Question

International Financial Markets Walmart has established two retail outlets in the city of Shanzen, China, which has a population of 3.7 million. These outlets are massive and contain imports in addition to products purchased locally. As Walmart generates earnings beyond what it needs in Shanzen, it may remit those earnings back to the United States. Walmart is likely to build additional outlets in Shanzen or in other Chinese cities in the future.

Explain how the Walmart outlets in China would use the spot market in foreign exchange.

Explain how Walmart might use the international money markets when it is establishing other Walmart stores in Asia.

Explain how Walmart could use the international bond market to finance the establishment of new outlets in foreign markets.

Answer 1

(a)

A spot market is where financial instruments are exchanged for immediate delivery, such as commodities, currencies, and securities. company W can use the spot market to buy foreign currencies to pay for the imports and also to remit the income to its parent company is US.

(b)

The money market deals in short-term loans, generally for a period of less than or equal to 365 days. Company W in China can use money markets to meet the short term borrowings and working capital requirements for setting up new units.

(c)

International bond markets provide fund for a long term loans to multinational companies. Company W can use the bond market to raise funds required to meet the large capital expenditure in setting up new outlets.