Chapter 11

The Global Capital

Market
 Why Do We Have
Capital Markets?
 Capital markets bring together investors and
borrowers
 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)
 capital market loans can be equity or debt

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Who Are The Main Players
in Capital Markets?
The Main Players in a Generic Capital Market

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 What Makes The Global
Capital Market Attractive?
 Today’s capital markets are highly
interconnected and facilitate the free flow of
money around the world
 Borrowers benefit from the additional supply of
funds global capital markets provide
 lowers the cost of capital
 Investors benefit from the wider range of
investment opportunities
 diversify portfolios and lower risk

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 Growth Of Capital Market

 Two factors that are responsible for growth of

capital market:
1. Advances in information technology
2. Deregulation by governments

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 What Is A Eurocurrency?
A eurocurrency is any currency
banked outside its country of
origin
It is an important source of low-
cost funds for international
companies

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 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 and charge lower interest rates to
eurocurrency borrowers
 The spread between the eurocurrency deposit
and lending rates is less than the spread
between the domestic deposit and lending rates

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 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 payoffs
 The global bond market grew rapidly during the
1980s and 1990s and continues to grow today
 There are two types of international bonds
1. Foreign bonds
2. Eurobonds

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 What Makes The Eurobond
Market Attractive?
 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

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 What Is The
Global Equity Market?
 The global equity market allows firms to
1. Attract capital from international investors
 many investors buy foreign equities to
diversify their portfolios
2. List their stock on multiple exchanges
 this type of trend may result in an
internationalization of corporate ownership

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 What Do Global Capital
Markets Mean For Managers?
 The growth in global capital markets has created
opportunities for firms to borrow or invest
internationally
 can often borrow at a lower cost, but must balance
the foreign exchange risk against the costs savings
 Growth in capital markets offers opportunities for
firms, institutions, and individuals to diversify
their investments and reduce risk
 Capital markets are likely to continue to integrate
providing more opportunities for business

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