Introduction to Finance

DISCUSSION QUESTION 1
Has the decision by the eurozone countries to give up their individual national currencies 
and adopt the euro as a common currency produced economic benefi ts?
LEARNING ACTIVITY
Go to the European Central Bank website, http://www.ecb.int, and fi nd information 
about the history of the euro.
6.3
Currency Exchange Markets and Rates
Currency Exchange Markets
GLOBAL
We ordinarily think of a market as a specifi c place or institution, but this is not always 
so. 
Currency exchange markets
,
 
also called 
foreign exchange markets
, are electronic mar-
kets where banks and institutional traders buy and sell various currencies on behalf of busi-
nesses, other clients, and themselves. The major fi nancial centers of the world are connected 
currency exchange markets 
electronic markets where banks and 
institutional traders buy and sell 
currencies on behalf of businesses, 
other clients, and themselves
foreign exchange markets 
same 
as currency exchange markets
Finding Foreign Customers
To conduct business in a foreign country, a domestic fi rm must either 
export to that country or produce goods or off er services in that 
country. Exporting may take place indirectly or directly. Indirect 
exporting by U.S. companies involves U.S.–based exporters. 
These exporters may sell for manufacturers, buy for overseas cus-
tomers, buy and sell for their own account, and/or buy on behalf 
of middle-persons or wholesalers.
Exporters that sell for manufacturers usually are manu-
facturers’ export agents or export management companies. A 
manufacturer’s export agent usually represents several non-
competing domestic manufacturers. An export management 
company acts as an export department for a number of non-
competing domestic fi rms. Exporters that purchase for over-
seas customers are called export commission agents since they 
are paid a commission by foreign purchasers to buy on their 
behalf.
Small businesses usually fi nd it necessary to use indirect export-
ing. Direct exporting uses manufacturers’ agents, distributors, and 
retailers located in the countries where they are conducting business. 
Only large domestic fi rms are able to engage in direct exporting.
Various forms of government assistance are available to help 
businesses in their exporting eff orts. Many states have government 
“trade export” departments that assist fi rms in their export activ-
ities. At the federal level, the Export-Import Bank of the United 
States was founded in 1934 to aid domestic businesses in fi nding 
foreign customers and markets for their products. Export credit 
insurance also is available to help exporters. The Foreign Credit 
Insurance Association (FCIA) provides credit insurance policies to 
U.S. exporters to protect against nonpayment by foreign customers.
In some instances, “countertrading” is used to foster sales to 
foreign customers. Under such an arrangement, a U.S. exporter sells 
its goods to a foreign producer in exchange for goods produced by 
that foreign company. Simple kinds of countertrading take the form 
of a barter arrangement between a domestic fi rm and a foreign fi rm.