Question: 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 Shenzhen or in other Chinese cities in the future.
a) Explain how the Walmart outlets in China would use the spot market in foreign
exchange.
Answer: The exchange rate at which one currency is traded for another in the spot market is
known as the spot rate. The spot market involves almost the immediate purchase or sale of
foreign exchange.
In this above context, Walmart outlets in China would be able to make transactions with
United States through spot market in foreign exchange.
b. Explain how Walmart might use the international money markets when it is
establishing other Walmart stores in Asia.
Answer: While establishing other stores is Asia, Walmart might use money markets:
 To borrow funds to pay for imports.
 May choose to borrow in a currency in which the interest rate is lower.
 May choose to borrow in a currency that is expected to depreciate against their home
currency
When economic conditions weaken, the firms need to decline their liquidity and they
reduce the amount of short term funds they wish to borrow. When economic conditions
strengthen, there is an increase in corporate expansion, and corporations need additional
liquidity to support their expansion.
c. Explain how Walmart could use the international bond market to finance the
establishment of new outlets in foreign markets.
Answer: The international bond market facilitates the flow of funds between borrowers who
need long-term funds and investors who are willing to supply long-term funds.
Walmart can issue bonds to collect long-term funds as well as to attract the investors who
could invest in long term-funds. Through issuing foreign bonds, it will be easier for Walmart
to establish new outlets in foreign markets.