International Finance Final

Straight fixed-rate debt

"plain vanilla" bonds with a specified (fixed) coupon rate and maturity and no options attached. Since most Eurobonds are bearer bonds, coupon dates tend to be annual rather than semi-annual. The vast majority of new international bond offerings are straight fixed-rate issues.

Advantages of countertrade

- countertrade conserves cash and hard currency - the improvement of trade imbalances, the maintenance of export prices, enhanced economic development, increased employment, technology transfer, market expansion, increased profitability, less costly sourcing of supply reduction of surplus goods from inventory, and the development of marketing expertise

Advantages of ADRs (instead of direct investment in the company's shares)

- denominated in US dollars, trade on US exchanges, and can be bought through any broker - dividends paid in US dollars - most underlying stocks are bearer securities and the ADRs are registered - ADR trades clear in 3 business days whereas settlement practices for the underlying stock vary in foreign countries - adding ADRs to domestic portfolios has a substantial risk reduction benefit

Advantages of cross-listing

- expands the investor base for a firm (very important for firms from emerging market countries with limited capital markets) - establishes name recognition for the firm in new capital markets, paving the way for new issues - may offer marketing advantages - cross-listing into developed markets with strict securities regulations and information disclosure may signal to investors that improved corporate governance is forthcoming - may mitigate possibility of hostile takeovers

Disadvantages of countertrade

- it is inefficient - some claim that such transactions tamper with the fundamental operation of free markets, and therefore resources will be used inefficiently - transactions that do not make use of money represent a huge step backwards in economic development

Other functions of the clearing system

1) finance up to 90% of the inventory that a Eurobond market maker has deposited 2) assist in the distribution of a new bond issue. take physical possession of new certificates, collect subscription payments, record ownership. 3) distribute coupon payments

Factors affecting international equity returns

1. macroeconomic factors: the data do not support the notion that equity returns are strongly influenced by macro factors. this is correspondent with findings for US equity markets. 2. exchange rates: exchange rate movements in a given country appear to reinforce the stock market movements within that country (but correlation DNE causality). equity returns found to be sensitive to own-currency exchange rate changes. 3. industrial structure: studies are inconclusive, not of primary importance. SUMMARY: domestic factors, such as the level of domestic interest rates and expected changes in domestic inflation had the greatest effect on national equity returns, as opposed to international monetary variables.

Yankee bond

A Yankee Bond is a bond issued by a foreign entity, such as a bank or company, but is issued and traded in the United States and denominated in U.S. dollars.

Bill of lading

A bill of lading is a document issued by the common carrier specifying that is has received the goods for shipment; it can serve as the title for the goods.

Lead manager

A borrower desiring to raise funds by issuing Eurobonds to the investing public will contact an investment banker and ask it to serve as the lead manager of an underwriting syndicate that will bring the bonds to market

Brokers vs. market makers

A broker makes money by bringing together assets to buyers and sellers. On the other hand, a market maker helps create a market for investors to buy or sell securities. Brokers are intermediaries who have the authorization and expertise to buy securities on an investor's behalf. There are full service and discount brokers depending on the level of service a client needs. Market makers are typically large banks or financial institutions. Market makers help to ensure there's enough volume of trading so trades can be done seamlessly.

Convertible bond

A convertible bond issue allows the investor to exchange the bond for a predetermined number of equity shares of the issuer. The floor-value of a convertible bond is its straight fixed-rate bond value. Convertibles usually sell at a premium above the larger of their straight debt value and their conversion value. Investors are usually willing to accept a lower coupon rate of interest than the comparable straight fixed coupon bond rate because they find the conversion features attractive. (interest = annual, cpn = fixed)

Country funds

A country fund invests exclusively in the stocks of a single country. They have become one of the most popular means of international investment. They allow investors to: - speculate in a single foreign market with minimum cost - construct their own personal international portfolios - diversify into emerging markets that are otherwise practically inaccessible

Foreign bonds vs. Eurobonds

A foreign bond comes from a foreign borrower but is denominated in the national currency of investors in a national capital market. For example, an Italian multinational corporation might issue dollar-denominated bonds to investors in the U.S. On the other hand, a Eurobond issue is denominated in a certain currency, but these bonds are sold to investors in national capital markets that are not of the country that issued that currency. An example of a Eurobond is a Dutch borrower issuing dollar-denominated bonds to investors in the Netherlands or Switzerland.

