Bài giảng International Business - Chapter 12: The Global Capital Market

International Business 9eBy Charles W.L. HillMcGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter 12The Global Capital Market Why Do We Have Capital Markets?Capital markets bring together investors and borrowersinvestors - corporations with surplus cash, individuals, and non-bank financial institutionsborrowers - individuals, companies, and governmentsmarkets 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 debtWho Are The Main Players in Capital Markets?The Main Players in a Generic Capital MarketWhat Makes The Global Capital Market Attractive? Today’s capital markets are highly interconnected and facilitate the free flow of money around the worldBorrowers benefit from the additional supply of funds global capital markets providelowers the cost of capital Investors benefit from the wider range of investment opportunities diversify portfolios and lower riskHow Have Global Capital Markets Changed Since 1990?Global capital markets have grown rapidlythe stock of cross-border bank loans was just $3,600 billion in 1990, but $32,430 in 2010the international bond market has grown from $3,515 billion in 1997 to $26,613 in 2010international equity offerings were just $18 billion in 1990, but grew to $750 billion in 2009The growth in the markets is a result ofAdvances in information technologyDeregulation by governmentsWhat Are The Risks Of The Global Capital Markets?Question: Could deregulation of capital markets and fewer controls on cross-border capital flows make nations more vulnerable to the effects of speculative capital flows?can have a destabilizing effect on economies2008-2009 global financial crisisSpeculative capital flows may be the result of inaccurate information about investment opportunitiesif global capital markets continue to grow, better quality information is likely to be available from financial intermediaries What Is A Eurocurrency?A eurocurrency is any currency banked outside its country of originabout two-thirds of all eurocurrencies are Eurodollars It is an important source of low-cost funds for international companiesThe market began in the 1950s Eastern bloc countries feared that the U.S. might seize their dollars so, they deposited them in Europeadditional dollar deposits came from Western European central banks and companies that exported to the U.S. Why Has The Eurocurrency Market Grown?In 1957, the market surged again after changes in British lawsLondon became the leading center of the market and still hold this position In the 1960s, the market grew once again Changes in regulations discouraged U.S. banks from lending to non-U.S. residentswould-be borrowers of dollars outside the U.S. turned to the euromarket as a source of dollarsWhy Has The Eurocurrency Market Grown?The next big increase came after the 1973-74 and 1979-80 oil price increasesArab members of OPEC accumulated huge amounts of dollarsavoided potential confiscation of their dollars by the U.S. by depositing them in banks in LondonWhat Makes The Eurocurrency Market Attractive?The eurocurrency market is attractive because it is not regulated by the governmentbanks can offer higher interest rates on eurocurrency deposits and charge lower interest rates to eurocurrency borrowersThe spread between the eurocurrency deposit and lending rates is less than the spread between the domestic deposit and lending ratesgives eurocurrency banks a competitive edge over domestic banksWhat Makes The Eurocurrency Market Attractive?Interest Rate Spreads in Domestic and Eurocurrency MarketsWhat Makes The Eurocurrency Market Unattractive?The eurocurrency market has two significant drawbacks:Because the eurocurrency market is unregulated, there is a higher risk that bank failure could cause depositors to lose fundscan avoid this risk by accepting a lower return on a home-country deposit Companies borrowing eurocurrencies can be exposed to foreign exchange risk can minimize this risk through forward market hedgesWhat 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 payoffsThe global bond market grew rapidly during the 1980s and 1990s and continues to grow today There are two types of international bondsForeign bondsEurobondsWhat Makes The Eurobond Market Attractive?The eurobond market is attractive becauseIt lacks regulatory interference since companies do not have to adhere to strict regulations, the cost of issuing bonds is lowerIt has less stringent disclosure requirements than domestic bond markets it can be cheaper and less time consuming to offer eurobonds than dollar-denominated bondsIt is more favorable from a tax perspective eurobonds can be sold directly to foreign investors What Is The Global Equity Market?The global equity market allows firms toAttract capital from international investors many investors buy foreign equities to diversify their portfoliosList their stock on multiple exchanges this type of trend may result in an internationalization of corporate ownershipRaise funds by issuing debt or equity around the worldWhat Do Global Capital Markets Mean For Managers? The growth in global capital markets has created opportunities for firms to borrow or invest internationallycan often borrow at a lower cost, but must balance the foreign exchange risk against the costs savingsGrowth in capital markets offers opportunities for firms, institutions, and individuals to diversify their investments and reduce riskCapital markets are likely to continue to integrate providing more opportunities for business