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Eurocurrency Market

Historically, this was the Eurodollar market because it was based on US dollars in European banks US dollars came to be important in Europe in the 1950s, (after WWII, during the Cold War between US and the Soviet Union) Soviet Union shifted its dollar accounts out of US to Britain in case US decided to seize the money Britain had currency controls on British pounds US dollars were not controlled US had controls on interest rates that could be paid to depositors, these didnt apply to British banks with US dollars

Eurocurrency Market
Also, in 1960s, US introduced policies that increased demand for Eurodollars
Federal Reserve introduced lending guidelines to discourage loans to foreigners, also taxed these loans Vietnam war caused US to tighten money supply at home, and so, US dollars were cheaper to borrow in Europe than in US

Eurocurrency Market
The rate of interest on loans is based on the London Interbank Offered Rate (LIBOR) LIBOR is found by an average of the rate of interest that major banks are using when lending money to each other Other parties can borrow at a rate that is above LIBOR Note: international banks dealing in loans in foreign currency are still sometimes called eurobanks even though it may be a Carribean bank loaning yen.

Eurocurrency Market
The effect of eurocurrency markets is that international financial transactions are very easy. They have also encouraged the relaxation of barriers to capital flows (since such a barrier will simply encourage this market) There are concerns though, because the central bank of an issuing country has no control over eurocurrency, and so it can increase home market instability. This is a bigger concern for the US, because its currency is a major part of the Eurocurrency market.

'Spot Market'
A commodities or securities market in which goods are sold for cash and delivered immediately. Contracts bought and sold on these markets are immediately effective. A futures transaction for which commodities can be reasonably expected to be delivered in one month or less. Though these goods may be bought and sold at spot prices, the goods in question are traded on a forward physical market.

The spot market is also called the "cash market" or "physical market", because prices are settled in cash on the spot at current market prices, as opposed to forward prices.

FOREIGN EXCHANGE MARKET

The foreign exchange market is the place where one currency is bought or sold for another currency

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FOREIGN EXCHANGE MARKET TYPES & PLAYERS


RETAIL MARKET

WHOLESALE MARKET OR INTERBANK MARKET

TRAVELLERS TOURISTS

COMMERCIAL BANKS FOREX BROKERS CENTRAL BANKS MNCs INDIVIDUALS AND SMEs

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PLAYERS
RETAIL MARKET THE TRAVELLERS AND TOURISTS EXCHANGE ONE CURRENCY FOR ANOTHER IN THE FORM OF CURRENCY NOTS OR TRAVELLERS CHEQUES.

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PLAYERS
WHOLESALE MARKET COMMERCIAL BANKS participates in foreign exchange on behalf of their clients - At retail level enters through inter bank market or through specialized brokers. - At bulk level enters through inter-bank wholesale market or international banks and brokers
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PLAYERS
WHOLESALE MARKET FOREX BROKERS They act as agents who facilitate trading between dealers.

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PLAYERS
WHOLESALE MARKET CENTRAL BANKS Central banks frequently intervene in the foreign exchange market to maintain the exchange rate at desired level

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PLAYERS
WHOLESALE MARKET MNCs MNCs are participating in forward exchange market

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PLAYERS
WHOLESALE MARKET INDIVIDUAL They took part in foreign exchange market for their investment and commercial activities

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CAPITAL MARKET
A capital market is a market for securities (debt or equity), where business enterprises (companies) and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year
PRIMARY MARKET SECONDARY MARKET

PRIMARY MARKETS
PRIMARY MARKET EQUITY : FIRST TIME SALES OF

also called the new issue market, is the market for issuing new securities. Many companies, especially small and medium scale, enter the primary market to raise money from the public to expand their businesses. They sell their securities to the public through an initial public offering.

SECONDARY MARKET

MONEY MARKET
The money market is a component of the financial markets for assets involved in shortterm borrowing and lending with original maturities of one year or shorter time frames. Trading in the money markets involves Treasury bills, commercial paper, certificates of deposit, federal funds etc.

'Cross Currency'
Is an currency rate between a currency pair where neither currency is the US dollar. The currency exchange rate can be calculated from the US dollar exchange rates for two currency, using either European or American terms quotations. Ex:- the euro/pound cross rate can be calculate from American term quotation.

GDR
A bank certificate issued in more than one country for shares in a foreign company. The shares are held by a foreign branch of an international bank. The shares trade as domestic shares, but are offered for sale globally through the various bank branches. A financial instrument used by private markets to raise capital denominated in either U.S. dollars or euros. A GDR is very similar to an American Depositary Receipt.

A global depositary receipt (GDR) is a certificate issued by a depository bank, which purchases shares of foreign companies and deposits it on the account. GDRs represent ownership of an underlying number of shares. Several international banks issue GDRs, such as JPMorgan Chase, Citigroup, Deutsche Bank, Bank of New York

International Bond market


Governments and corporations issue bonds, which are a form of borrowing a fixed amount for a fixed period of time. The maturity period is the time of the loan. Notes: maturity is less than 10 years Bonds: maturity is 10 years or longer

International Bond market


Bonds have a face value or maturity value which is the value of the bond at the maturity date.
For example, a bond may have a value of $5,000 upon redemption at maturity.

Bonds will also have interest payments, or a coupon rate which are usually paid yearly.
For example, a $1,000 bond paying 5% coupon rate will yield an annual payment of $50.

International Bond market


Bond underwriters are banks or financial institutions that sell the bonds for the issuing entity. If a bond has an underwriter, then the underwriter essentially buys all the bonds and resells them. It receives a fee for this service, and because it bears the risk that the bond issue will not sell out.

International Bond market


A sometimes blurred distinction of bond markets Foreign bond market is used when a borrower in one country issues bonds in a second, host, country. Sale is mainly to residents of the host country Eurobond market is used when a borrower in one country issues bonds in many countries, using a multinational loan syndicate. These bonds could be in several currencies.

International Bond market


Size of market: The stock of bonds and notes at the end of 2003 was $11,681.4 billion Issued in Euro area $4,524.2 US $3,105.9 Japan $ 120.9 Offshore centers$ 750.4 Other countries $ 564.3 Intl Institutions $ 507.1

International Bond market


More were issued in Euros than US dollars ($5,104.8 Euros, $4,655.6 US$, $859.8 British ) $8,546.5 bil issued by commercial banks and other financial institutions.

FRNs
Floating rate notes (FRNs) are bonds that have a variable coupon, equal to a money market reference rate, like LIBOR or federal funds rate, plus a spread.