BUSI 604 Chapter 5
Global financial markets
promote the exchange of goods and services across national borders. The
price of goods and services exchanged is based on supply and demand in the
global markets
Global and financial markets include both _____________ and ___________
market places that make cross-border exchange of goods and
services between buyers and sellers possible.
physical and virtual
Global financial markets are important to borrowers for two reasons
(1) to expand the supply of money (2) reduce the cost of money
In the United States, the Federal Reserve Bank is responsible for
regulating the growth of the economy, which is accomplished by the
increase or decrease of money supply
True
Inflation
Essentially decreases a consumer's purchasing power by making goods and
services more expensive, which leads to wage-price spirals because too
much money is circulating
Global financial markets are important to lenders for two major
reasons
(1) expanding lending opportunities (2) reducing risk
Financial institutions
commercial banks, credit unions, life insurance companies, and investment
companies
Lending options
Variable interest rate loans, Secured loan, Short-term loan, Up-front cash
Variable interest rate loans
the borrower and lender share the interest rate risks. lower interest rate with
rising along with prime interest rate over term of loan
Secured loan
interest rates on loans secured by some type of collateral property or savings
account shares
Short-term loan
traditionally, bear lower interest rates by comparison of long0term loans
Consumers attempt to offset inflation by exchanging the
(_____________) for something that is perceived to hold a value better
such as property, gold, or foreign currencies
lower-value currency
In ideal functioning markets, (__________) and (___________) assist in
the reduction of unavoidable risks associated with uncertainties,
such as unemployment, catastrophic losses, and diminished
business revenue
speculation and insurance
Speculators
buy and sell commodities with the intention of making profits on price
differentials across global markets
Minimizing economic risk
a major consideration and task across global financial markets
Foreign exchange market (FX)
a physical and virtual institutionalized structure through which the currency
of one country is exchanged for the currency of another country known as
exchange rate
Exchange rate
currency of one country being exchanged for the currency of another
Actual currencies change hands in FX markets transaction and can
also be complete electronically
False; Actual currencies DO NOT change hands in FX market transactions, but
are completed electronically
FX Market functions allow
(1) hedging of currency for protection from unexpected fluctuations in
exchange rates (2) exchanging of currency and international investments (3)
stabilization of weak currencies by purchasing more stable or "strong"
currencies
Major FX functions include
Conversion, hedging, arbitrage, and speculation
Convertible currencies
currencies that are easily exchanged for other currencies
Conversion rates
spot rates (or the day's rate offered by a dealer or a bank) and are quoted in
pairs against one another
Hedging
measures taken by a company or corporation to protect itself from the loss
that may occur because of fluctuations in the exchange rate of currenc
