Contents
International Financial Markets
Rationale
The global financial system (GFS) is the financial system consisting of institutions and regulators that act on the international level, as opposed to those that act on a national or regional level. The main players are the global institutions, such as International Monetary Fund and Bank for International Settlements, national agencies and government departments, e.g., central banks and finance ministries, private institutions acting on the global scale, e.g., banks and hedge funds, and regional institutions, e.g., the Eurozone.
Deficiencies and reform of the GFS have been hotly discussed in recent years.
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External links
Source: http://www.america.gov/publications/ejournalusa/0509.html
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Teaching and Learning Resources
Globalization & the Multinational Firm. The International Monetary System
Globalization (or Globalisation) refers to increasing global connectivity, integration and interdependence in the economic, social, technological, cultural, political, and ecological spheres.
A multinational corporation (MNC), also called a transnational corporation (TNC), or multinational enterprise
(MNE),[1] is a corporation or an enterprise that manages production or delivers services in more than one country. It can also be referred to as an international corporation. The International Labour Organization (ILO) has defined[citation needed] an MNC as a corporation that has its management headquarters in one country, known as the home country, and operates in several other countries, known as host countries.
The Dutch East India Company was the first multinational corporation in the world and the first company to issue stock.[2] It was also arguably the world's first megacorporation, possessing quasi-governmental powers, including the ability to wage war, negotiate treaties, coin money, and establish colonies.[3]
The first modern multinational corporation is generally thought to be the East India Company.[4] Many corporations have offices, branches or manufacturing plants in different countries from where their original and main headquarters is located.
Some multinational corporations are very big, with budgets that exceed some nations' GDPs. Multinational corporations can have a powerful influence in local economies, and even the world economy, and play an important role in international relations and globalization.
- Market imperfections
- International power
- Micro-multinationals
- Criticism of multinationals
- References
See also
International monetary systems are sets of internationally agreed rules, conventions and supporting institutions that facilitate international trade, cross border investment and generally the reallocation of capital between nation states. They provide means of payment acceptable between buyers and sellers of different nationality, including deferred payment. To operate successfully, they need to inspire confidence, to provide sufficient liquidity for fluctuating levels of trade and to provide means by which global imbalances can be corrected. The systems can grow organically as the collective result of numerous individual agreements between international economic actors spread over several decades. Alternatively, they can arise from a single architectural vision as happened at Bretton Woods in 1944.
- Bretton Woods Project
- Eurodad
- Exchange rate regime
- Foreign exchange reserves
- Financial crisis of 2007–2010
- G20
- Global financial system
- Golden Age of Capitalism - for a comparison of the economic performance during the Bretton Woods and post Bretton Woods period
- History of money
- References
- IMS in the News
- The Bretton Woods Project
- The Rise and Fall of Betton Woods
- Eurodad: Bretton Woods II conference FAQs
- Eurodad: IMF back in business as Bretton Woods II conference announced
- UN Interactive Panel on the Global Financial Crisis
- UN Commission of Experts on Reform of the International Financial System
- G20 official website
- G20 Info Centre (Univ of Toronto)
The Balance of Payments. The Market for Foreign Exchange
Tutorials
Readings
A balance of payments (BOP) sheet is an accounting record of all monetary transactions between a country and the rest of the world.[1] These transactions include payments for the country's exports and imports of goods, services, and financial capital, as well as financial transfers. The BOP summarises international transactions for a specific period, usually a year, and is prepared in a single currency, typically the domestic currency for the country concerned. Sources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items. Uses of funds, such as for imports or to invest in foreign countries, are recorded as a negative or deficit item.
When all components of the BOP sheet are included it must balance – that is, it must sum to zero – there can be no overall surplus or deficit. For example, if a country is importing more than it exports, its trade balance will be in deficit, but the shortfall will have to be counter balanced in other ways – such as by funds earned from its foreign investments, by running down reserves or by receiving loans from other countries.
While the overall BOP sheet will always balance when all types of payments are included, imbalances are possible on individual elements of the BOP, such as the current account. This can result in surplus countries accumulating hoards of wealth, while deficit nations become increasingly indebted. Historically there have been different approaches to the question of how to correct imbalances and debate on whether they are something governments should be concerned about. With record imbalances held up as one of the contributing factors to the financial crisis of 2007–2010, plans to address global imbalances are now high on the agenda of policy makers for 2010.
