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FOREIGN EXCHANGE MARKETS

Explore the key international financial centers, including London, Tokyo, and New York, as well as regional hubs like Paris and Hong Kong. Learn about offshore financial centers such as Luxembourg and the Cayman Islands. Understand the motives for dealing in international financial markets, including economic conditions and exchange rate expectations. Delve into different types of financial markets, including national and foreign markets. Discover the characteristics of foreign exchange markets, the role of major participants, and the transaction methods employed.

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FOREIGN EXCHANGE MARKETS

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  1. FOREIGN EXCHANGE MARKETS

  2. MAJOR MARKETSINTERNATIONAL FINANCIAL CENTRES • Most important markets: London, Tokyo, and New York • Important regional centers Paris, Zurich, Geneva, Amsterdam, Singapore, Hong Kong • Offshore financial centers Luxembourg, Cayman Islands, the Bahamas, British Virgin Islands, Bahrain, Jersey, Guernsey, the Isle of Man. Ireland , Mauritius

  3. MOTIVES FOR DEALING IN INTERNATIONAL FINANCIAL MARKETS • Motives for investing in foreign markets Economic conditions Exchange rate expectations International diversification • Motives for providing credit in foreign markets High foreign interest rates exchange rate expectations International diversification • Motives for borrowing in foreign markets Low interest rates Exchange rate expectations

  4. TYPES OF INTERNATIONAL FINANCIAL MARKETS • National Financial market: Domestic investor/depositor to domestic borrower • Foreign financial market: Domestic investor/depositor to foreign borrower; foreign investor/depositor to domestic borrower • “Offshore” or “Overseas”: Foreign investor/depositor to foreign borrower; foreign funds to foreign users • Eurocurrency markets: Banks that accept deposits and make loans in foreign currencies

  5. Major World Foreign Exchange Markets Pacific Rim -- Hong Kong, Singapore, Tokyo Europe -- London, Frankfurt, Zurich United States -- New York, San Francisco

  6. CHARACTERISTICS AND PLAYERS INFOREIGN EXCHANGE MARKETS • Similar to over-the-counter market for equity securities, i.e., no central meeting place • Principal means of transacting business is via telephone, fax, and computers • Major participants are commercial banks in different countries Retail level -- Deal with exporters, importers, corporations, etc. Wholesale level - Interbank market • Other players include foreign exchange brokers, central banks of individual countries

  7. Activity • Investigate the essential requirements of an offshore financial centre.

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