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Spot, Money, and Bond Markets

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

a. Explain how the Wal-Mart outlets in China would use the spot market in foreign exchange.

b. Explain how Wal-Mart might utilize the international money markets when it is establishing other Wal-Mart stores in Asia.

c. Expalin how Wal-Mart could use the international bond market to finance the establishment of new outlets in foreign markets.

My answers:

a. Many foreign transactions do not require an exchange of currencies but allow a given currency to cross country borders therefore it will be easy for the US dollar to be exchanged on the spot market.

b. When short term funds are needed, Wal-Mart will be able to utilize internation money markets to finance imports,etc.

c. By utilizing the international bond market, Wal-Mart will have access to long-term funds in the foreign market to help with establishing new outlets within the foreign markets.

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ANSWERS:

a. Explain how the Wal-Mart outlets in China would use the spot market in foreign exchange.

The Wal-Mart stores in China need other currencies to buy products from other countries, and must convert the Chinese currency (yuan) into the other currencies in the spot market to purchase these products. They also could use the spot market ...

Solution Summary

This posting explains how Wal-Mart might utilize the spot market in foreign exchange; the international money markets and the international bond markets to finance the establishment of new outlets in foreign markets.

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