Global bonds

A global bond is a very large international bond offering by a single borrower that is simultaneously sold in North America, Europe, and Asia. First offered in 1989, global bonds denominated in US dollars and issued by US corporations trade as Eurobonds overseas and domestic bonds in the US.

Volvo ADR

A good example of a familiar firm that trades in the US as an ADR. Trades on the NASDAQ under the ticker VOLVY. The depository institution is JPMorgan ADR Group. The custodian is a Swedish firm, S E Banken Custody. Volvo also trades on the Stockholm Stock Exchange under the ticker VOLVB.

Letter of credit

A guarantee from the importer's bank that it will act on behalf of the importer and pay the exporter for the merchandise if all relevant documents specified in the letter of credit are presented according to the terms of the letter of credit. In essence, the importer's bank is substituting its creditworthiness for that of the importer.

Turnover ratio

A measure of liquidity for a stock market equal to stock market transaction divided by market capitalization. The higher the ratio, the more liquid the market. Relatively stable over time for most national stock exchanges. Over 40% of national stock exchanges were in excess of 30% turnover per month in recent years.

Sharpe performance measure

A measure of risk-adjusted portfolio performance developed by William Sharpe. The index is calculated by dividing the risk premium return (average portfolio return less average risk-free return) divided by risk (standard deviation of portfolio returns).

American Depository Receipts (ADRs)

A receipt that represents the number of foreign shares that are deposited at a US bank. The bank serves as a transfer agent for ADRs. Foreign stocks often trade on US exchanges as ADRs.

Dual-currency bonds

A straight fixed-rate bond with interest paid in one currency and principal in another currency. Japanese firms are big issuers, with coupons in yen and principal in dollars. Good option for an MNC financing a foreign subsidiary. Tends to offer higher coupon interest

Eurobond tombstone

A tombstone is a written advertisement that gives investors basic details about an upcoming public offering.

Forfaiting

A type of medium-term financing used to finance the sale of capital goods. It involves the sale of promissory notes signed by the importer in favor of the exporter. The forfait, usually a bank, buys the notes at a discount from face value from the exporter. The exporter gets paid and does not have to carry the financing.

Time draft

A written order instructing the importer or his agent, the importer's bank, to pay the amount specified on its face on a certain date.

Eurobond segment of the international bond market (lion's share)

Accounts for approx. 80% of new offerings for two main reasons. Eurobonds take less time to bring to market, and borrowers pay a lower interest rate for Eurodollar bond financing. Eurobonds have an advantage because they are not subject to strict national security regulations, such as the U.S. Securities Act of 1933, that foreign bonds must comply with.

SEC Rule 144A

Allows qualified institutional investors to trade private placements. These issues do not have to meet the strict information disclosure requirements of publicly traded issues. International companies are starting to prefer issuing Yankee bonds in the private placement market in the US to avoid costly information disclosure required of registered bonds.

Shelf Registration (SEC Rule 415)

Allows the issuer to preregister a securities issue, and then offer the securities when the financing is actually needed.

Empirical findings on cross-listings and ADRs

An internationally diversified portfolio of ADRs outperforms both a US stock market and a world stock market benchmark on a risk-adjusted basis. For most stocks, the home-market price and the ADR price is within 20-85 basis points, which limits any arbitrage opportunities.

Limit order

An order to your broker to buy or sell at a price you want, when and if he can.

Market order

An order to your broker to buy or sell share immediately at the market price. Use if immediate execution is more important than price.

Registered bonds

Bonds where the owner's name is registered with the issuer. U.S. security laws require Yankee bonds sold to U.S. citizens to be registered.

Bearer bonds

Bonds with no registered owner. Offer anonymity but same risk of loss as currency.

Offset transaction

Can be viewed as a counterpurchase trade agreement involving the aerospace/defense industry.

Underwriting spread

Company-paid fee to underwriters based on the issue price. Typically in the 2-2.5% range in the Eurobond market, and about 1% for domestic issues.

Automated exchanges

Computers match buy and sell orders

Countertrade

Countertrade is an umbrella term used to describe many different types of transactions in which "the seller provides a buyer with goods or services and promises in return to purchase goods or services from the buyer." Countertrade may or may not involve the use of currency, as in barter. Forms of countertrade: barter, switch trades, buy-back transactions, counterpurchase trade agreements, and offset transactions.

iShares MSCI

Country-specific baskets of stocks designed to replicate the country indexes of 22 countries. iShares are exchange-traded funds that trade on the American Stock Exchange and are subject to the US SEC and IRS diversification requirements. They are a low-cost, convenient way for investors to hold diversified investments in several different countries.