- Composition of the balance of payments sheet
- Imbalances
- Balancing mechanisms
- History of balance of payments issues
- EUROPE Balance of payments
- Exchange rate regime
- Foreign exchange reserves
- History of money
- IMF Balance of Payments Manual
- Sovereign default
- Sudden stop (economics)
- Notes and citations
- References
- What is the Balance of Payments?
- Data
- Analysis
- Where Do U.S. Dollars Go When the United States Runs a Trade Deficit? from Dollars & Sense magazine
- Paper from the Bank of Canada on challenges for 2010 regarding current imbalances, in context of international monetary system history
- European Central Bank paper on the accumulation of reserves and imbalances since 1995
- Dollar hegemony - analysis on BOP issues from a progressive Chinese perspective.
The Foreign Exchange is a R&B/electronica/hip hop duo consisting of American rapper/singer Phonte Coleman and Dutch producer Nicolay. [1]
International Parity Relationships & Forecasting Exchange Rates. International Banking and Money Market
Tutorials
- International Parity Relationships & Forecasting Exchange Rates
- International Banking and Money Market
Readings
- International Parity Relationships
- International Parity Relationships and their implication for international finance
The money market is a component of the financial markets for assets involved in short-term borrowing and lending with original maturities of one year or shorter time frames. Trading in the money markets involves Treasury bills, commercial paper, bankers' acceptances, certificates of deposit, federal funds, and short-lived mortgage- and asset-backed securities. [1] It provides liquidity funding for the global financial system.
- Liquidity crisis
- Money market account
- Money fund
- Money supply
- Overnight market
- Sweep account
- Lombard Street, A Description of the Money Market, one of the earliest popular books on the money market
- References
International Bond Market. International Equity Markets
Tutorials
Readings
The bond market (also known as the debt, credit, or fixed income market) is a financial market where participants buy and sell debt securities, usually in the form of bonds. As of 2009, the size of the worldwide bond market (total debt outstanding) is an estimated $82.2 trillion,[1] of which the size of the outstanding U.S. bond market debt was $31.2 trillion according to BIS (or alternatively $34.3 trillion according to SIFMA). [1]
Nearly all of the $822 billion average daily trading volume in the U.S. bond market [2] takes place between broker-dealers and large institutions in a decentralized, over-the-counter (OTC) market. However, a small number of bonds, primarily corporate, are listed on exchanges. References to the "bond market" usually refer to the government bond market, because of its size, liquidity, lack of credit risk and, therefore, sensitivity to interest rates. Because of the inverse relationship between bond valuation and interest rates, the bond market is often used to indicate changes in interest rates or the shape of the yield curve. |
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Specific
- References
A stock market or equity market is a public (a loose network of economic transactions, not a physical facility or discrete entity) for the trading of company stock (shares) and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.
The size of the world stock market was estimated at about $36.6 trillion at the start of October 2008.[1] The total world derivatives market has been estimated at about $791 trillion face or nominal value,[2] 11 times the size of the entire world economy.[3] The value of the derivatives market, because it is stated in terms of notional values, cannot be directly compared to a stock or a fixed income security, which traditionally refers to an actual value. Moreover, the vast majority of derivatives 'cancel' each other out (i.e., a derivative 'bet' on an event occurring is offset by a comparable derivative 'bet' on the event not occurring). Many such relatively illiquid securities are valued as marked to model, rather than an actual market price.
The stocks are listed and traded on stock exchanges which are entities of a corporation or mutual organization specialized in the business of bringing buyers and sellers of the organizations to a listing of stocks and securities together. The largest stock market in the United States, by market cap, is the New York Stock Exchange, NYSE. In Canada, the largest stock market is the Toronto Stock Exchange. Major European examples of stock exchanges include the London Stock Exchange, Paris Bourse, and the Deutsche Börse (Frankfurt Stock Exchange). Asian examples include the Tokyo Stock Exchange, the Hong Kong Stock Exchange, the Shanghai Stock Exchange, and the Bombay Stock Exchange. In Latin America, there are such exchanges as the BM&F Bovespa and the BMV.
- Trading
- Market participants
- History
- Importance of stock market
- Stock market index
- Derivative instruments
- Leveraged strategies
- New issuance
- Investment strategies
- Taxation
US specific
List
- List of recessions
- List of stock exchanges
- List of market opening times
- List of stock market crashes
- List of stock market indices
Futures and Options on Foreign Exchange. Currency & Interest Rate Swaps
Tutorials
Readings
A futures exchange or derivatives exchange is a central financial exchange where people can trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future.
