Chapter 3

International Financial
Markets
Learning Objectives

 To describe the background

and corporate use of the
following international financial
markets:
 Foreign Exchange market,
 Eurocurrency market,
 Euro credit market
 Eurobond market, and
 International stock markets.
 The Foreign Exchange Market

• Foreign Exchange Market is the largest,

most globally integrated and most active
financial market in the world.
• It is open somewhere in the world 365 days
a year, 24 hours a day.
Global Currency Trading
 The Foreign Exchange Market

 A foreign exchange transaction is an

agreement between a buyer and a seller
that a fixed amount of one currency will
be delivered for some other currency at a
specified date.
 The Foreign Exchange Market

• Individual currencies are referred by

standardized three-letter codes:

• USD EUR
• JPY GBP
• AUD SGD
• MXN KRW
• CHF INR
• RUB CNY
 The Foreign Exchange Market

• Foreign exchange market facilitates

household, corporations and sovereigns
across the world to safely and efficiently
exchange assets denominated in one
currency for another currency.
 Functions of the FX Market

• Facilitate international trade and

capital transactions across countries.
• Provide ‘hedging’ facilities to manage
foreign exchange risk.
 Market Participants

• Foreign Exchange market consists of

two tiers:
– inter-bank or wholesale market
– retail or client market
 Participants in the FX Market

 Participants include:
 Dealers maintain inventory of specialized
currencies
 Speculators seek profit from exchange
rate movements
 Arbitragers profit from simultaneous
exchange rate differences of different
markets
 Central bank and Treasuries
 MNC, Investors, Individuals
 Market Participants: Bank and
Nonbank Foreign Exchange Dealers
 Banks and a nonbank foreign exchange dealers operate
in both the interbank and client markets.
 Dealers actively ‘make a market’ in foreign exchange.
 They stand willing at all times to buy and sell those currencies in
which they specialize and thus maintain an “inventory” position
in those currencies.
 The profit from buying foreign exchange at a “bid” price and
reselling it at a slightly higher “offer” or “ask” price.
 Dealers engage in interbank trading between banks and
nonbank dealers(investment banks, mutual funds, pension
funds, hedge funds) to adjust the inventory position they hold in
various foreign currencies and serve the retail clients (MNCs) in
conducting foreign commerce.
 Market Participants: FX Brokers

 Match dealers' orders to buy and sell currencies for

a fee. But do not take position themselves.
 Banks engage in foreign exchange trading are
connected through sophisticated
telecommunications network and electronic
trading platform.
 Thomson Reuters, Telerate, Bloomberg leading
suppliers of FX rate information and trading systems.
 Market Participants: Individuals and
Firms

 Individuals and firms (such as importers, exporters and

MNEs) conduct commercial and investment
transactions in the foreign exchange market.
 Some of the participants use the market to “hedge”
foreign exchange risk.
 Market Participants: Speculators and
Arbitragers

 Speculators and arbitragers seek to profit from trading in the

market itself.
 Banks act as exchange dealers and as speculators and
arbitragers.
 They operate in their own interest, without a need or
obligation to serve clients.
mostly in financial institution
 While speculators seek all the profit from exchange rate
changes, arbitragers try to profit from simultaneous exchange
rate differences in different markets.
don’t take exchange rate risk
 Market Participants: Central Banks
and Treasuries

 Central banks use the market to acquire or use their

country’s foreign exchange reserves to influence the
value at which their own currency is traded.
 The motive is not to earn a profit as such, but rather to
influence the foreign exchange value of their currency
in a manner that will benefit the interests of their
citizens.
 Recent Trends
Bank of International Settlements (BIS) in Basel,
Switzerland (2022)