Composite currency bonds

Denominated in a currency basket, like the SDRs (special drawing rights) or ECUs (european currency unit), instead of a single currency. Often called currency cocktail bonds. Typically straight fixed-rate debt.

Factors to consider before investing in the emerging stock market of a developing country

Depth and liquidity. Depth indicates opportunities to invest in a country and is most often measured by the concentration ratio, which compares the size of firms as they relate to their overall industry. A higher concentration ratio indicates a less deep market, meaning that most of the value comes from only a select few companies and diversification within that country may be challenging due to the lack of investment opportunities. Liquidity, on the other hand, is defined as how easy it is to convert an asset or security into cash and is measured by the market turnover ratio of a country's stock market, with high market turnover indicating a more liquid market. In this type of market, there are plenty of chances to buy or sell the stock quickly at a price similar to that of the current market. Therefore, a market with high liquidity and depth would likely be a good place to invest.

JPMorgan and Company

Domestic bond indices. International government bond index for 18 countries. Widely referenced and often used as a benchmark. Appears daily in The Wall Street Journal.

Magnitude of international equity trading

During the 80s, world capital markets began a trend toward greater global integration due to diversification, reduced regulation, improvements in computer and communications technology, and an increased demand from MNCs for global issuance

Euro medium-term notes (Euro-MTNs)

Euro-Medium-Term Notes, also known as Euro-MTNs, usually come at a fixed rate and are issued by a corporation. These notes typically have maturities as long as 10 years or as little as under a year. This maturity is fixed, and Euro-MTNs also generate coupon interest payments. A unique feature of the Euro-MTN is that it is continuously sold in partial amounts, thereby permitting the borrower to get funds flexibly and as needed.

Clearing procedures

Eurobond transactions in the secondary market require a system for transferring ownership and payment from one party to another. Two main clearing systems that handle most Eurobond trades are Euroclear (based in Brussels and operated by Euroclear Bank) and Clearstream (located in Luxembourg). Each clearing system has a group of depository banks that physically store bond certificates. When a transaction is conducted, electronic book entries are made that transfer book ownership of the bond certificates from the seller to the buyer and transfer funds from the purchaser's cash account to the seller's. Physical transfer of the bonds seldom takes place.

International bond market credit ratings

Fitch IBCA, Moody's, and Standard & Poor's sell credit rating analysis. Focus on default risk, not exchange rate risk. Assessing sovereign debt focuses on political and economic risk.

Government assistance in exporting

For political reasons having to do with mercantilism, most developed countries offer competitive assistance to domestic exporters. This assistance often takes the form of subsidized credit that can be extended to exporters. Also, credit insurance programs that guarantee financing extended by private financial institutions are common.

Hedge funds

Hedge funds represent privately pooled investment funds and have experienced phenomenal growth in recent years, mainly driven by the desire of institutional investors (such as pension plans, endowments, and private foundations) to achieve positive or absolute returns, regardless of whether markets are rising or falling. Unlike traditional mutual funds that generally depend on "buy and hold" investment strategies, hedge funds may adopt flexible, dynamic strategies, often aggressively using leverages, short positions, and derivative contracts, in order to achieve their investment objectives. These funds may invest in a wide spectrum of securities, such as currencies, domestic and foreign bonds and stocks, commodities, real estate, and so forth. They aim to realize positive returns, regardless of market conditions. Hedge funds tend to have relatively low correlations with various stock market benchmarks, thereby offering diversification. They also allow investors to access foreign markets that are not easily accessible (ex: Jayhawk China Fund) and allow them to benefit from "global/macro" events (funds: Quantum, Jaguar, Moore Global). Legally, hedge funds are private investment partnerships. As such, these funds generally do not register as an investment company under the Investment Company Act and are not subject to any reporting or disclosure requirements, so they operate in "opaque" environments. Risks: hedge funds may make wrong bets based on the incorrect prediction of future events and wrong models. The failure of long term capital management is an example of the risk. Hedge fund advisors typically receive a management fee (1-2% of the fund asset value) as compensation, plus a performance fee that can be 20-25% of capital appreciation. Investors may not be allowed to liquidate their investments during a certain lock-up period. In the US, only institutional investors and wealthy individuals are allowed to invest in hedge funds. In many European countries, however, retail investors are also allowed to invest in these funds.

