The growth of international business has led to the increased number of people and organizations that seek to invest in foreign markets and take part in international financial markets. The challenges and barriers that have for long limited international trade are rapidly being eliminated and the conditions are becoming more favorable by the day. International financial markets have become a choice for many businesses because of their flexibility and favorable and less strict term. Recently, businesses have taken steps to understand the international financial market dynamics and try it out. This essay discusses the Restaurant Business' investment in international financial markets and the probable benefits of such a decision.
International financial markets is a place where wealth between persons with others from other countries or between a country and country and is traded mostly in terms of financial bonds which include currencies, bonds, stock market, and commodities. International financial markets make it possible for people to trade or invest in foreign markets with ease. Businesses that seek to expand and start branches in foreign countries need to understand the international financial markets aspects such as exchange rates system and the business-friendly environment in the new markets. Such knowledge enables them to determine what kind of business to venture in, the regulations and policies guiding such business in new markets and when to buy their products. For a Restaurant Business to invest in an international market, the management needs to understand the business environment and the likelihood of the business to thrive in the current environment. Such businesses also seek to maximize on the foreign currencies that are valued above their own and their investments targets to make use of a diversified trading place with a range of interests and preferences (Valdez & Molyneux, 2015).
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Types International Financial Markets
Some of the international financial markets include the foreign exchange, Eurobond, Eurocurrency, Euro-credit markets and international stock markets (Valdez & Molyneux, 2015). Foreign exchange markets are used in the exchanges of currency and conversion from one currency to another. They are meant to facilitate settlement of international purchases, debts, and investments. Foreign exchange transactions are facilitated by banks across the world. Arbitrage is used to maintain similar rates from bank to bank. Customers of foreign exchange markets look at several things when determining whether to purchase or sell their foreign currencies markets (Valdez & Molyneux, 2015). The competitiveness of bank quotes, customer relations, the speed at which banks execute transactions and the banks relevant advises about the current and future markets. For example, banks that provide information such as the risks involved and the need to risk minimal amounts and assets in during Direct Financial Markets in new countries (Miller, 2016). Banks always buy foreign exchange currencies at a lower price and sell them at relatively higher prices to the customers. Eurocurrency is defined as the deposits made in foreign banks by persons, business organizations, and governments (Valdez & Molyneux, 2015). The money is then lent to customers - persons or smaller banks. It can also be defined as currencies deposited in foreign markets and are used to finance short and medium term loans. It is easier to convert Eurocurrency since it is already on the international market and thus attract a good number of customers. An example is a United States government deposit of dollars in Japanese banks. On the other hand, Euro-credit market is an international market in which large banks lend money to Multinational corporations or government on long-term basis. The Euro banks are the main players in the market, accepting deposits and advancing loans to borrowers. Eurobond markets are international bonds issued by countries to other than those represented by the currencies denomination (Kidwell et al., 2016). It is a flexible international market where rates change from time to time. Interest rates depend on the currency and policy of the countries within which the bonds have been issued. It depends on the demand and supply of the currency of issue. International stock markets involve the trading in equities (shares) at the multinational level. Stock markets are flexible and differ in levels of taxation, trading scope, activity level, and the individual and corporation ownership of shares (Auernheimer, 2010).
There are four major activities that take place at the international financial markets. There is foreign trade which involves imports and exports. The importation of products leads to outflow of domestic cash while exports bring in financial inflow. The amount and quality of imports and exports determine the nation's gain or loss in the foreign markets (Auernheimer, 2010). Direct Foreign Investment (DFI) is also another activity. In DFI there is an outflow of cash from a country into another to purchase assets that will be used to create future financial inflows (Blomstrom, 2014). There is also a short-term investment in international securities. This usually takes place in the Eurocurrency markets where people avail money to Euro-banks at set interest rates. Finally, there is a long-term investment in foreign markets through the Eurobond, Euro-credits and the international stock market. The four activities add facilitate international cash flow and the rates of currencies in the market markets (Valdez & Molyneux, 2015).