• Trading in OTC FX markets reached $7.5 trillion per day in April

2022, up 14% from $6.6 trillion three years earlier.
• Overall, inter-dealer trading, i.e., trading among “reporting dealers”,
reached $3.5 trillion or 46% of global turnover in April 2022.
Participants: Share of Trading
• Financial Institutions the largest participants
– Share of Trading between reporting dealers
– Smaller Banks (not as reporting dealers)
– Hedge funds
– Institutional Investors such as pension funds, mutual funds,
insurance companies
– Non-Financial Customers (Corporations)
Highlights from the 2022 Triennial Survey of
turnover in OTC FX markets:
• Turnover of FX swaps accounted for 51% of global turnover,
up from 49% in 2019. The share of spot trades fell to 28% from
30% in 2019, and that of outright forwards remained
unchanged at 15%.
• The US dollar was on one side of 88% of all trades
(unchanged from 2019). The share for the euro decreased
marginally to 31% (from 32% in 2019), and those for the
Japanese yen and the pound sterling remained unchanged
at 17% and 13%, respectively. The renminbi’s share rose to
7%, making it the fifth most traded currency in 2022.
• Trading at sales desks in five jurisdictions – the United
Kingdom, the United States, Hong Kong SAR, Singapore and
Japan – amounted to 78% of all FX trading.
Foreign exchange market
turnover by instrument
Foreign exchange market
turnover by counterparty
Foreign exchange market
turnover by currency and
currency pairs1
 Foreign Exchange
Transactions
Spot transactions
 The market for immediate exchange or
within 2 business days after the transactions has
been concluded, is known as the spot market.

 “T+2” delivery meaning that the exchange of

currencies is settled two business days after the trade is
agreed.
 Foreign Exchange Transactions

Forward transactions
• The forward market enables an MNC to lock in the
exchange rate at which it will buy or sell a certain quantity of
currency on a specified future date.
• Forward market involves contracting today for the
future purchase or sale of foreign exchange.
• Exchange rate established at the time of agreement,
but payment and delivery are not required until
maturity.
Forward Contract

𝑡0 t90

Spot=THB30/U.S$ Spot =THB34/U.S.$

Forward 90 days = Buy/Sell at Forward

THB33/U.S/$ Rate
 Outright Forward Contracts

• Dealers quote forward rates for a variety of

standard forward settlement dates such as one
week, one month, 90 days .
• A settlement date of a three-month forward
transaction is three calendar months from the
spot settlement date for the currency.
• In the OTC market traders can arrange forward
contracts for any settlement date and for any
size.
 Futures Contract

• Spot and forward foreign exchange markets

are over – the – counter markets(OTC)that is
trading does not take place in a central
marketplace.
• Currency Futures contract traded in more liquid
market(Organized Exchange)
• Price set today for settlement on a specified future
date.
• Available for fixed contract amount and fixed
settlement date.
 Foreign Exchange Transactions

FX SWAP
 Involves a package of a spot and a forward
contract
 Simultaneous purchase and sale of a given
amount of FX for two different value dates
 Purchase and sale conducted with same
counterparty.
 Spot- Forward, Forward-Forward
 FX Swap
1. Used by market participants as a funding source.

2. Because forward contracts eventually expire existing

speculative positions or hedges that need to be extended
must be rolled prior to the settlement dates.
• This involves spot transactions to offset the expiring
forward contracts and a new forward contract to be
set at a new settlement date.
• The combination of an offsetting spot transaction and a
new forward contract is referred to as FX Swap.

SWAP = SPOT + FUTURE

 Example - 1

• UK business firm needs to borrow GBP10

million for 90-days.
• Borrow in U.S. dollars and exchange for British
pounds in the spot FX market. Then buy U.S. dollars
90 days forward to repay the borrowing.

borrow in USD cuz interest rate are lower

>> can’t use USD directly so they exchange for GBP
>> buy 90 days USD forward to repay the borrowing
FX SWAP

𝑡0 𝑡90

1. Borrow in
U.S.$
2. Spot: Sell
U.S.$ for £ 5. Repay
3. Forward: Borrowing
Buy U.S.$ 4. Use £ to
90 days buy U.S.$ at
forward forward rate
 Example -2

• Suppose the trader sells 100 million euros

with settlement 95 days from today at a
forward exchange rate of 1.2500(USD/EUR).
• To roll the forward contract, the trader will
engage in the FX Swap.
 FX SWAP

𝑡0 𝑡95

2. Buy € at
1.Sell € Forward 95 Spot to offset
days at $1.25/€ maturing
Forward
Contract

𝑡0 𝑡95
3. Sell (new)
forward for
95 days
Interpreting Foreign Exchange
Quotations
 Spot market (Spot quotations)
 Direct quote
 Indirect quote
 American terms (no: USD/ DM)
European Terms (no: DM / USD)
 Bid-ask spread (bid / offer) or bid-ask margin or
trading margin
 Point quotation
 Outright quotation
 Cross rates
 Price Currency and Base Currency

