Advantage And Disadvantage Of Money Market

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Introduction Over the recent international financial market has become very popular because it simplifies the trade between countries. People can enter to sell or to buy financial assets since borrowers and lenders can enter to the commitment of financing each other through this market. This market is segmented into money market and capital market, money market is associate with buying and selling of assets in a short term period which occurs not more than one year. Example of money market products are treasurer bill, commercial paper, letter of credit, and bank acceptance. Capital market involves products of more than one year, example bond and stocks. The international financial market is there to provide the chance for diversifying investment,…show more content…
 Delivering occur immediately therefore there is no risk of inflation and interest rate. The inflation and interest rates are main key components of valued or devalued currency. Disadvantages of spot market The spot market is faced by several risks including transaction risk, translation risk and government fiscal policy.  Transaction risk; This risk is associate with the exchange rate between two different currency during the process of buying and selling, at the spot rate it might be the rate is high compare to the future rate.  Translation risk; Translation risk is the risk emerged during consolidation of all final account of subsidiary units with the head quarter, here the company can get translation loss.  Government fiscal policy; All government have own fiscal policy in order to regulate its own currency value. This is another risk face the spot market because during selling and buying process a currency may be undervalued by the policy therefore the company will spend many units of currency to buy a single…show more content…
 Offer more diversification than investors might achieve on their own.  Usually offer higher Interest rates than treasury bills or certificates of deposit Disadvantages of International Money Market  An increase in Transaction costs and daily performance rates can add up.  Possibility of political instability can lead into value of the currency to decline.  Settlement procedures do vary to see when trades are settled, some funds are settled in three business days after the trading date. (C) International bond market Bonds are debt instruments that represent cash flows payable during a specified period, they are much like a bank loan. The cash flows they represent are the interest payments on the loan and the loan redemption. [Moorad C. 2010] International bond market facilitate the flow of funds between borrowers who need long-term funds and investors who are willing to supply long-term funds. [Jeff Madura 2011] In summary international bond markets are used by companies (example TSL) to raise capital. Advantages: TSL will have below advantages when raising capital through international bond
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