Liquidity

How quickly an asset can be sold without a major price concession. The equity markets of the developed world tend to be much more liquid than emerging markets. Therefore, although investments in emerging markets can be profitable, they are more focused on the long term.

International portfolio investment growth

IPI has been growing due to the deregulation of financial markets and the introduction of such investment vehicles as international mutual funds, country funds, and internationally cross-listed stocks.

The Export-Import Bank

In 1934 the Eximbank of the US was founded as an independent government agency to facilitate and finance US export trade. Its purpose is to provide financing in situations where private financial institutions are unable or unwilling to because: - the loan maturity is too long - the amount of the loan is too large - the loan risk is too great - the importing firm has difficulty in obtaining hard currency

World Equity Benchmark Shares (WEBS)

In April 1996, the American Stock Exchange (AMEX) introduced a class of securities called WEBS, designed and managed by Barclays Global Investors. WEBS are exchange-traded funds (ETFs) that are designed to closely track foreign stock market indexes. There are 23 WEBS tracking the MSCI indexes for a variety of countries. Because they are open-end funds, WEBS trade at prices that are very close to their net asset values.

Standard & Poor's five main sovereign rating factors

Institutional, economic, external, fiscal, and monetary assessments. Factors such as the robustness of political institutions are primarily qualitative, while those relating to the real economy, debt, and external liquidity are quantitative.

Buy-back transaction

Involves a technology transfer via the sale of a manufacturing plant. The seller of the plant agrees to buy back some of the output of the plant once it is constructed.

Floating-rate notes

Just like an adjustable rate mortgage. Common reference rates are 3-month and 6-month US dollar LIBOR. Since floating-rate notes reset every 6 or 12 months, the premium or discount is usually quite small as long as there is no change in the default risk. (interest payment = quarterly or semiannual, coupon = variable, payoff in currency of issue)

Selling group

Most of the underwriters, along with other banks, will be part of a selling group that sells the bonds to the investing public

Auction market

Organized exchanges have specialists who match buy and sell orders. Buy and sell orders may get matched without the specialist buying and selling as a dealer.

International mutual funds

Portfolios of international stocks created and managed by various financial institutions. A US investor can easily achieve international diversification by investing in a US-based international mutual fund. Many of these funds outperformed the US stock market index in terms of the Sharpe performance measure. Advantages: - savings on transaction and information costs - circumvention of legal and institutional barriers to direct portfolio investments abroad - professional management and record keeping

Eurobond market structure

Primary market is very similar to US underwriting. Secondary market: OTC market is centered in London (also traded in Zurich, Luxembourg, Frankfurt, and Amsterdam). Comprised of market makers as well as brokers, who are members of the International Capital Market Association (ICMA), a self-regulatory body based in Zurich. Clearing procedures: Euroclear and Cedel handle most Eurobond trades.

Withholding Taxes

Prior to 1984, the US required a 30% withholding tax on interest paid to nonresidents who held US government or US corporate bonds. The repeal of this tax led to a substantial shift in the relative yields on US government and Eurodollar bonds. This lends credence to the notion that market participants react to tax code changes.

Secondary markets

Provide market participants with marketability and share valuation

Closed-end country funds (CECFs)

Provided US investors with an opportunity to achieve international diversification at home. Found to behave more like US securities in comparison with their underlying net asset values (NAVs).

Cross-listing of shares

Refers to a firm having its equity shares listed on one or more foreign exchanges. The number of firms doing this has exploded in recent years.

Home bias

Refers to the extent to which portfolio investments are concentrated in domestic equities. Occurs for 3 main reasons: 1. domestic equities may provide a superior inflation hedge 2. home bias may reflect institutional and legal restrictions on foreign investment 3. extra taxes and transactions/information costs for foreign securities Wealthier, more experienced, sophisticated investors are more likely to invest in foreign securities. When a country is remote and has an uncommon language, foreign investors tend to stay away.

International correlation structure

Security returns are much less correlated across countries than within a country. This is true because economic, political, institutional, and even psychological factors affecting security returns tend to vary across countries, resulting in low correlations among international securities. Business cycles are often highly asynchronous across countries.

Primary markets

Shares offered for sale directly from the issuing company

Counterpurchase trade agreement

Similar to a buy-back transaction, but differs in that the output that the seller of the plant agrees to buy is unrelated to the plant.