• The exchange rate is the number of units of

one currency called the price currency that
one unit of another currency called the
base currency will buy.
• Base currency always set at a quantity of
one. THB32 / USD
base = 1

Price Currency Base Currency

 Foreign Exchange Rates and
Quotations

 Foreign exchange quotes are at times described as either direct

or indirect.
 In this pair of definitions, the home or base country of the
currencies being discussed is critical.
 A direct quote is a home currency price of a unit of foreign
currency.
 An indirect quote is a foreign currency price of a unit of
home currency.
 The form of the quote depends on what the speaker regard as
“home.”
 Interpreting Foreign Exchange
Quotations
Assume USD is Home Currency

Direct Quotation represents the value of a foreign currency in

dollars (number of dollars per currency).
Example: $1.0535 per € HC/ 1 FC

Indirect quotation represents the number of units of a foreign

currency per dollar.
Example: €0.9492 per $
Indirect quotation = 1 / Direct quotation

38
 Fo re ig n E xc ha ng e R a te s a s o f 17 J une 2022
W e ig hte d -a v e ra g e Inte rb a nk E xc ha ng e R a te = 35.228 B a ht/ U S D o lla r

1. A v e ra g e Co unte r R a te s Quo te d b y Co mme rc ia l B a nk s (B a ht / 1 U nit o f Fo re ig n Curre nc y )

A v e ra g e B uy ing R a te s
Co untry Curre nc y A v e ra g e S e lling R a te s
S ig ht B ill T ra ns fe r
UNITED STATES USD 34.9398 35.0384 35.3562
UNITED KINGDOM GBP 42.7294 42.8964 43.7520
EURO ZONE EUR 36.5645 36.6749 37.4249
JAPAN (100 Yen) JPY 25.9027 26.0041 26.7082
HONG KONG HKD 4.4233 4.4418 4.5277
MALAYSIA MYR 7.8589 7.8987 8.1098
SINGAPORE SGD 25.0508 25.1301 25.7064
BRUNEI DARUSSALAM BND 24.9543 25.0443 25.8070
PHILIPPINES PHP 0.6400 0.6451 0.6711
INDONESIA (1000 Rupiah) IDR 2.2052 2.2739 2.4828
INDIA INR 0.4064 0.4225 0.4773
SWITZERLAND CHF 35.8251 35.9362 36.6287
AUSTRALIA AUD 24.2014 24.2664 25.1167
NEW ZEALAND NZD 21.9174 21.9890 22.6321
CANADA CAD 26.7810 26.8639 27.4512
SWEDEN SEK 3.4073 3.4255 3.5009
DENMARK DKK 4.9147 4.9330 5.0293
NORWAY NOK 3.4728 3.4866 3.5676
CHINA CNY 5.1479 5.1864 5.3294

Released on 17 June 2022

 Interpreting Foreign Exchange
Quotations
•It is common practice among currency traders
worldwide to both price and trade currencies against the
U.S. dollar.
European and American Terms
 European Terms: Most FC in the interbank market are stated in terms of the
number of units of FC needed to buy one dollar( CHF 0.9372/$) FC/ 1 $

swiss franc
 American Terms: Stated in terms of Dollar per unit of
FC ( $1.0670/CHF) $ /1 FC
(Standard practice to price British pound, Australian dollar and New Zealand dollar
in American terms)
Price Currency and Base Currency
 Bid-Offer Quote

• Bid -the price at which the bank is willing to buy the

base currency ( the number of units of price
currency the client will receive for one unit of the
base currency)
• Offer- the price at which the bank is willing to sell
the base currency( the number of units of price
currency the client must sell to dealer for one unit of
base currency)
• Bid is always less than the offer
 Interpreting Foreign Exchange
IMPORTANT!!

