Download International Financial Market

International Financial Market
Sources of Capital
• International Market: business operation
• External Market:
–
–
–
–
A.
B.
C.
D.
Domestic Market: domestic funds for domestic use.
International Market: domestic funds for foreign use.
International Market: foreign funds for domestic use.
Offshore Market: foreign funds for foreign use
ie. London, N.Y., Tokyo, Zurich, Singapore, Bahrain,
Bahamas.
MENU
Eurodollar vs Eurocurrencies Market
• U.S. Dollar time deposits in a bank outside the
U.S.A.
• Bank may be foreign bank or overseas branch of a
U.S. bank.
• Deposits could be in: Call Money, Overnight Draft,
3-month CD.
Eurodollar deposits are not demand deposit and can’t be
transferred by a check drawn on the bank having the deposit.
It can be transferred by a wire or cable from a balance-hold in a
corresponding bank located in the U.S.
Banks in which Eurodollar or Eurocurrencies are deposited are
generally called Eurobanks.
MENU
Reasons for Existence of Eurodollar
Market
1.
2.
3.
4.
5.
6.
7.
Convenient money market
Major source of short-term bank loans
Arbitrage purpose
U.S. long-time trade deficit
Money regulation in the U.S.
Military expenses of the 1960’s and 1970’s
Freezing of foreign assets in the U.S. in the 1970’s and
1980’s
MENU
Size of the Market
• According to the report by Bank for International
Settlement, the size of the market has increased 4
times since the 1970’s to $2,056 billion.
• A Majority of the dollar deposits are in Europe
(60%), and the rest are in Asia -- mainly in Japan
and Singapore.
• The Expansion of the market is very similar to the
money creation principle of a commercial bank.
MENU
Euro-capital Market
• Money Market (Euro-Line of
Credit, Revolving Credit,
Syndicated Short-term and
Medium-term loans)
• Euro-CD, such as Spot Rate CD,
Roll-over Credit where the interest
is paid in floating rate and TAPS,
CD’s for less than a year with min
$25,000 denomination which could
be in a series of identical CD’s
(Tranche) or single issue, and Fivecurrency CD (denominated in a
basket of five different currencies).
MENU
Eurobonds
1. The Euronote Market: short to medium-term debt
instruments (negotiable promissory notes) sold in
the Eurocurrency market.
– They are underwritten by different facilities, such as
Revolving Underwriting Facilities (RUF), Note Insurance
Facilities (NIF) and Standby Note Issuance Facilities
(SNIF).
2. Euro-commercial Papers (ECP) - one, three and sixmonth maturities.
3. Euro Medium-term Notes (EMTN): bridges
maturity gap between ECP and Eurobond.
4. Euro-bond Market
– Straight Fixed Rate Issue -fixed CR, specified maturity date and
full principal repayment upon final maturity.
– Floating Rate Notes (FRN) - semiannual coupon, variable rate,
fixed maturity or perpetuities.
– Euro-Equity Convertibles - similar to straight bond with added
feature to convert to a certain number of stocks prior to
maturity.
MENU
Eurobonds
4. Euro-bond Market (con...)
– Dual currency Bonds - purchase price and coupon denominated
in one currency and the principal redemption value fixed in a
second currency.
– Currency Cocktail Bond - denominated in one of several
currency baskets such as SDR or ECU; stable interest and
principal payments.
– Stripped Bond - deep discounted bond issued in bearer form in
order to sell them to non-residents; Certificate of Accrual on
Treasury Securities (CATS).
5. Yankee Bond - issued by non-residents in U.S.
Dollars sold in the U.S.
6. Foreign Bond - issued by non-residents in nonDollars sold in the U.S.
MENU
Eurobonds
• 7. Treasury Bond - long-term obligation of federal
government (U.S.)
• 8. Corporate Bond (General, Debenture, Jr,
Subordinate) - long-term obligation of corporation.
• 9. Municipal Bond - long-term obligation of state and
local government.
• 10. Interest and Currency Swaps
MENU
END
MENU