ABSTRACT
This chapter provides an overview of exchange and capital markets in today's global economy. The chapter notes that to buy, sell, or invest across national borders, MNCs must be able to exchange their home currencies for the currencies of other nations. The foreign exchange market is where these currency exchanges take place. The chapter deals with the demand and supply sides of the currency market but also considers how other market forces determine the value of currencies such as a country's inflation rate, interest rates, income levels, and government controls. The chapter further considers the exchange rate risks of transaction and translation exposure. It notes how MNCs can hedge against these exposures by buying forward exchange contracts or currency future contracts. The chapter introduces the capital market where investors without an immediate use for their money transfer that money to individuals, governments, and businesses that have a need for that money. The bond and stock markets are considered as debt and equity financing. The chapter also considers options in the Eurocurrency market and bond issues in foreign bonds or in other currencies (Eurobonds, global bonds). The chapter concludes noting that future MNCs may need to seek not only financial capital but also environmental capital.
