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Chapter 3

Q. 3.ST.3

Briefly explain how MNCs can make use of each international financial market described in this chapter.


Verified Solution

MNCs use the spot foreign exchange market to exchange currencies for immediate delivery. They use the forward foreign exchange market and the currency futures market to lock in the exchange rate at which currencies will be exchanged at a future point in time. They use the currency options market when they wish to lock in the maximum (minimum) amount to be paid (received) in a future currency transaction but maintain flexibility in the event of favorable exchange rate movements.
MNCs use the Eurocurrency market to engage in short-term investing or financing or the Eurocredit market to engage in medium-term financing. They can obtain long-term financing by issuing bonds in the Eurobond market or by issuing stock in the international markets.