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INTERNATIONAL FINANCIAL ENVIRONMENT

INTERNATIONAL FINANCIAL ENVIRONMENT. International Monetary System Balance of Payments The determination of Exchange Rates The Foreign Exchange Markets Parity Conditions in International Finance. The International Financial Environment. Examples of International Business Activities

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INTERNATIONAL FINANCIAL ENVIRONMENT

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  1. INTERNATIONAL FINANCIAL ENVIRONMENT • International Monetary System • Balance of Payments • The determination of Exchange Rates • The Foreign Exchange Markets • Parity Conditions in International Finance

  2. The International Financial Environment Examples of International Business Activities • Capital raised in London by an American- based corporation to finance the acquisition of machinery by a subsidiary located in Australia

  3. The International Financial Environment • Garments sewn in Mauritius on Japanese sewing machines, according to American specifications and shipped to European outlets • Outsourcing of advertising services to a Mauritian company by a French firm

  4. Who are the main players of International Business Activities? • FIRMS Domestic Multinational • INVESTORS Individual Corporate

  5. Present international monetary system A mix of freely floating, managed floating and fixed Exchange rate • No single general theory is available to forecast • exchange rates • Nevertheless, there are certain basic economic • relationships called parity conditions which help • to explain exchange rate movements

  6. Features of the foreign exchange market • Geographical extent • Immense daily transaction volume • Types of transactions - spot, forward and swap • Methods of stating exchange rates quotations • Market’s participants • The 3 main functions of the market

  7. Market participants • Bank and non-bank foreign exchange dealers and brokers • Individuals and firms conducting commercial and investment transactions • Central Bank and Treasuries • Speculators and Arbitrageurs

  8. Functions of the Foreign Exchange Market • Transfer of purchasing power • Provision of credit • Minimising foreign exchange risk

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