International Money and Finance

International Money and Finance

Michael Melvin, Stefan Norrbin

Language: English

Pages: 301

ISBN: 0128041064

Format: PDF / Kindle (mobi) / ePub


Its high-level perspective on the global economy differentiates this introduction to international finance from other textbooks. Melvin and Norrbin provide essential information for those who seek employment in multinational industries, while competitors focus on standard economic tools and financial management skills. Readers learn how to reach their own conclusions about trends and new developments, not simply function within an organization. The 8th edition, newly updated and expanded, offers concise descriptions, current case studies, and new pedagogical materials to help readers make sense of global finance.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

subaccount, like the current account or the official settlements account. In fact, countries can have an equilibrium balance on the current account that is positive, negative, or zero, depending upon what circumstances are sustainable over time. For instance, a current account deficit will be the equilibrium for the United States if the rest of the world wants to accumulate U.S. financial assets. This involves a U.S. capital account surplus as U.S. financial assets are sold to foreign buyers,

markets, we have already concluded that futures markets can be used for speculation as well as hedging. In addition, the futures contracts are for smaller amounts of currency than are forward contracts, and therefore serve as a useful hedging vehicle for relatively small firms. Forward contracts are within the realm of wholesale banking activity and are typically used only by large financial institutions and other large business firms that deal in very large amounts of foreign exchange. The

the more homogeneous goods are, the more we expect the law of one price to hold. Some commodities, which retain essentially the same form worldwide, provide the best examples of the law of one price. Gold, for instance, is quoted in dollar prices internationally, and so we would be correct in stating that the law of one price holds quite closely for gold. However, shirts come in different styles, brand names, and prices, and we do not expect the law of one price to hold domestically for shirts,

when we are concerned with the verdict in a particular case? Likewise, the forward rate could be unbiased and “on average” correctly predict the spot rate without ever actually predicting the future realized spot rate. All we need for unbiasedness is that the forward rate is just as likely to guess too high as it is to guess too low. The effective return differential between two countries’ assets should be dependent on the perceived risk of each asset and the risk aversion of the investors. Now

means that Citibank will buy dollars for 0.8745 francs and will sell dollars for 0.8755 francs. Deutsche Bank will buy dollars for 0.8725 francs and will sell dollars for 0.8735 francs. This presents an arbitrage opportunity. We call this a two-point arbitrage as it involves two currencies. We could buy $10 million at Deutsche Bank’s offer price of 0.8735 and simultaneously sell $10 million to Citibank at their bid price of 0.8745 francs. This would earn a profit of SF0.0010 per dollar traded, or

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