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This chapter discusses the evolution of two essential markets to global banks. Foreign exchange markets allow for the trading of foreign currencies, using instruments such as spot transactions, futures, forwards, and swaps. Money markets link international lenders of short-term funds with borrowers using instruments such as Eurocurrencies and Eurobonds. Such loans are priced using the London Interbank Offered Rate (LIBOR). The chapter details how the money markets froze up during the global financial crisis in 2008 and explains why the foreign exchange market stayed liquid.

The Big Bang described in the last chapter appeared to have answered the doubts over the future of the London Stock Exchange, but from the late 1980s onwards into the 1990s, it both waned in importance within the British financial system and faced increasing competition from rival foreign stock exchanges. This chapter discusses the reasons for this, starting in the first section with relations with government, since one uncertainty was the level of freedom from government control that the Stock Exchange was to enjoy. With the disappearance of the Stock Exchange's quasi‐official status in the 1990s, there still remained doubts over the role that it had to play in the area of securities market supervision, and the next section of the chapter discusses this situation, the effect of the changing nature of its membership, the disaster over settlement services (the replacement of the successful TALISMAN (Transfer Accounting and Lodgement for Investors, Stock Management for Jobbers) by TAURUS (Transfer and Automated Registration of Uncertificated Stock) and the subsequent failure of TAURUS), and the eventual successful replacement of the SEAQ (Stock Exchange Automated Quotations) trading system by the SEQUENCE trading system from 1993 onwards. The third section of the chapter looks at the provision of the market, and the fact that with the proposed introduction of specialists or sole traders in 1992, the Stock Exchange had once again been brought to the attention of the Office of Fair Trading; competition was also forcing a re‐examination of the way the Stock Exchange's market was organized, and this resulted in the introduction in 1997 of order‐driven trading in the form of SETS (Stock Exchange Trading Service); this section also looks at the abandonment of the traded options market to LIFFE (London International Financials Futures Exchange) and of any pretensions to the futures market, the decline of the USM (Unlisted Securities Market) and its replacement by AIM (Alternative Investment Market), negotiations with various foreign stock markets, and the changing investment environment. The last part of the chapter looks specifically at the changing membership of the Stock Exchange.

This chapter examines the strategies firms have used to exploit and enhance their competitive advantage by crossing borders. It begins with corporate strategies for entering and existing countries. It then turns to collaborative strategies with other firms. Finally, the role of subsidiaries in the evolutions of multinationals is considered.

This chapter traces Russia's financial reforms in the late nineteenth century. It puts the reforms associated with Sergei Witte's tenure as finance minister from 1892 to 1903 in a broader context, and also highlights key strategic errors made during his tenure. As the chapter shows, Witte, more than any other figure in Russia or the West, is associated with the boom in Russian investment in the late nineteenth and early twentieth centuries. During his tenure as finance minister, Russia adopted the gold standard in 1897 and repeatedly turned to the foreign capital markets for loans to finance an ambitious program of state-led industrialization. His name was similarly associated with the boom in Russian railroad construction, the Trans-Siberian Railway in particular—an association that began in his earliest days while working in the railroad industry, first in the private sector (initially as a lowly conductor to learn the business) and then in government.

This chapter advances some of the arguments presented in Chapter 4 and develops a heuristic model that supports managers when choosing their next target market. Market selection and market entry mode choices often coincide and are hard to separate, and as such are often treated as one decision. Once a country has been selected for entry, it automatically has to be compared to the existing portfolio of geographical presence. Most financial services firms use portfolio matrices as a basis for their geographical investment decisions that measure the relative strengths of their own operations and the attractiveness of foreign markets. The chapter describes those two factors, the usefulness of portfolio matrices, and then discusses process aspects of market selection, that is, how management teams actually collect data on foreign markets and set investment priorities.