Quotations
 Banks provide foreign exchange services for a fee:
the bank’s bid (buy) quote for a foreign currency
will be less than its ask (sell) quote. This is the
bid/ask spread.
 Bid /ask spread = ask rate – bid rate B= A(1-S)
A=B/(1-S)
ask rate
 Example: bid price for £ = $1.52, ask price = $1.60.
bid/ask % spread = (1.60–1.52)/1.60 = 5%
 Bid-Ask Spread

Note: The discount in the bid rate as a

percentage of the ask rate (ask as
denominator).
Bid rate as the denominator ➔The
percentage markup of the ask rate above
the bid rate ➔ spread is slightly higher since
bid as denominator < ask as denominator
 Exhibit 3.1 Computation of the Bid Ask
Spread

45
 Bid-Ask Spread

Currencies with a high trading volume and lower exchange

rate volatility typically have lower bid-ask spread indicating
relatively low cost and risk associated with FX.
 Bid-ask spread decreases when there are large number of dealers
and increasing competition in the market.

 The spread is larger for “retail” transactions than for

“wholesale” transactions between banks or large corporations.
 Factors That Affect the Spread
high> spread high
1. Order costs: Costs of processing orders, including clearing
costs and the costs of recording transactions.
high> spread high lose opportunity to earn interest
2. Inventory costs: Costs of maintaining an inventory of a
particular currency.
high>spread low
3. Competition: The more intense the competition, the
smaller the spread quoted by intermediaries.
high>spread low
4. Volume: Currencies that have a large trading volume are
more liquid because there are numerous buyers and
sellers at any given time.
high> spread high
5. Currency risk: Economic or political conditions that cause
the demand for and supply of the currency to change
abruptly.

48
Bid-Ask Rate
https://www.investing.com/currencies/single-currency-crosses
normally it’s price/base

USD= Price Currency

EUR = Base Currency
USD1.1222/EUR
Bid-Ask quote
Exercise

The Bid-Ask Spread on Euro, GBP and SGD are

1.5%, 2.65% and 3.8% respectively.
Touch Bank
Currency Rate
As of Today
Currency Bid Ask
EUR $1.2940 (1)
GBP (2) $1.6595
JYP (Per Y100) $0.9494 $0.9581
MYR $0.3151 $0.3297
SGD (3) $0.8272
 Example
• Rule of the Thumb: When we speak of Bid and Offer,
we are referring to Bid-Offer of the base currency.
US firm needs to pay BRL 1.5m Need to buy BRL
Bank sell BRL Ask Rate(American term)

BID ASK

BRL/USD BRL4.9659 BRL4.9722

USD/BRL USD0.2011 USD0.2014

if BRL export to US> BRL gets USD> sell USD to the bank and get BRL
ex. receive 5,000 USD> sell bank at bid rate for 5,000USD * 4.9659 BRL = 24kBRL
Interpreting Foreign Exchange Quotations

American Terms European Terms

(USD/ € ) (€ / USD)
4 digits
Outright quotation bid offer bid offer
Spot 1.5625 1.5635
1M forward 1.5567 1.5579 bid point smaller>> add
bid point larger>> minus
3M forward 1.5450 1.5466
6M forward 1.5283 1.5301
Point quotation
Spot 1.5625/35
-/+ 0.0058 -/+0.0056
1M forward 58/56
outright >> tell as a whole
3M forward 175/169 point >> tell as in difference
6M forward 342/334
 Point Quote-Outright Quote

(USD/ € ) (USD/ € )
BID ASK BID ASK
Spot 1.5625 1.5635 Spot 1.5625 1.5635
Forward 0.0175 - 0.0169 - Forward 1.5450 - 1.5466 -
point outright
Forward 1.5450 1.5466 (3M)
outright Point Quote 0.0175 0.0169
(3M)

3M Forward Point = 175/169

 Interpreting Foreign Exchange IMPORTANT

Quotations

 Note for point quotation

 If the bid point is smaller, it is always added to the spot
rate. This implies that the denominator currency is at a
premium.
Low/ High = Add
 If the bid point is larger, it is always subtracted from the
spot rate, meaning that the denominator currency is at a
discount.
High/ Low = Subtract

 Always works regardless of whether the FE quotation is a

direct, indirect, American terms, European terms or any
other quotation.
 Interpreting Foreign Exchange
Quotations Exercise
CHF/US$ quotation
Point Quote
Bid Ask
Spot CHF 0.9776 CHF 0.9779

One-Month 12-10

Three-Month 39-35
Six-Month 84-78
0.9692/0.9701
Exercise

Find the Outright Quote.

