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Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronictextbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible viapaper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the manywho cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us atdrexel@uga.edu and dcwill@cnx.org.

Authors: Vlad Malamud, Yevgeniy Rotenberg

Editor: Douglas Allen

Reviewers: Dean Murray Young (Thompson Rivers University, Canada) Timothy B Folta (Purdue University)

Contributing authors: Wesley Scott Cables, Ricardo Cubillos, Mike Davis, Vesselin Dotkov, Loiuse Doyle, Barbara Gabhauer, Glenna Gagliardi, Melissa Harrison Hiatt, Katie Holtmeier, Alisa Jeffrey, Alexia Jennings, TimPitner, Ashley Randall, Dag Johan Sundby, Nathalie Tryon, Jeffrey Wiant, Sarah Wilson

Global finance: initial considerations

As the global economy has become more integrated, every company and individual is affected by the developments of the markets and the economies of countries other than their own. Entrepreneurs willing to venture into the global financial marketplace may find lower-cost financing alternatives than are available in their home country. They may also want to obtain financing in the local markets they choose to serve. As a result, with constant economic changes, and fluctuations in the marketplace, along with trade barriers being lowered around the world, the entrepreneurs of tomorrow cannot limit their finance knowledge to just their home country, but can be open to looking at alternative sources to fund their business operations. Entrepreneurs will find that understanding the functioning of the global financial marketplace is a key element of their knowledge and skill base, and a key aspect of furthering their business.

International currency market

Exchange rates

The price of one country’s currency in units of another country’s currency is known as a foreign currency exchange rate. Exchange rates can be quoted in two ways. One way, known as a direct quote, is to state the number of domestic units of currency per one unit of foreign currency. If an exchange rate is an indirect quote, the exchange rate is stated as the number of foreign units per one unit of domestic currency (Beenhakker, 2001).

For a US company trading US dollars ($) for Swiss Francs (CHF)
Direct Quote $0.75/CHF
Indirect Quote CHF1.25/$

Foreign exchange market

The foreign exchange (Forex) market is the mechanism, which facilitates the purchase and the sale of foreign currencies. The Forex is a financial market where the participants exchange one monetary unit for another currency. The market operates continuously, 24 hours a day, because a financial center is always open somewhere in the world. The interconnection of the markets makes continuous trading possible (Carrada-Bravo, 2003).

The foreign exchange market is generally divided into five basic currency markets based on pricing procedures ruling the exchange, the time to maturity, the degree of freedom available, the convertibility of currencies, and how the currencies are quoted (Carrada-Bravo, 2003).

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Source:  OpenStax, Business fundamentals. OpenStax CNX. Oct 08, 2010 Download for free at http://cnx.org/content/col11227/1.4
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