The Global Capital Market

Capital Markets Exist?

Capital markets bring together investors and borrowers

What Is a Eurocurrency?

is any currency banked outside its country of origin. About two-thirds of all Eurocurrencies are Eurodollars dollars banked outside the U.S.

What Makes the Eurocurrency Market Unattractive?

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 • can minimize this risk through forward market hedges

The Main Players in the Generic Capital Market: Market Makers

Commercial Bankers, Investment bankers

The Main Players in the Generic Capital Market: Investors

Companies, Individuals, Institutions

The Main Players in the Generic Capital Market: Borrowers

Individuals, governments, companies

Foreign bonds

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

Eurobonds

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

• investors

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

• borrowers

individuals, companies, and governments

• markets makers

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

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 • Gives Eurocurrency banks a competitive edge over domestic banks