Diversification with small-cap stocks

Small cap is a term used to classify companies with relatively small market capitalization. Current research suggests that investors can clearly enhance the gains from international investment by augmenting their portfolios with foreign, small-cap stocks. In response, investment companies have introduced many small-cap-oriented international mutual funds.

Zero coupon bonds

Sold at a large discount from face value because there is no cash flow until maturity. In the US, investors in zeros owe taxes on the "imputed income" represented by the increase in PV each year, while in Japan, the capital gain is tax-free. PV = PAR/(1+r)^t

Emerging markets

Standard & Poor's Emerging Markets Database classifies a stock market as "emerging" if it meets at least one of two general criteria: 1. It is located in a low- or middle-income economy as defined by the World Bank. 2. Its investable market capitalization is low relative to its most recent GNI figures.

Optimal international portfolio selection

The correlation of the US stock market with the returns on the stock markets in other nations varies. The correlation of the US stock market with the Canadian stock market is 77% and with the Japanese stock market is 38%. A US investor would therefore get more diversification in Japan than Canada. Investors gain from international diversification in terms of "extra" returns at the "domestic-equivalent" risk level, and investors can capture these extra returns when they hold their optimal international portfolios.

Barter

The direct exchange of goods between traders and requires a double coincidence of wants. A clearinghouse arrangement is a form of barter in which the traders agree to buy a certain amount of goods from each other. They set up accounts with each other that are debited and credited as needed. At the maturity of the arrangement, the parties settle up in cash or merchandise.

Yankee stock offerings

The direct sale of new equity capital to US public investors by foreign firms. Privatization in South America and Eastern Europe. Equity sales by Mexican firms trying to "cash in" following implementation of NAFTA.

Banker's acceptances

The exporter's bank presents the shipping documents and the time draft to the importer's bank. After taking the title for the goods via the bill of lading, the importer's bank accepts the time draft. At this point, the banker's acceptance is created. It is a negotiable money market instrument for which a secondary market exists. Definition: a commercial bank draft requiring the bank to pay the holder of the instrument a specified amount on a specified date, which is typically 90 days from the date of issue, but can range from 1 to 180 days. Banker's acceptances can be held to maturity by the exporter. The exporter can also sell them (at a discount) in the money market. Since the risks are similar, BAs trade at rates comparable to certificates of deposit.

Deutsche Telekom Global Bond

The largest corporate global bond issue to date is the $14.6 billion Deutsche Telekom multicurrency offering. The issue includes: - three US dollar tranches with 5, 10, and 30 year maturities totaling $9.5 billion - two euro tranches with 5 and 10 year maturities totaling 3 billion euros - two British pound sterling tranches with 5 and 30 year maturities totaling 950 million pounds - one 5-year Japanese yen tranche of 90 billion yen

Managing group

The lead manager will sometimes invite co-managers to form a managing group to help negotiate terms with the borrower, ascertain market conditions, and manage the issuance

Underwriters

The managing group, along with other banks, will serve as underwriters for the issue. They will commit their own capital to buy the issue from the borrower at a discount from the issue price

Switch trade

The purchase by a third party of one country's clearing agreement balance for hard currency.

Domestic vs. international diversification

When fully diversified, an international portfolio can be less than half as risky as a purely US portfolio and only 12 percent as risky as holding a single security.

Effects of changes in the exchange rate

The realized dollar return for a US resident investing in a foreign market will depend not only on the return in the foreign market but also on the change in the exchange rate between the US dollar and the foreign currency. The realized dollar return for a US resident investing in a foreign market is R = (1+Ri)(1+ei) - 1 = Ri + ei + Riei where Ri is the local currency return in the ith market and ei is the rate of change in the exchange rate between the local currency and the dollar. Ex: if a US resident just sold shares in a British firm that had a 15% return in pounds during a period when the pound depreciated 5%, his dollar return is 9.25%: R = (1+.15)(1-.05) - 1 = 0.925 (or .15 - .05 + .15x-.05=.925)

Risk decomposition

The risk for a US resident investing in a foreign market will depend not only on the risk in that market but also on the risk in the exchange rate between the US dollar and the foreign currency. Var(R$) = Var(Ri) + Var(ei) + 2Cov(Riei) + deltaVar deltaVar represents the contribution of the cross-product term, Riei, to the risk of foreign investment This equation demonstrates that the exchange rate fluctuations contribute to the risk of foreign investment through three channels: 1. its own volatility, Var(ei) 2. its covariance with the local market returns Cov(Riei) 3. the contribution of the cross-product term deltaVar Fun fact: exchange rates are substantially more volatile than bond market returns but less so than stock market returns. Helpful to hedge exchange risk with forward contracts, etc. Funnest fact: exchange rate changes reduce the risk of foreign investment if the covariance between local market returns and changes in the exchange rate is negative enough to counteract a positive variance in changes in the exchange rate

Market makers

The secondary market consists of market makers and brokers connected by an array of telecommunications equipment. Market makers stand ready to buy or sell for their own account by quoting two-way bid and ask prices. They trade directly with one another, through a broker, or with retail customers. The bid-ask spread represents a market maker's only profit; no other commission is charged.

