As supply increases, interest rate falls. Therefore excess supply creates a borrowers market, forcing down interest rates and the cost of borrowing. Projects that aren’t expected to really return on investment quickly or correctly might be an option at lower financing cost. Reduces lenders’ risk – The international capital market broadens the set of available lending opportunities and reduces lenders’ risk in two ways; investors enjoy a greater set of opportunities from which to choose and investing in international securities infinite investors because some economies are growing while others are in decline.

Quick Study 2, Page 234: 1. Describe the international bond market. What factor is most responsible for fueling its growth? The international bond market consists of all bonds sold by issuing companies, governments, or other organizations outside their own countries. Interest rates contribute to its expansion. Low rates in developed nations means investors earn relatively little interest in bonds in those markets. As result, banks pension funds and, mutual ends are seeking higher returns in emerging markets, where higher interest payments reflect the greater risk of bonds.

Simultaneously, corporate and government borrowers in emerging markets desperately need capital to invest in expansion plans and public works projects. Quick Study 3, Page 238: 1. Explain how a spot rate ; forward rate are used in the foreign exchange market. 2. What are the main differences between currency swaps, options, and futures? A spot rate is the exchange rate requiring delivery of the traded currency within wow business days.

Exchange of the two currencies is said to occur “on the spot”, and the spot market is the market for currency transactions at spot rates. They serve three important functions; converting income generated from sales abroad in to their home currency, converting funds into the currency of the international supplier, and converting funds into the currency of a country in which they wish to invest.

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