Forex Bank
Point Quotation
As of Today
Australia U$0.9210/56
1 mth forward 55/83 add in this case
6 mth forward 322/372
Euro U$1.4950/5062
Qatar U$0.2550/601
 IMPORTANT
Interpreting Foreign Exchange Quotations

American Terms European Terms

(USD/ € ) (€ / USD)
bid becomes offer>> offer becomes bid
Outright quotation bid offer bid offer
1/1.5635 1/1.5625
Spot 1.5625 1.5635 0.6396 0.64
1M forward 1.5567 1.5579 0.6419 0.6424
3M forward 1.5450 1.5466 0.6466 0.6472
6M forward 1.5283 1.5301 0.6536 0.6543
Point quotation
Spot 1.5625/35 0.6396/0.64
1M forward 58/56 23/24
3M forward 175/169 70/72
6M forward 342/334 140/143
Exercise
Jan Bank
Switzerland Branch
Currency rates
As of Today
Bid Ask
EUR CHF1.2064 1.2202
6-M Forward 1.1906 1.2172
JPY (x100) 0.8852 0.8980
CNY 0.1514 0.1575

Given Swiss Franc is home currency:

1. Is the quote Direct or Indirect. Direct >> Home/Foreign
2. Is the quote American or European. neither >> there’s no USD
3. Express the quotes in point form. 1.2064-1.1906/ 1.2202 - 1.2172= 158/30
4. A Swiss firm imports automobile from Japan worth JPY20,000,000.
What is the equivalent amount in Swiss franc(CHF)? ask > 20,000,000(/100) * 0.8980 =
Point Quote Example

subtract
Interpreting Foreign Exchange
Quotations
 A cross exchange rate reflects the relative
value of any currency pair which are
expressed in terms of a common third
currency.
 Value of 1 unit of currency A in units of
currency B when both are expressed in a
common currency USD =
 value of currency A in US$
value of currency B in US$
 Cross Rates
 Many currency pairs are only inactively traded,
so their exchange rate is determined through
their relationship to a widely traded third
currency (cross rate).
 Cross rates can be used to check on
opportunities for inter-market arbitrage.
 This situation arose because one bank’s
(Dresdner) quotation on €/£ is not the same a
calculated cross rate between $/£ (Barclay’s)
and $/€ (Citibank).
 Cross Rate Table of Major World
Currencies
/
USD USD EUR JPY GBP CHF CAD AUD HKD
– 1.1470 0.0083 1.5717 1.0588 0.7552 0.7243 0.1290
EUR 0.8719 – 0.0072 1.3706 0.9233 0.6585 0.6317 0.1124

JPY 120.6900 138.3800 – 189.6450 127.7900 91.1500 87.4280 15.5651

GBP 0.6363 0.7298 0.0053 – 0.6737 0.4805 0.4609 0.0821

CHF 0.9444 1.0832 0.0078 1.4841 – 0.7133 0.6841 0.1218

CAD 1.3244 1.5187 0.0110 2.0809 1.4019 – 0.9592 0.1708

AUD 1.3805 1.5835 0.0115 2.1697 1.4621 1.0428 – 0.1781

HKD 7.7535 8.8915 0.0643 12.1863 8.2105 5.8552 5.6157 –

http://www.bloomberg.com/markets/currencies/cross-rates
 Cross Rate Calculation IMPORTANT
A/1B = A/B
B/1A = B/A

GBP 0.6363/USD

CHF 0.9444/USD

CHF/GBP = GBP/CHF =
CHF0.9444/ 1USD * 1USD/GBP 0.6363 GBP0.6363/1USD* 1 USD/ CHF 0.9444

= CHF 1.4842/GBP = GBP 0.6738 / CHF

 Foreign Exchange Rates and
Quotes

◆ Citibankquote - $/€ $1.2223/€

Barclays quote - $/£ $1.8410/£
◆ Dresdner quote- €/£ €1.5100/£

◆ Cross rate calculation:

