Global Finance with Electronic Banking

Topic:
o Foundations of International Financial Management

Learning Objective:

• Understand the global financial system and its impact on business.

• Explain international finance and trade dynamics.
Overview
The provided information outlines the key players, functions, and challenges of the
international financial system. It also discusses the significance of institutions like the IMF,
World Bank, and BIS in shaping global finance. The questions and answers highlight the
interconnectedness of global financial markets and the importance of effective international
cooperation.

Key Points
 K ey P layers: The IMF, World Bank, and local community banks are key players in the
international financial system.
 Primary Function: The global financial system's primary function is to facilitate the
movement of capital between countries.
 Global Financial System: It's a global system of financial institutions, markets, and
tools.
 International Finance: International finance involves the financial management of
multinational corporations.
 Key Challenge: Exchange rate risk is a key challenge in international financial
management.
 Bretton Woods System: It established fixed exchange rates linked to the U.S. dollar.
 BIS Role: The BIS fosters cooperation among central banks and sets international
banking standards.
 IMF Role: The IMF provides loans to countries facing balance of payments difficulties.
 Sovereign Wealth Fund: Its primary role is to invest a country's excess foreign
exchange reserves for future generations.
 Stress Testing: Stress testing financial institutions assesses their ability to withstand
severe economic scenarios.
 Financial Globalization: The interconnectedness of global financial markets exemplifies
financial globalization.
 Currency Appreciation: A substantial increase in exports relative to imports can lead to
currency appreciation.
 Central Bank Swap Lines: They provide liquidity in foreign currencies during times of
market stress.
 Currency Wars: Currency wars can distort trade balances and harm global economic
growth.
 WTO Role: The WTO facilitates and governs international trade agreements.

Further Analysis and Discussion

• Interconnectedness of Global Markets: The global financial system is highly
interconnected, with events in one region impacting markets worldwide.
• Role of Institutions: The IMF, World Bank, and BIS play crucial roles in maintaining
global financial stability and promoting economic development.
• Challenges of International Finance: Managing exchange rate risk, navigating
different regulatory environments, and understanding cultural nuances are key challenges
for multinational corporations.
• Impact of Technology: Technological advancements have transformed the international
financial system, leading to increased efficiency, but also new risks and challenges.
Topic:
o Global Financial Markets and Institutions

Learning Objective:
• Understand the role of banks and financial markets in the global economy
• Analyze the impact of global financial markets on the world.

Overview
The provided information outlines the key functions, characteristics, and challenges of the global
financial system. It discusses the role of banks, central banks, international financial institutions,
and sovereign wealth funds in shaping the global economy.

Key Points
 M ain Function of Financial M arkets: To allocate capital efficiently across borders.
 Capital M arket: A market for long-term securities like stocks and bonds.
 Central Bank Function: Directly investing in the stock market is not a typical function of a
central bank.
 R ole of Banks: Banks primarily intermediate between savers and borrowers.
 Characteristic of Globalized M ark ets: Greater interconnectedness between national
markets is a key characteristic of globalized financial markets.
 Goal of Financial R egulation: To ensure market stability and protect investors.
 I nterconnected Nature of Global M arkets: They react to events and changes in other
markets worldwide.
 I m pact of Financial Globalization on Developing Econom ies: Increases access to
capital but may also increase vulnerability to external shocks.
 R ole of Central Banks: They coordinate global monetary policies.
 I M F's P urpose: To provide loans to countries facing economic difficulties.
 Function of Sovereign W ealth Funds: They invest state-owned assets in global financial
markets.
 W orld Bank's Function : To provide loans and grants for economic development projects.
 I m pact of Cryptocurrencies: The widespread adoption of cryptocurrencies could
potentially reduce the need for intermediary financial institutions.
 Currency Sw ap Agreem ents: They provide liquidity support during times of financial
stress.
 Offshore Financial Centers: They can provide tax advantages and regulatory flexibility,
but may also enable tax avoidance.

Further Analysis and Discussion

• Interdependence of Global Markets: The interconnectedness of global financial markets
has both benefits and risks. It can facilitate the efficient allocation of capital but also amplify
the impact of shocks.
• Role of Central Banks: Central banks play a crucial role in maintaining financial stability
and managing economic fluctuations. Their coordination of monetary policies is essential for
global economic stability.
• Challenges of Financial Globalization: Developing economies face both opportunities and
challenges from financial globalization. Increased access to capital can promote growth, but
vulnerability to external shocks is a significant concern.
• Impact of Technology: The rise of cryptocurrencies and other digital assets is disrupting
traditional financial systems and presenting new opportunities and challenges.
Topic:
o Foreign Exchange Market, Exchange Rate Determination, Exposure and Management

Learning Objective:
• Describe the foreign exchange market and discuss the exchange rate determination.

Overview
The provided information outlines the key functions, participants, and factors influencing the
foreign exchange market. It discusses exchange rate determination, exposure management, and
the impact of various economic and political factors on currency values.

Key Points
• P rim ary Function: The foreign exchange market is primarily used for buying and selling
currencies.
• M ajor P articipants: Local grocery stores are not major participants in the foreign exchange
market.
• Currency Arbitrage: Buying one currency and simultaneously selling another is currency
arbitrage.
• Exchange R ate Determ inants: Supply and demand, political stability, and interest rates
influence exchange rates.
• Currency Appreciation: When a currency appreciates, it becomes more valuable relative to
other currencies.
• Factors Affecting Exchange R ates: Inflation rates, political stability, and economic growth
typically affect exchange rates.
• I nterbank Foreign Exchange M ark et: Its primary function is to facilitate currency
transactions between banks.
• Econom ic I ndicator: An unexpected change in interest rates can immediately impact a
country's exchange rate.
• Current Account Deficit: A current account deficit tends to put downward pressure on the
currency's value.
• Currency Sw ap: A currency swap's primary purpose is to temporarily exchange principal
and interest payments in different currencies.
• Dirty Float: A dirty float is a managed float with occasional central bank intervention.
• Hot M oney P henom enon: Hot money can cause rapid currency appreciation followed by
sudden depreciation in emerging markets.
• Quantitative Easing: Quantitative easing often results in currency depreciation.
• P olitical I nstability: Political instability typically results in currency depreciation and
increased volatility.
• Exchange R ates and I nternational Trade: Currency depreciation tends to enhance
export competitiveness.

Further Analysis and Discussion

• Interconnectedness of Global Markets: The foreign exchange market is highly
interconnected with other global markets, with changes in one market impacting others.
• Role of Central Banks: Central banks play a significant role in managing exchange rates
through interventions in the foreign exchange market.
• Risk Management: Businesses operating in international markets must effectively manage
their foreign exchange risk to protect their profits.
• Economic Factors: Economic factors, such as inflation, interest rates, and economic
growth, are key determinants of exchange rates.