- History of futures exchanges
- Nature of contracts
- Standardization
- Derivatives Clearing
- Central Counterparty
- Margin and Mark-to-Market
- Regulators
- List of futures exchanges
- List of traded commodities
- Commodity markets
- Currency market
- Stock markets
- Bond market
- Trader (finance)
- Paper trading
- References
In finance, a foreign exchange option (commonly shortened to just FX option or currency option) is a derivative financial instrument where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date; see Foreign exchange derivative.
The FX options market is the deepest, largest and most liquid market for options of any kind in the world. Most of the FX option volume is traded OTC and is lightly regulated, but a fraction is traded on exchanges like the International Securities Exchange, Philadelphia Stock Exchange, or the Chicago Mercantile Exchange for options on futures contracts. The global market for exchange-traded currency options was notionally valued by the Bank for International Settlements at $158,300 billion in 2005.
- Example
- Terms
- Hedging with FX options
- Valuing FX options: The Garman-Kohlhagen model
- Risk Management
A currency swap is a foreign-exchange agreement between two parties to exchange aspects (namely the principal and/or interest payments) of a loan in one currency for equivalent aspects of an equal in net present value loan in another currency; see Foreign exchange derivative. Currency swaps are motivated by comparative advantage.[1] A currency swap should be distinguished from a central bank liquidity swap. |
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A swap is a derivative in which one party exchanges a stream of interest payments for another party's stream of cash flows. Interest rate swaps can be used by hedgers to manage their fixed or floating assets and liabilities. They can also be used by speculators to replicate unfunded bond exposures to profit from changes in interest rates. Interest rate swaps are very popular and highly liquid instruments.
- Swap rate
- Interest rate cap and floor
- Equity swap
- Total return swap
- Inflation derivatives
- Eurodollar
- Constant maturity swap
- FTSE MTIRS Index
- External links
- Bank for International Settlements - Semiannual OTC derivatives statistics
- Investopedia - Spreadlock - An interest rate swap future (not an option)
- Basic Fixed Income Derivative Hedging - Article on Financial-edu.com.
- Hussman Funds - Freight Trains and Steep Curves
- Interest Rate Swap Calculator
- "All about money rates in the world: Real estate interest rates", WorldwideInterestRates.com
International Portfolio Investments
Tutorials
Readings
Portfolio investmentThe purchase of stocks, bonds, and money market instruments by foreigners for the purpose of realizing a financial return, which does not result in foreign management, ownership, or legal control.
Some examples of portfolio investment are:
Factors affecting international portfolio investment: 1. tax rates on interest or dividends (investors will normally prefer countries where the tax rates are relatively low) 2. interest rates (money tends to flow to countries with high interest rates) 3. exchange rates (foreign investors may be attracted if the local currency is expected to strengthen)
International Portfolio Investment: Theory, Evidence, and Institutional Framework Portfolio investment is part of the capital account on the balance of payments statistics. A portfolio investment is in contrast to a direct investment. How to construct a global investment portfolio |
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Management of Transaction Exposure
Tutorials
Readings
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Foreign Direct Investment. International Capital Structure and the Cost of Capital
Tutorials
Readings
Foreign direct investment (FDI) or foreign investment refers to long term participation by country A into country B. It usually involves participation in management, joint-venture, transfer of technology and expertise. There are two types of FDI: inward foreign direct investment and outward foreign direct investment, resulting in a net FDI inflow (positive or negative) and "stock of foreign direct investment", which is the cumulative number for a given period. Direct investment excludes investment through purchase of shares .[1]
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^ https://www.cia.gov/library/publications/the-world-factbook/docs/notesanddefs.html?countryName=Iran&countryCode=ir®ionCode=me#2198
^ http://www.bea.gov/international/xls/table1.xls
^ U.S. Reforms Promote Openness Retrieved on 2010-03-10
^ Foreign Direct Investment Facts and Myths Retrieved on 2010-03-10
^ Benefits of FDI The International Trade Administration. Retrieved on 2010-03-10
^ Foreign direct investment in China jumps 32% CBC Canada. Retrieved on 2010-03-10
^ FDI inflows plunge by about 60% in August Economic Times (India Times) 2010-10-22
http://www.chengduhitech.co.uk/Guide/Investment_Costs.asp 2010-11-10
In finance, capital structure refers to the way a corporation finances its assets through some combination of equity, debt, or hybrid securities. A firm's capital structure is then the composition or 'structure' of its liabilities. For example, a firm that sells $20 billion in equity and $80 billion in debt is said to be 20% equity-financed and 80% debt-financed. The firm's ratio of debt to total financing, 80% in this example, is referred to as the firm's leverage. In reality, capital structure may be highly complex and include dozens of sources. Gearing Ratio is the proportion of the capital employed of the firm which come from outside of the business finance, e.g. by taking a short term loan etc.
