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The Global Capital Market
Why Do Capital Markets Exist?
Brings together investors and borrowers
Investors-people with surplus cash, individuals and non-bank financial institutions
Borrowers-individuals, companies, governments
Markets makers
What Makes the GCM Attractive?
Low risk for investors, as well as diversity of options for investment
Volatile exchange rates can make what would otherwise be profitable, unprofitable.
Why is it Growing?
Advancements in technology, Deregulation (can be risky, as it can destabilize economies)
What is a Eurocurrency?
Any currency banked outside its country of origin. Ex. Eurodollars, euro-yen, euro-pound, euro-euro
An important source of low-cost funds for international companies
Began in 1950s when eastern bloc countries feared that the U.S. might seize their dollars
In 1957, market surged again after change in laws
What Makes the Eurocurrency Market Attractive?
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
The spread between the Eurocurrency
deposit and lending rates is less than the
spread between the domestic deposit and
lending rates
What is the Global Bond Market?
Bonds are an important means of
financing for many companies
the most common bond is a fixed rate which
gives investors fixed cash payoff
The global bond market grew rapidly
during the 1980s and 1990s and
continues to do so in the 20th century
What is the Global Equity Market?
Allowing a company to sell parts of themselves.
Buying equity/stock=buying ownership
Offering equity/stock=selling ownership
How Do Exchange Rates Affect the Cost of Capital?
Growth in global capital markets has
created opportunities for firms to borrow
or invest internationally
firms can often borrow at a lower cost than in
the domestic capital market
firms must balance the cost savings against
the foreign-exchange risk associated with
borrowing in foreign currencies
What do Global Capital Markets Mean for Managers?
Growth in capital markets offers
opportunities for firms, institutions, and
individuals to diversify their investments
and reduce risk
again though, investors must consider
foreign exchange rate risk
Capital markets are likely to continue to
integrate, providing more opportunities for
business

New Note

The Global Capital Market
Why Do Capital Markets Exist?
Brings together investors and borrowers
Investors-people with surplus cash, individuals and non-bank financial institutions
Borrowers-individuals, companies, governments
Markets makers
What Makes the GCM Attractive?
Low risk for investors, as well as diversity of options for investment
Volatile exchange rates can make what would otherwise be profitable, unprofitable.
Why is it Growing?
Advancements in technology, Deregulation (can be risky, as it can destabilize economies)
What is a Eurocurrency?
Any currency banked outside its country of origin. Ex. Eurodollars, euro-yen, euro-pound, euro-euro
An important source of low-cost funds for international companies
Began in 1950s when eastern bloc countries feared that the U.S. might seize their dollars
In 1957, market surged again after change in laws
What Makes the Eurocurrency Market Attractive?
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
The spread between the Eurocurrency
deposit and lending rates is less than the
spread between the domestic deposit and
lending rates
What is the Global Bond Market?
Bonds are an important means of
financing for many companies
the most common bond is a fixed rate which
gives investors fixed cash payoff
The global bond market grew rapidly
during the 1980s and 1990s and
continues to do so in the 20th century
What is the Global Equity Market?
Allowing a company to sell parts of themselves.
Buying equity/stock=buying ownership
Offering equity/stock=selling ownership
How Do Exchange Rates Affect the Cost of Capital?
Growth in global capital markets has
created opportunities for firms to borrow
or invest internationally
firms can often borrow at a lower cost than in
the domestic capital market
firms must balance the cost savings against
the foreign-exchange risk associated with
borrowing in foreign currencies
What do Global Capital Markets Mean for Managers?
Growth in capital markets offers
opportunities for firms, institutions, and
individuals to diversify their investments
and reduce risk
again though, investors must consider
foreign exchange rate risk
Capital markets are likely to continue to
integrate, providing more opportunities for
business