The Global Capital Market

Сентябрь 3, 2022

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The Global Capital Market

Содержание

2. Introduction The rapid globalization of capital markets facilitates the free flow of money around the world
3. Benefits Of The Global Capital Market There are market functions that are shared by both domestic
4. Functions Of A Generic Capital Market Capital markets bring together investors and borrowers Investors include corporations
5. Functions Of A Generic Capital Market Figure 11.1: The Main Players in a Generic Capital Market
6. Attractions Of The Global Capital Market Borrowers benefit from: the additional supply of funds global capital
7. Attractions Of The Global Capital Market Figure 11.2: Market Liquidity and the Cost of Capital SSg
8. Attractions Of Global Capital Market (GCM) Investors also benefit from the wider range of investment opportunities
9. Figure 11.3: Risk Reduction through Portfolio Diversification In probability theory the expected value (or expectation value,)
10. Growth Of The Global Capital Market Global capital markets are growing at a rapid pace In
11. Growth Of The Global Capital Market Two factors are responsible for the growth of GCM Advances
12. Growth Of The Global Capital Market 4. deregulation by governments Traditionally, governments have limited the ability
13. Growth Of The Global Capital Market Many countries have also dismantled capital controls making it easier
14. Global Capital Market Risks Some analysts worry that the deregulation of capital markets and loosening of
15. The Eurocurrency Market A eurocurrency is any currency banked outside of its country of origin About
16. Genesis And Growth Of The Market The eurocurrency market began in the 1950s when the Eastern
17. Growth Of The Global Capital Market In the 1960s, the market grew once again when, after
18. Attractions Of The Eurocurrency Market The eurocurrency market is attractive to depositors and borrowers because it
19. Attractions Of The Eurocurrency Market Figure 11.4: Interest Rate Spreads in Domestic and Eurocurrency Markets
20. Drawbacks Of The Eurocurrency Market The eurocurrency market has two drawbacks: 1. because the eurocurrency market
21. The Global Bond Market The global bond market grew rapidly during the 1980s and 1990s The
22. Attractions Of The Eurobond Market The eurobond market is attractive for three main reasons: 1. it
23. The Global Equity Market The largest equity markets are in the United States, Britain, and Japan
24. Foreign Exchange Risk And The Cost Of Capital Adverse exchange rates can increase the cost of
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Introduction
The rapid globalization of capital markets facilitates the free flow of

money around the world
Traditionally, national capital markets have been separated by regulatory barriers
Therefore, it was difficult for firms to attract foreign capital
Many regulatory barriers fell during the 1980s and 1990s, allowing the global capital market to emerge
Today, firms can list their stock on multiple exchanges, raise funds by issuing equity or debt to investors from around the world, and attract capital from international investors

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Benefits Of The Global Capital Market
There are market functions that

are shared by both domestic and international capital markets
However, global capital markets offer some benefits not found in domestic capital markets

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Functions Of A Generic Capital Market
Capital markets bring together investors and

borrowers
Investors include corporations with surplus cash, individuals, and non-bank financial institutions
Borrowers include individuals, companies, and governments
Markets makers are the financial service companies that connect investors and borrowers, either directly or indirectly
Commercial banks are indirect market makers, and investment banks are direct market makers (http://en.wikipedia.org/wiki/Investment_bank)
Capital market loans can be equity (stock) or debt ( cash loans or bonds)

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Functions Of A Generic Capital Market
Figure 11.1: The Main Players in

a Generic Capital Market

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Attractions Of The Global Capital Market
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)
The cost of capital is lower in international markets because the pool of investors is much larger than in the domestic capital market

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Attractions Of The Global Capital Market
Figure 11.2: Market Liquidity and the

Cost of Capital

SSg supply of money in German market; SSi is supply in global market
So …. more $’s for less costs

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Attractions Of Global Capital Market (GCM)
Investors also benefit from the wider

range of investment opportunities in GCMs that allow them to diversify their portfolios and lower their risks
Studies show that fully diversified portfolios are only about 27 percent as risky as individual stocks
International portfolio diversification is even less risky because the movements of stock prices across countries are not perfectly correlated
This low correlation reflects the differences in nations’ macroeconomic policies and economic policies and how their stock markets respond to different forces, and nations’ restrictions on cross-border capital flows

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Figure 11.3: Risk Reduction through Portfolio Diversification
In probability theory

the expected value (or expectation value,) of a discrete random variable is the sum of the probability of each possible outcome of the experiment multiplied by the outcome value (or payoff).

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Growth Of The Global Capital Market
Global capital markets are growing at

a rapid pace
In 1990, the stock of cross-border bank loans was just $3,600 billion
By 2006, the stock of cross border bank loans was $17,875 billion
The international bond market shows a similar pattern with $3,515 billion in outstanding international bonds in 1997, and $17, 561 billion in 2006
International equity offerings were $18 billion in 1997 and $377 billion in 2006

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Growth Of The Global Capital Market
Two factors are responsible for the

growth of GCM
Advances in information technology
Financial services companies now engage in 24-hour-day trading – the international capital market never sleeps
However, this also means that shocks that occur in one financial market spread around the globe very quickly

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Growth Of The Global Capital Market
4. deregulation by governments
Traditionally, governments

have limited the ability of foreign investors to purchase significant equity positions in domestic companies, and the amount of foreign investment citizens could make
Since the 1980s, these restrictions have been falling in response to the development of the Eurocurrency market, and also pressure from financial services companies

