Download Summary of International Financial Market with Focus on

International Financial Market
International Financial System
I. International Bannking
Eurocredit = Eurocurrrency Loans
II. International Financial Market
Types of International Financial Markets:
Depending on liquidity, we can divide into:
1. Short-term: International Money Market
Based on Euro-currency (= certificate of deposit), they can
specifically take the forms of
Short-term Euronotes: usually underwritten by NIF or RUF;
Euro-Commercial Papers: not underwritten by investment banks;
or
Euro-Medium Term Notes: not underwritten by investment banks.
* Why would a U.S. citizen or corporation place its U.S. dollar
deposit outside of the U.S. bank?
(see P. 450 of the textbook by Alan Shapiro)
Outside of U.S., banks are faced with less regulations and
thus are able to provide a higher return on deposits:
- No Reserve Requirement on bank deposits for European
banks;
- No FDI premium, and thus a higher return for deposits;
-No `Regulation Q’ (ceiling on interest paid by banks to
deposits) in Europe
-More competition among banks in Europe.
International Financial Market
* LIBOR – is the wholesale interest rate they charge from
borrowing International Funds;
LIBID- is the best rate given to the renowned institutional
borrowers;
Thus LIBID < LIBOR
* Eurocredit = This is the Eurocurrency based Bank Loans; it
does not go through financial market, but through international
banking.
2. Long-term: International Capital Market
Once again, we can divide into:
1) Int’nl equity Mrkt
2) Int’nl bonds Mrkt
Details of International Bond Market:
Types of Bonds:
(1) Euro-Bonds: - placed outside of the currency
country issued in domestic currency
Ex: US$ bonds sold in Europe or in Japan or Asia;
Shogun Bonds and Dragon Bonds
Yen bonds sold outside of Japan
DM bonds sold outside of Germany
* Why would IBM place its bonds outside of the U.S.?
(see P. 461 of Alan Shapiro’s texbook)
Eurobonds are ‘bearer form’, as opposed to
`registered form’, and thus their interest payment are
not subject to income tax.
International Financial Market
(2.) Foreign-Bonds: - issued in domestic country/
currency and placed in domestic
(Issued by foreigners) country as well
Ex. Samurai Bonds, Bull Dog Bonds, Yankee
Bonds; Matilda Bonds;
(Sometimes bonds are placed in domestic markets but
are issued by foreign company in foreign currency.
They are not called ‘foreign bonds, but ‘Eurobonds’
Ex. Shogun Bonds in Japan and Dragon Bonds in
Asia)
(3.) Global-Bonds: - issued in domestic or foreign
currency and placed in many countries.
Ex: US bonds denominated in US. Dollars sold in the
U.S. as well as outside of U.S.