The Modigliani-Miller theorem, proposed by Franco Modigliani and Merton Miller, forms the basis for modern thinking on capital structure, though it is generally viewed as a purely theoretical result since it assumes away many important factors in the capital structure decision. The theorem states that, in a perfect market, how a firm is financed is irrelevant to its value. This result provides the base with which to examine real world reasons why capital structure is relevant, that is, a company's value is affected by the capital structure it employs. Some other reasons include bankruptcy costs, agency costs, taxes, and information asymmetry. This analysis can then be extended to look at whether there is in fact an optimal capital structure: the one which maximizes the value of the firm.
- Cost of capital
- Corporate finance
- Debt overhang
- Discounted cash flow
- Enterprise value
- Financial modeling
- Financial economics
- Pecking Order Theory
- Weighted average cost of capital
- Further reading
- References
The cost of capital is a term used in the field of financial investment to refer to the cost of a company's funds (both debt and equity), or, from an investor's point of view "the shareholder's required return on a portfolio of all the company's existing securities".[1] It is used to evaluate new projects of a company as it is the minimum return that investors expect for providing capital to the company, thus setting a benchmark that a new project has to meet.
- Summary
- Cost of debt
- Cost of equity
- Weighted average cost of capital
- Capital structure
- Modigliani-Miller theorem
- References
- Further reading
External links
International Capital Budgeting. Multinational Cash Management
Tutorials
Readings
Capital budgeting (or investment appraisal) is the planning process used to determine whether a firm's long term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth pursuing. It is budget for major capital, or investment, expenditures.[1]
Many formal methods are used in capital budgeting, including the techniques such as
- Accounting rate of return
- Net present value
- Profitability index
- Internal rate of return
- Modified internal rate of return
- Equivalent annuity
These methods use the incremental cash flows from each potential investment, or project Techniques based on accounting earnings and accounting rules are sometimes used - though economists consider this to be improper - such as the accounting rate of return, and "return on investment." Simplified and hybrid methods are used as well, such as payback period and discounted payback period.
- Net present value
- Internal rate of return
- Equivalent annuity method
- Real options
- Ranked Projects
- Funding Sources
- External links and references
External links
In United States banking, cash management, or treasury management, is a marketing term for certain services offered primarily to larger business customers. It may be used to describe all bank accounts (such as checking accounts) provided to businesses of a certain size, but it is more often used to describe specific services such as cash concentration, zero balance accounting, and automated clearing house facilities. Sometimes, private banking customers are given cash management services.
External links
Exports and Imports. International Tax Environment
Tutorials
Readings
International trade is exchange of capital, goods, and services across international borders or territories.[1] In most countries, it represents a significant share of gross domestic product (GDP). While international trade has been present throughout much of history (see Silk Road, Amber Road), its economic, social, and political importance has been on the rise in recent centuries.
Industrialization, advanced transportation, globalization, multinational corporations, and outsourcing are all having a major impact on the international trade system. Increasing international trade is crucial to the continuance of globalization. Without international trade, nations would be limited to the goods and services produced within their own borders.
International trade is in principle not different from domestic trade as the motivation and the behavior of parties involved in a trade do not change fundamentally regardless of whether trade is across a border or not. The main difference is that international trade is typically more costly than domestic trade. The reason is that a border typically imposes additional costs such as tariffs, time costs due to border delays and costs associated with country differences such as language, the legal system or culture.
Another difference between domestic and international trade is that factors of production such as capital and labour are typically more mobile within a country than across countries. Thus international trade is mostly restricted to trade in goods and services, and only to a lesser extent to trade in capital, labor or other factors of production. Then trade in goods and services can serve as a substitute for trade in factors of production.
Instead of importing a factor of production, a country can import goods that make intensive use of the factor of production and are thus embodying the respective factor. An example is the import of labor-intensive goods by the United States from China. Instead of importing Chinese labor the United States is importing goods from China that were produced with Chinese labor.
International trade is also a branch of economics, which, together with international finance, forms the larger branch of international economics.