$1.8410/£ = € 1.5062/£
$1.2223/€
 Exercise
• Spot rate on Korean Won/Dollar
= KRW 1,199.81/$
• Spot rate on Yen/ Dollar
= ¥ 107.73/$
• What is the KRW/YEN cross rate?
11.1372 KRW/YEN
Exercise

Foreign Exchange Rates of Major Currencies

As of today
1USD 1 CNY 1 JYP 1 KRW 1 SGD
USD 1 0.1476 0.0090
CNY 6.7759 1 A 4.9871
JPY B 111.1111 1
KRW 166.0665 1
SGD 1.3587 D C 1
0.7358 0.0122 SGD/JYP
 Cross Rate with Bid and Ask

• Ask Rate (c1/c2) = Ask (c3/c2)/Bid( c3/c1)

• Bid Rate (c1/c2) = Bid(c3/c2)/Ask (c3/c1)

Country Currency Bid Ask Unit

Malaysia MYR 8.9708 9.2888 THB/MYR
Singapore SGD 24.2759 24.8018 THB/SGD

• Assume THB is the local currency

• Bid = 8.9708/24.8018 = 0.3617 SGD/MYR 1MYR/24.8018*8.9708/1SGD
• Ask = 9.2888/24.2759 = 0.3826 SGD/MYR
 Cross Rate with Bid and Ask

bid>smaller
ask>larger
• Calculate MYR/SGD Cross Rate
• Bid = 1MYR/THB9.2888 * THB24.2759/1SGD
=24.2759/9.2888
• 24.2759/9.2888 = MYR 2.6135/SGD =2.6135

• Ask= 1MYR/THB8.9708 * THB24.8018/1SGD

• 24.8018/8.9708 = MYR2.7647/SGD =24.8018/8.9708
=2.7647
 Exercise

 Suppose the pound is quoted at $ 1.2323-33 and the

Swiss franc is $1.0550-67.
swiss
What is the direct quote for
the pound in Zurich? bid>smaller
ask>larger
Swiss/Pound
Bid = 1.2323/1.0567
= 1.1662 CHF/GBP
Ask= 1.2333/1.0550
= 1.1690 CHF/GBP
 Exercise

Currency Bid Ask

British $1.2323 $1.2333
Pound(GBP)
Swiss $1.0550 $1.0567
Franc(CHF)
CHF/GBP 1/1.0567*1.2323/1 1/1.0550*1.2333/1
=1.2323/1.0567 = 1.2333/1.0550
= 1.1662 = 1.1690
 Currency Futures and Options Market

 A currency futures contract specifies a

standard volume of a particular
currency to be exchanged on a
specific settlement date.
 Currency options contracts give the right
to buy or sell a specific currency at a
specific price within a specific period of
time.
 International Financial Markets

Serve as links among financial markets

of individual countries.

European
Through them firms can raise capital; Investment
Bank
•with debt or equity
•with fixed or floating interest rates
•in any of a dozen currencies
•maturities range from one month to thirty years
 International Money Market

1. Corporations or governments need short-term funds

denominated in a currency different from their home
currency.
2. The international money market has grown because
firms:
a. May need to borrow funds to pay for imports
denominated in a foreign currency.
b. May choose to borrow in a currency in which the
interest rate is lower.
c. May choose to borrow in a currency that is
expected to depreciate against their home
currency

63
 Eurocurrency Markets
Eurocurrency - bank deposit in a
currency other than the currency of the
country where the bank is located; not
confined to banks in Europe.

Eurodollars-U.S. dollars deposited in

banks outside the United States; not
confined to Europe.
Eurocurrency Market
$
 The Eurocurrency market in Asia is sometimes
referred to separately as the Asian dollar
market.
 Involves mostly dollar denominated deposits
 The primary function of banks in the Asian
dollar market is to channel funds from
depositors to borrowers.
 Another function is interbank lending and
borrowing.

Hongkong, Singapore
Eurocredit Market
• Loans of one year or longer are extended by
Eurobanks to MNCs or government agencies
in the Eurocredit market.
• These loans are known as Eurocredit loans.
• Floating rates are commonly used.
• Countries are changing from LIBOR to other
reference rates.
• FRB indexed to new reference rate “THOR” Floating rate note/
bonds indexed to new types of reference rate, Thai Overnight
Repurchase Rate (THOR)
Leaving LIBOR:
A Landmark Transition
• The move away from the London Interbank
Offered Rate (LIBOR) is a global phenomenon
that has the financial industry mobilizing
ahead of a looming deadline.
• https://www.jpmorgan.com/solutions/cib/markets/leaving-libor
 Syndicated Loans in the Credit
Market
1. Sometimes a single bank is unwilling or
unable to lend the amount needed by
an MNC or government agency.