While deciding on the timing and speed of market entry, financial services firms have to choose the most appropriate market entry mode among the available alternatives. Strategic objectives such as timing and speed of market entry certainly influence the choice of market entry mode. Acquisitions allow for an immediate and quick entry but are risky. Organic growth is slower but easier to control. This chapter reviews the strategies companies in the financial services sector pursue to enter foreign markets. In general, firms can internationalize in a number of ways, including through exports, contractual agreements, and foreign direct investment (FDI). International financial services markets have traditionally been entered using equity modes such as mergers and acquisitions or FDI.

This chapter examines a model which incorporates not only the usual domestic equity market, but also a market for the exchange rate between the domestic currency and a fixed foreign currency, as well as a foreign currency market. Financial derivatives defined in such situations are commonly known as quanto products. It begins with a study of derivatives written directly on the exchange rate X, and then proceeds with the study of pricing (in domestic currency) contracts written on foreign equity. Practice exercises are included.

This chapter provides a general overview of the international markets for foreign exchange (FX) and FX derivatives as well as the theoretical relationships that tie these markets together with interest rates and central bank policies. The chapter begins by summarizing the FX markets and discussing their current size and uses. It then details and distinguishes the various markets and FX products. The chapter also examines the FX derivative markets and presents the Garman and Kohlhagen pricing model. The theoretical relationships among returns, exchange rates, and interest rates are discussed, specifically examining equilibrium conditions and the Taylor rule. The chapter concludes by reviewing several recent developments in the global currency markets.

One of the classic threats presented by environmental regulatory barriers that restrict the strategies of internationally engaged firms relies on the foreign environmental regulations that do not allow large export markets. In some situations, regulatory barriers have proven to be alarming when moved to higher levels, reinforced by protectionist coalitions and environmental groups across the foreign market, and have been administered by a trade dispute system in national governments. However, lobbying and litigation entails a competitive disadvantage for a firm since these processes requires lots of time and incur several costs. As such, the alternative response was to produce at home instead and meet the regulations in the Vogel-type ‘California’ export market. Firms today have to face varied situations, not only because of environmental regulations but also because of internationally integrated production systems. In this chapter, we look into the various political and corporate strategies for firms, while examining the factors affecting the conditions of complex institutional responsiveness.

Examines the evolution of monetary policy rules and exchange rate regimes in the Philippines over the past two decades. It highlights the importance of recognizing the interdependence of exchange rate and monetary policies in a small open economy, and argues that failure to appreciate this has yielded undesirable consequences. To illustrate, it discusses the macroeconomic performance following regime shifts for various periods: (1) the eighties to early nineties when observed money growth not commensurate with growth in foreign reserve assets under exchange rate targeting caused episodes of peso collapse; (2) capital account liberalization – culminating in full peso convertibility in 1992 – which compromised the ability to conduct an independent monetary policy; and (3) the financial crisis years when it became apparent that fixing the exchange rate in a world of capital mobility was futile. The paper concludes by raising institutional issues and reviewing the conduct of monetary policy in the more recent postcrisis period.

One reason governments have protected their banks from foreign ownership is that they feared foreign-owned banks would “cut and run”—i.e. abandon their host markets—in a financial crisis. An unexpected finding of this chapter, however, is that while foreign banks’ commitments to host markets have indeed been fleeting in crises, those commitments were weakest when the relationship between foreign banks and host markets was not characterized by ownership. Thus it was foreign ownership through a “second home market” model and bank subsidiaries during the acute phase of the US financial crisis (2008–9) that saved East Central Europe from economic catastrophe. In Western Europe, meanwhile, where foreign bank ownership levels were low but cross-border lending was significant, bank lending retreated behind national borders. This chapter also rejects the argument that the Vienna Initiative, a voluntary bank rollover agreement, compelled foreign-owned banks to maintain their exposures in East Central Europe.

This chapter analyzes Hong Kong's monetary problems and the growing problem of inflation since 1974. It argues that the Hong Kong government could not stop the currency slide through intervention in the foreign exchange markets because the government had been treating the symptoms of monetary and financial problems, instead of dealing with the underlying causes. It begins by discussing the four major instruments of monetary policy (liquid assets, interest rates, government borrowing scheme, intervention in foreign exchange policy) and explains why each of them did not work. It concludes by reviewing the two key proposals for reforming the monetary system — either to control the quantity of money by converting the Exchange Fund, Hong Kong's monetary authority, into a central bank, or to manage the exchange rate with a central bank or modified Exchange Fund.

