FINA 471 Lecture 2: FINA 471 - NOTE CH 3
Document Summary
Direct foreign investment or acquisition of foreign real assets. York, tokyo: over the counter: telecommunication network where companies exchange one currency for another, quotation: At a(cid:374)(cid:455) give(cid:374) poi(cid:374)t i(cid:374) ti(cid:373)e, (cid:271)a(cid:374)k"s (cid:271)id (cid:894)(cid:271)u(cid:455)(cid:895) < ask (cid:894)sell(cid:895) (cid:395)uote. Bid/ask sp(cid:396)ead of (cid:271)a(cid:374)ks (cid:272)ove(cid:396)s the (cid:271)a(cid:374)k"s (cid:272)ost of (cid:272)o(cid:374)du(cid:272)ti(cid:374)g fo(cid:396)eig(cid:374) e(cid:454)(cid:272)ha(cid:374)ge transaction. Formula: bid/ask spread = (cid:3002)(cid:3046) (cid:3045)(cid:3047)(cid:3032) (cid:3003)(cid:3031) (cid:3045)(cid:3047)(cid:3032) (cid:3002)(cid:3046) (cid:3045)(cid:3047)(cid:3032) American vs european quotes: **always usd involved** Example of american quotes (use of eur and gdp): # usd /per eur or. Example of european quotes (wholesale dealers): #fc units/per usd: usd is the base currency. International money markets: composed of large banks that accept deposits and provide short term loan (< 1 year) in various currencies to government/mncs: why this market has grown: Borrow currency that expects to depreciate against hc. Interest rate global integration: money market interest rate tend to be highly correlated over time.