2. A syndicate of banks can be formed to

underwrite the loans and the lead bank
is responsible for negotiating the terms
with the borrower.

68
 lower interest rate

International Bond Financing

Characteristics to consider:
• Is borrower domestic or foreign
• Is borrower raising capital denominated in the domestic
currency or foreign currency
Categorizing International Financial Transactions: Issuing
Bonds in London
Issue GBP denominated bond in
London

Four Issue GBP denominated bond in

London
categories
of financial Issue Bond denominated in
transactions Euro in London

Issue Bond denominated in Euro

in London
 International Bond Market

Provides the bulk of financing

Foreign bonds - issued by a foreign corporation or

government for sale in a country different from its home
country, and denominated in the currency of the
country in which it is issued. issue in country but Isueer is foriegn

Eurobond - bond that is denominated in a currency

other than the currency of the country in which the
bond is sold. issue outside the country
Parallel Bond: Issue in different currencies in different
countries.
 International Bond Market

• Limited investor base domestically

• Finance specific foreign project in that
foreign currency
• Lower interest rates
• Foreign currency expected to
depreciate.
2018 Thai Bond Market Review
Foreign Bond Issuance
 EuroBon
d

2018 Thai Bond Market Review

Cross Border Corporate Bond
Thailand-Corporate-Bond-Market-2020.

Inbound Bonds: Thai bonds issued by Foreign

entities.
Outbound Bonds: Foreign currency bonds issued
by Thai Corporate entities.
Thai Bonds of Foreign Entities
Thailand-Corporate-Bond-Market-2020.
Foreign Currency Bonds of Thai
Companies Thailand-Corporate-Bond-Market-2020.
Baht Denominated Bonds by Foreign Entities

• For the issuance period from the 1st May 2022 to the
31st January 2023, the Minister of Finance has
permitted 3 foreign entities; 1. Hattha Bank Plc. 2.
Xayaburi Power Company Limited 3. EDL Generation
Company Limited These 3 foreign entities are
permitted to issue Baht-dominated bonds or
debentures in Thailand within the 31 st January 2023
upon the agreement that these 3 foreign entities must
use the proceeds of the bonds or debentures
according to the terms and conditions specified by the
Ministry of Finance.
https://www.mof.go.th/en/view/attachment/file/3136383833
 Eurobond Market
BONDS

 Interest rates for each currency and credit

conditions in the Eurobond market change
constantly, causing the popularity of the market to
vary among currencies.
 About 70% of the Eurobonds are denominated in
the U.S. dollar.
 Eurobond Market
BONDS

 Eurobonds are underwritten by a multi-

national syndicate of investment
banks and simultaneously placed in
many countries through second-stage,
and in many cases, third-stage,
underwriters.
 International Stock Markets
 In addition to issuing stock locally, MNCs can
also obtain funds by issuing stock in international
markets.
 This will enhance the firm’s image and name
recognition.
 Expand investor base to gain access into capital
markets by listing stocks on major foreign
exchanges.
 Diversify the shareholder base. The stocks are
more easily digested.
 International Stock Markets

 The locations of the MNC’s operations can

influence the decision about where to
place stock, in view of the cash flows
needed to cover dividend payments.
 Market characteristics are important too.
Stock markets may differ in size, trading
activity level, regulatory requirements,
taxation rate, and proportion of individual
versus institutional share ownership.
 How Financial Markets Serve MNCs

1. Corporate functions that require foreign exchange markets.

 Foreign trade with business clients.
 Direct foreign investment, or the acquisition
of foreign real assets.
 Short-term investment or financing in
foreign securities.
 Longer-term financing in the international
bond or stock markets.

77
Why the Dollar Endures

https://blog.oanda.com/foreign-exchange-data-
services/blog/us-election-impact-on-the-us-
dollar-what-companies-can-expect