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Growth Of The Global Capital Market
Many countries have also dismantled capital

controls making it easier for both inward and outward investment to occur
This trend has spread from the developed world to the emerging nations
The global capital market is expected to continue to grow

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Global Capital Market Risks
Some analysts worry that the deregulation of capital

markets and loosening of controls on cross-border capital flows make individual nations more vulnerable to the destabilizing effects of speculative capital flows (flash capital)
Speculative capital flows may be (?) the result of inaccurate information about investment opportunities
If global capital markets continue to grow, better quality information is likely to be available from financial intermediaries

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The Eurocurrency Market
A eurocurrency is any currency banked outside of its

country of origin
About two-thirds of all eurocurrencies are Eurodollars (dollars banked outside the United States)
Other important eurocurrencies are the euro-yen, the euro-pound, and the euro-euro

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Genesis And Growth Of The Market
The eurocurrency market began in the

1950s when the Eastern bloc countries were afraid the United States might seize their holdings of dollars
So, instead of depositing their dollars in the United States, they deposited them in Europe
Additional dollar deposits came from Western European central banks and companies that exported to the United States
In 1957, the market surged again after changes in British laws
Today, London continues to be the leading center of the eurocurrency market

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Growth Of The Global Capital Market
In the 1960s, the market grew

once again when, after changes in U.S. regulations discouraged U.S. banks from lending to non-U.S. residents, would-be borrowers of dollars outside the United States turned to the euromarket as a source of dollars
The next big increase in the eurocurrency market came after the 1973-74 and 1979-80 oil price increases
OPEC members avoided potential confiscation of their dollars by depositing them in banks in London

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Attractions Of The Eurocurrency Market
The eurocurrency market is attractive to depositors

and borrowers because it is not regulated by the government
This means that banks can offer higher interest rates on eurocurrency deposits than on deposits made in the home currency
Similarly, banks can also charge lower interest rates to eurocurrency borrowers than to those who borrow the home currency
The spread between the eurocurrency deposit and lending rates is less than the spread between the domestic deposit and lending rates giving eurocurrency banks a competitive edge over domestic banks

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Attractions Of The Eurocurrency Market
Figure 11.4: Interest Rate Spreads in Domestic

and Eurocurrency Markets

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Drawbacks Of The Eurocurrency Market
The eurocurrency market has two drawbacks:
1. because

the eurocurrency market is unregulated, there is a higher risk of bank failure
2. companies borrowing eurocurrencies can be exposed to foreign exchange risk

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The Global Bond Market
The global bond market grew rapidly during the

1980s and 1990s
The most common kind of bond is a fixed rate bond which gives investors fixed cash payoffs
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
2. eurobonds are underwritten by a syndicate of banks and placed in countries other than the one in whose currency the bond is denominated

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Attractions Of The Eurobond Market
The eurobond market is attractive for

three main reasons:
1. it lacks regulatory interference – since companies do not have to adhere to strict regulations, the cost of issuing bonds is lower
2. it has less stringent disclosure requirements than domestic bond markets – it can be cheaper and less time consuming to offer eurobonds than to issue dollar-denominated bonds
3. it is more favorable from a tax perspective – eurobonds can be sold directly to foreign investors

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The Global Equity Market
The largest equity markets are in the United

States, Britain, and Japan
Today, many investors invest in foreign equities to diversify their portfolios
In the future, this type of trend may result in an internationalization of corporate ownership
Companies are also helping to promote this type of shift by listing their stock in the equity markets of other nations
By issuing stock in other countries, firms open the door to raising capital in the foreign market, and give the firm the option of compensating local managers and employees with stock

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Foreign Exchange Risk And 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
Firms can hedge their risk by entering into forward contracts to purchase the necessary currency and lock in the exchange rate, but this will also raise costs
Firms must weigh the benefits of a lower interest rate against the risk of an increase in the real cost of capital due to adverse exchange rate movements

The Global Capital Market

Содержание

IntroductionThe rapid globalization of capital markets facilitates the free flow of

Benefits Of The Global Capital Market There are market functions that

Functions Of A Generic Capital MarketCapital markets bring together investors and

Functions Of A Generic Capital MarketFigure 11.1: The Main Players in

Attractions Of The Global Capital Market Borrowers benefit from:the additional supply

Attractions Of The Global Capital MarketFigure 11.2: Market Liquidity and the

Attractions Of Global Capital Market (GCM)Investors also benefit from the wider

Figure 11.3: Risk Reduction through Portfolio Diversification In probability theory

Growth Of The Global Capital MarketGlobal capital markets are growing at

Growth Of The Global Capital MarketTwo factors are responsible for the

Growth Of The Global Capital Market4. deregulation by governments Traditionally, governments

Growth Of The Global Capital MarketMany countries have also dismantled capital

Global Capital Market RisksSome analysts worry that the deregulation of capital

The Eurocurrency MarketA eurocurrency is any currency banked outside of its

Genesis And Growth Of The MarketThe eurocurrency market began in the

Growth Of The Global Capital MarketIn the 1960s, the market grew

Attractions Of The Eurocurrency MarketThe eurocurrency market is attractive to depositors

Attractions Of The Eurocurrency MarketFigure 11.4: Interest Rate Spreads in Domestic

Drawbacks Of The Eurocurrency MarketThe eurocurrency market has two drawbacks:1. because

The Global Bond MarketThe global bond market grew rapidly during the

Attractions Of The Eurobond Market The eurobond market is attractive for

The Global Equity MarketThe largest equity markets are in the United

Foreign Exchange Risk And The Cost Of CapitalAdverse exchange rates can

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