Dealer market

The stock is sold by dealers, who stand ready to buy and sell the security for their own account. In the US, the OTC market is a dealer market.

Underwriting syndicate

The underwriting syndicate is a group of investment banks, merchant banks, and the merchant banking arms of commercial banks that specialize in some phase of a public issuance

Generalizations about countertrade

There are advantages and disadvantages. It can benefit both parties and in some circumstances is the only trade possible. Whether or not countertrade transactions are good or bad for the global economy, it appears certain that they will increase in the near future as world trade increases.

Market consolidations and mergers

There are approx. 80 major national stock markets. Western and Eastern Europe once had over 20 exchanges with at least 15 different languages. Over time, a European stock exchange will likely develop, but is currently hindered by lack of common securities regulations. Clients are putting pressure on stock markets around the world to combine or buy stakes in each other so they can trade shares of companies anywhere at a fast pace.

International bond investment

There is substantial exchange rate risk in foreign bond investment. This suggests than investors may be able to increase their gains if they can control this risk, for example, with currency forward contracts or swaps. The advent of the euro is likely to alter the risk-return characteristics of the euro-zone bond markets, enhancing the importance of non-euro currency bonds.

Bonds with equity warrants

These bonds allow the holder to keep the bond but still buy a specified number of shares in the firm of the issuer at a specified price. They can be viewed as straight fixed-rate bonds with the addition of a call option (or warrant) feature. The warrant entitles the bondholder to purchase a certain number of equity shares in the issuer at a pre-stated cash price over a predetermined period of time. With a convertible bond, you surrender the bond to get the shares, but with equity warrant bonds, you pay cash and keep the bond.

Market capitalization

Total market value of equity, equal to share price times number of shares outstanding. At year-end 2015, total market capitalization of the 80 organized stock exchanges tracked by the World Federation of Exchanges stood at $67,125 billion.

The world's bond markets

Total value is about 50% larger than the world's equity markets. 4 majors currencies in which bonds are denominated: U.S. dollar, euro, pound sterling, yen. More domestic than international: U.S. dollar and yen. More international than domestic: euro and pound sterling.

Exchange-traded funds

Using exchange traded funds (ETFs) like WEBS and spiders, investors can trade a whole stock market index as if it were a single stock. Investors can achieve global diversification instantaneously just by holding shares of the S&P Global 100 Index Fund that is also trading on the AMEX with other WEBS.

Global Registered Shares (GRSs)

When Daimler Benz AG and Chrysler merged to create German firm DaimlerChrysler AG in 1998, they created a new type of equity share. GRSs are traded globally, unlike ADRs, which are traded on foreign markets. The shares are fully fungible - a GRS purchased on one exchange can be sold on another, and they trade in both US dollars and euro. The primary exchanges for Daimler GRSs are the Frankfurt Stock Exchange and the NYSE, but they are traded on 20 exchanges worldwide. Main advantage over ADRs: all shareholders have equal status and direct voting rights. Main disadvantage: greater expense in establishing the global registrar and clearing facility. Met with limited success; many companies still choose ADRs. Deutsche Bank, UBS, and NYSE Euronext also trade as GRSs.

National Security Registrations

Yankee bonds must meet the requirements of the SEC, like US domestic bonds. Many borrowers find this level of regulation burdensome and prefer to raise US dollars in the Eurobond market. Eurobonds sold in the primary market in the US may not be sold to US citizens, but they can buy them on the secondary market.

Eurobond

a debt instrument that's denominated in a currency other than the home currency of the country or market in which it is issued

Equity-related bonds

convertible bonds and bonds with equity warrants

Three basic elements for a foreign trade transaction

letter of credit, time draft, bill of lading

Mercantilism

the economic theory that trade generates wealth and is stimulated by the accumulation of profitable balances, which a government should encourage by means of protectionism.