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The Expected Benefits of Trade Liberalization for World Income and Development: Opening the "Black Box" of Global Trade Modeling by Antoine Bouët (2008)
The McGill Faculty of Law runs a Regional Trade Agreements Database that contains the text of almost all preferential and regional trade agreements in the world. ptas.mcgill.ca
Interactive Ricardian Model Simulator
Consumers for World Trade Education Fund electronic trade library
International trade, Encyclopædia Britannica
Benefits of International Trade
Should trade be considered a human right?
Penn Program on Regulation's Import Safety Page
Articles on EU international trade in Statistics explained.
The term export is derived from the conceptual meaning as to ship the goods and services out of the port of a country. The seller of such goods and services is referred to as an "exporter" who is based in the country of export whereas the overseas based buyer is referred to as an "importer". In International Trade, "exports" refers to selling goods and services produced in home country to other markets.[1]
Any good or commodity, transported from one country to another country in a legitimate fashion, typically for use in
trade. Export goods or services are provided to foreign consumers by domestic producers.[2]
Export of commercial quantities of goods normally requires involvement of the customs authorities in both the country of export and the country of import. The advent of small trades over the internet such as through Amazon and e-Bay have largely bypassed the involvement of Customs in many countries because of the low individual values of these trades. Nonetheless, these small exports are still subject to legal restrictions applied by the country of export. An export's counterpart is an import.
- Definition
- History
- Process
- National regulations
- Barriers
- Exports and free trade
- Export strategy
- Challenges
- Statistical data
- Commodity currency
- Export-oriented industrialization
- Export performance
- Export-led growth
- List of countries by exports
- Sales
- International trade
- Import
- Notes
The term "import" is derived from the conceptual meaning as to bring in the goods and services into the port of a country. The buyer of such goods and services is referred to an "importer" who is based in the country of import whereas the overseas based seller is referred to as an "exporter".[1] Thus an import is any good (e.g. a commodity) or service brought in from one country to another country in a legitimate fashion, typically for use in trade. It is a good that is brought in from another country for sale.[2] Import goods or services are provided to domestic consumers by foreign producers. An import in the receiving country is an export to the sending country.
Imports, along with exports, form the basis of international trade. Import of goods normally requires involvement of the customs authorities in both the country of import and the country of export and are often subject to import quotas, tariffs and trade agreements. When the "imports" are the set of goods and services imported, "Imports" also means the economic value of all goods and services that are imported. The macroeconomic variable I usually stands for the value of these imports over a given period of time, usually one year.
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Many countries impose corporate tax or company tax on the income or capital of some types of legal entities. A similar tax may be imposed at state or lower levels. The taxes may also be referred to as income tax or capital tax. Entities treated as partnerships are generally not taxed at the entity level. Most countries tax all corporations doing business in the country on income from that country. Many countries tax all income of corporations organized in the country. Company income subject to tax is often determined much like taxable income for individuals. Generally, the tax is imposed on net profits. In some jurisdictions, rules for taxing companies may differ significantly from rules for taxing individuals. Certain corporate acts, like reorganizations, may not be taxed. Some types of entities may be exempt from tax. Many countries tax corporate entities on income and also tax the owners when the corporation pays a dividend. Where the owners are taxed, a withholding tax may be imposed. Generally, these taxes on owners are not referred to as corporate tax. |
- Overview
- Corporation defined
- Taxation of corporations
- Taxable income
- Corporate tax rates
- Distribution of earnings
- Other corporate events
- Interest deduction limitations
- Foreign corporation branches
- Losses
- Groups of companies
- Transfer pricing
- Taxation of Shareholders
- Alternative tax bases
- Tax returns
- Further reading
Canada
United Kingdom
United States
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Recommended
Texts
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Multinational
Business Finance, Check the availability and buy your books from our Bookshop. |
The Ninth Edition of this market leader communicates the complexities of international finance clearly and authoritatively. Maintaining its hallmark managerial focus, the new edition features a streamlined presentation, expanded attention to emerging markets, several new chapters, and four new decision cases with an emerging-markets focus
New features:
- Chapter
on International Acquisitions and Valuation (Chapter 15).
- Chapter on Adjusting for Risk in Foreign Investments (Chapter 16).
- Expanded focus throughout on issues and emerging markets.
- Four new decision cases explore central issues in emerging markets.
- Accompanying new Casebook by Michael Moffett includes in-depth decision cases keyed to the coverage in the Eiteman text.
- New and expanded end-of-chapter questions,and new Internet exercises.
- Top-notch writing.
Resources
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International Journal of Theoretical and Applied Finance (IJTAF) |
