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What Makes the Eurocurrency Market Attractive?

-not regulated by the government -spread between the Eurocurrency deposit and lending rates is less than the spread between the domestic deposit and lending rates -Gives Eurocurrency banks a competitive edge over domestic banks

Two factors are responsible for the growth of capital markets

1. Advances in information technology 2. deregulation by governments

The 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 Eurocurrency market has two significant drawbacks:

1. Because the Eurocurrency market is unregulated, there is a higher risk that bank failure could cause depositors to lose funds 2. Companies borrowing Eurocurrencies can be exposed to foreign exchange risk

There are two types of international bonds

1. Foreign bonds are sold outside the borrower's country and are denominated in the currency of the country in which they are issued -used by companies when they think it will reduce the cost of capital 2. Eurobonds are underwritten by a syndicate of banks and placed in countries other than the one in whose currency the bond is denominated

**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

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 U.S. -about two-thirds of all Eurocurrencies are eurodollars

borrowers

individuals, companies, and governments

markets makers

the financial service companies that connect investors and borrowers, either directly (investment banks) or indirectly (commercial banks) capital market loans can be equity or debt

cost of capital

the price of borrowing money or the rate of return that borrowers pay investors