Answer to Question #96847 in Economics for ABU

Question

a) What are the factors considered when choosing between Euromarkets and or domestic markets?

b) Explain the various differences between forward and future contracts.

c) Discuss three factors that influence exchange rates.

Answer 1

(a)

Euro market : Its a part of external market, it permits only the purchases and sale of stocks, shares and securities.

It has different features like

At the movement of issuance of stocks. it will offer to only potential investors of different countries.

Domestic market: It is a one part of National market (internal market). In this market, all investors are belongs to within the

country. It will not encourage the foreign investors. Here the investors are bounded.

(b)

Forward contract: A forward contract settles at the end of the year.

These are belongs to private agreements between two parties, so they do not trade on an exchange.

Future contract: A future contract settles on daily basis until the end of the contract. Here they can trade on an exchange.

(c)

Interest rate: In a country, if there is high interest rate, it will attract more investments.

Inflation rates: If there is change in the inflation rate in a country it will be reason to changes in exchange rates also.

If a country with high inflation rate will have currency depreciate.

Balance of payments of a country: If a country is more spending money than earning money. It means importing

more goods than it exports, then it will have the currency value depreciated.