This chapter begins the story of the American–British–German business and political relationship in the year 1900. It assesses the prevailing attitudes toward this transitional period in terms of press commentary, before considering political and economic relations in the age of late-nineteenth-century imperialism. While positive visions of the future tended to predominate, the papers also contained evidence of the conflicts that were smoldering within the societies of Britain, Germany, and the United States. From here, the chapter turns to a rich archival source for the extent of the European–American constellation in the form of accounts made by financial expert Frank Vanderflip as well as by journalist William Stead.

The Western financial system is rapidly coming to resemble nothing as much as a vast casino. Every day games are played in this casino that involve sums of money so large that they cannot be imagined. At night the games go on at the other side of the world. In the towering office blocks that dominate all the great cities of the world, rooms are full of chain-smoking young men all playing these games. Their eyes are fixed on computer screens flickering with changing prices. As in a casino, the world of high finance today offers the players a choice of games. Instead of roulette, blackjack, or poker, there is dealing to be done – the foreign exchange market and all its variations; or in bonds, government securities or shares. In all these markets you may place bets on the future by dealing forward and by buying or selling options and all sorts of other recondite financial inventions. Some of the players – banks especially – play with very large stakes. These are also many quite small operators. There are tipsters, too, selling advice, and peddlers of systems to the gullible. And the croupiers in this global financial casino are the big bankers and brokers. They play, as it were, ‘for the house’. It is they, in the long run, who make the best living.

During the recent precipitate slide of the Hong Kong dollar against the US currency, the Hong Kong government had intervened to support the local currency on the foreign exchange market. This chapter discusses the steps the authorities had taken that had undermined their ability to hold the exchange rate steady at some specified nominal rate against the US$. It begins by examining how a normal central bank and banking system operates and how intervention in the foreign exchange market can be made effective. It then examines how Hong Kong's automatic adjustment mechanism under a fixed exchange rate operated in effect like any orthodox central bank would have done and how errors of policy caused Hong Kong's banking system to come off the rails in 1972–74. It also describes how the system now differs from orthodox banking systems around the world. Finally, it explains why operations in the foreign exchange market by the government or Exchange Fund under present institutional arrangements neither tighten the money market nor reduce monetary growth.

This chapter analyzes foreign market entry strategies for hotel companies. It applies a resource-based perspective to the market entry decision, thereby focusing on three factors: (a) an entering firm's ability to transfer its know-how to the local market; (b) potential local partners' ability to absorb that know-how; and (c) the availability of qualified and trustworthy investment partners in the local market. In determining its entry strategy, a firm will choose the strategy that best allows it to transfer its competitive advantages to that market. In the hotel industry, such competitive advantages are based largely on a firm's knowledge. The following types of hotel knowledge are investigated: (a) the ability to generate customer service; (b) superior company management and organization; and (c) distinctive and effective physical facilities. The first two reflect a market entrant's tacit knowledge while the third exemplifies its codified knowledge.

This chapter considers how a group of six hundred manufacturers met in Cincinnati in January 1895 to address the challenges of their day, including deep depression, falling prices, and cutthroat competition. Manufacturers saw overproduction as the primary cause of their woes and had two responses to it. First, they turned to the promise of foreign markets, both to offload surpluses and find new markets. And second, they tried to find ways to subvert the debilitating effects of competition through cooperation and planning, first in the form of unworkable “pools” and “gentlemen's agreements” and eventually, more legitimately, in the form of trade associations. These manufacturers were creating an organization that would pursue both strategies, thereby facilitating the modernization of American industry and government. The result was the “corporate reconstruction of capitalism”: a new form of capitalism based on cooperation, rationality, and long-term planning superseded a nineteenth-century proprietary capitalism based on competition, “rugged individualism,” and decentralized government. Trade associations like the National Association of Manufacturers were key to this transition.