MGT 350 CH 12

Implications for International Business:

-companies can often borrow funds at a lower cost of capital in the international capital market that they can in the domestic capital market -provides greater opportunities for businesses and individuals to build a diversified portfolio of international investments in financial assets, which lowers risk

Attractions of the Eurobond Market:

1. An absence of regulatory interference 2. Less stringent disclosure requirements than in most domestic bond markets 3. A favorable tax status

Which of the following statements is true of equity loans?

An equity loan is made when a corporation sells stock to investors. The money the corporation receives in return for its stock can be used to purchase plants and equipment, fund R&D projects, pay wages, and so on.

Which of the following refers to the U.S. dollars that are banked outside of the United States?

Eurodollars account for about two-thirds of all Eurocurrencies.

Organizations can avoid systematic risk diversifying international investments.

False Systematic risk is the level of non-diversifiable risk in an economy.

The Eurocurrency market is a relatively high-cost source of funds for international businesses.

False The Eurocurrency market has been an important and relatively LOW-cost source of funds for international businesses.

By using the global capital market, firms have to borrow funds at a much higher cost than they would in a domestic capital market.

False firms can often borrow funds at a LOWER cost than is possible in a purely domestic capital market

It is easier for investors to get access to information about foreign investment opportunities than domestic investment opportunities.

False. Despite advances in information technology, it is still DIFFICULT for investors to get access to the same quantity and quality of information about foreign investment opportunities that they can get about domestic investment opportunities.

Which of the following statements is true of hedge funds?

Hedge funds are private investment funds. Hedge funds position themselves to make "long bets" on assets that they think will increase in value and "short bets" on assets that they think will decline in value

Which of the following is a disadvantage of global capital market?

Information about the fundamental quality of investments is difficult to obtain. A lack of information about the fundamental quality of foreign investments may encourage speculative flows in the global capital market. Faced with a lack of quality information, investors may react to dramatic news events in foreign nations and pull their money out too quickly.

________________________ make(s) Eurobonds more attractive than most major domestic bonds.

Less stringent disclosure requirements makes it an appealing alternative to most major domestic bond markets.

Which of the following statements is true of Eurobonds?

They are placed in countries other than the one in whose currency the bond is denominated.

Eurobonds fall outside of the regulatory domain of any single nation.

True

Market makers are the financial service companies that connect investors and borrowers.

True

The growth of the global capital market has provided opportunities for firms and individuals to diversify their investments to limit risk.

True

Many of the restrictions placed on financial services in countries around the world have lightened up as a result of the market development of the Eurocurrency market.

True financial services has historically been the most tightly regulated of all industries

Which of the following terms refer to the foreign bonds sold in the United States?

Yankee bonds

eurocurrency

any currency banked outside of its country of origin; lack of government regulation makes it attractive to depositors and borrowers -absence in regulation gives Eurobanks a competitive advantage

growth in global capital market

attributed to advances in information technology, widespread deregulation of financial services, and the relaxation of regulations governing cross-border capital flows

function of a capital market

bring those who want to invest money together with those who want to borrow money

global capital market

has a greater supply of funds available for borrowing, which makes for a lower cost of capital for borrowers; allows investors to diversify portfolios of holdings internationally, thereby reducing risk

Eurobonds

normally underwritten by an international syndicate of banks and placed in countries other than the one in whose currency the bond is denominated

When the value of a currency appreciates, _____________________________.

people who have invested in the currency will garner benefits. Movements in foreign exchange rates can substantially increase the cost of foreign currency loans. In this case, the depositors will earn more if the currency appreciates.

hedge funds

private investment funds that position themselves to make "long bets" on assets that they think will increase in value and "short bets" on assets that they think will decline in value

A debt loan is made when a corporation _________________________.

sells corporate bonds to investors.

Foreign bonds

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

Systematic risk is _____________________________.

the level of non-diversifiable risk in an economy. affects all firms in an economy