Reasons for Trading in International Markets
There are several reasons as to why business owners would want to venture into international financial markets at any time during the life period of their businesses. In countries where the currency is valued higher than their home countries, business persons are likely to reap better. The business environment is also another factor that affects decisions to venture into such markets. Favorable economic situations in foreign countries attract investors for they are assured that their businesses will thrive and their assets are safe. Business may also provide credit services in markets where the interest rates are higher than within the borders of their countries. Such loans are likely to attract a higher return on repayment earning them extra. On the other hand, borrowers target entities that provide loans at a lower interest rate as compared to lenders within their borders and also when they believe that foreign currencies are on the decline (Tang et al., 2014).
The Restaurant Business in can take part in international financial markets in a number of ways. They can source for finances from the international from by selling shares in the international stock markets (Valdez & Molyneux, 2015). Large businesses finance their operations and expansions by sourcing for funds. Trading in shares is one way in which companies seek for monetary support. They can then pay dividends after the financial year comes to an end. Trading in the stock market is a good means of sourcing for funds but, it can turn out to be costly if the business does poorly. Another way in which the Restaurant Business takes part in the international financial markets is the by direct investment in foreign countries (Valdez & Molyneux, 2015). There is need to understand the monetary exchange rates between the naïve and destination currencies. For example, a restaurant in the US can choose to purchase assets in a foreign country (DFI) and use them in their operations which eventually lead to the create finances through service and product provision. Finally, the business can also look at the International Financial Markets for short, medium and long-term loans. There is need to understand the exchange rate systems for businesses engaging in international operations so that they borrow the money and repay them in the currencies that are trading cheaper. Banks are also from which the businesses borrow money are also another aspect that should be considered. Different banks have different interest rates on the monies that they lend. To be safe the business should evaluate several banks and choose the one that offers the best terms. The flexibility of the business, their speed of executing transactions and their customer relations are also aspects that a person would look into before deciding where to get their loans. The same also applies when a bank seeks to deposit money in a bank. They will consider it longevity and ability to offer the services that they need at particular times. It would be of no use for a bank to deposit funds in a bank and then lack what to use in the next purchases because the bank has not capacity to release such amounts of money (Valdez & Molyneux, 2015).
For a Restaurant Business to venture into international financial markets, they need to have adequate information about how the markets function and understand when they are likely to reap from their investment. International Financial Markets are important because they are flexible and have less governmental rules as compared to financial markets within a given country. At international level, the banks are less regulated by governmental procedures, rules, and policy. Therefore, lenders determine the interest rates and set the terms and conditions. However, such dealing can at times be dangerous since the person has no regulations. They can offer stricter terms and inflate their interest rates to exploit the others. International Financial Markets affect the business in a number of ways. The business may want to sell or trade in shares and would, therefore, venture into international stock markets. They can also seek the best advice for Direct Foreign Investments and the business environments within the new markets that they seek to venture into. Finally, the business management team has to determine the best financial institutions where they can make deposit and withdrawal transactions.
Auernheimer, L. (Ed.). (2010). International financial markets: the challenge of globalization (Vol. 3) . University of Chicago Press.
Blomstrom, M. (2014). Foreign Investment and Spillovers (Routledge Revivals). Routledge.
Kidwell, D. S., Blackwell, D. W., Sias, R. W., & Whidbee, D. A. (2016). Financial Institutions, Markets, and Money . John Wiley & Sons.
Miller, C. (2016). An Analysis of the International Expansion of Burger King . Retrieved April 23, 2017 from: http://digitalcommons.murraystate.edu/cgi/viewcontent.cgi?article=1059&context=scholarsweek
Tang, C. F., Yip, C. Y., & Ozturk, I. (2014). The Determinants of Foreign Direct Investment in Malaysia: A Case for Electrical And Electronic Industry . Economic Modelling, 43, 287-292.
Valdez, S., & Molyneux, P. (2015). An Introduction to Global Financial Markets . Palgrave Macmillan.