencies, etc.) make investors and creditors look for opportunities in foreign markets
3
Q
Foreign exchange market
A
The foreign exchange market allows currencies to be exchanged to facilitate international trade or financial transactions.
4
Q
Spot market
A
if a buyer wants to purchase a particular currency in the spot market, they will pay the current market price and receive the currency immediately.
5
Q
futures contracts ( two parties )
A
Currency to be exchanged on a specific settlement date on a specific rate > hedge exchange rates
6
Q
Forward contract
A
Lock the exchange rate at which it will buy or sell the currency.
