Global Capital Markets

Significant Drawbacks of the Eurocurrency

- Because the eurocurrency market is unregulated, there is a higher risk of bank failure - Companies borrowing eurocurrencies can be exposed to foreign exchange risk

Borrowers benefit from:

- The additional supply of funds global capital markets provide - The associated lower cost of capital (the price of borrowing money or the rate of return that borrowers pay investors)

Two factors are responsible for the growth of capital markets

1. Advances in information technology 2. Deregulation by governments

Global Equity Market allows firms to:

1. Attract capital from international investors 2. List their stock on multiple exchanges 3. Raise funds by issuing debt or equity around the world

The eurobond market is attractive because:

1. It lacks regulatory interference 2. It has less stringent disclosure requirements than domestic bond markets 3. It is more favorable from a tax perspective

Exchange Rates Affect the Cost of Capital:

Adverse exchange rates can increase the cost of foreign currency loans - While it may initially seem attractive to borrow foreign currencies, when exchange rate risk is factored in, that can change

Eurocurrency

Any currency banked outside its country of origin

Investors

Corporations with surplus cash, individuals, and non-bank financial institutions

Eurodollars

Dollars banked outside the United States - Two/Thirds of all eurocurrencies

Borrowers

Individuals, companies, and governments

The eurocurrency market is attractive because:

It is not regulated by the government - banks can offer higher interest rates on eurocurrency deposits than on deposits made in the home currency - Banks can charge lower interest rates to eurocurrency borrowers than to those who borrow the home currency

Foreign Bonds

Sold outside the borrower's country and are denominated in the currency of the country in which they are issued

Markets Makers

The financial service companies that connect investors and borrowers, either directly (investment banks) or indirectly (commercial banks)

Investors benefit from:

The wider range of investment opportunities - Diversify portfolios and lower risk

Eurobonds

Underwritten by a syndicate of banks and placed in countries other than the one in whose currency the bond is denominated