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Global Capital Market
DBA 722 International EconomicsProfessor Ruben M. Nayve Jr., Ph.D.
Presented byFerdinand C. Importado
April 2013
Evolution of the Global Capital Market
International Transactions
Points in International Trading
Risk aversion
Portfolio diversification
Exchanges of assets
Bonds Stocks
Factors of international capital market
Commercial banks
Corporations
Non-bank financial institutions
CB and other gov’t agencies
International bond market
International bond market refers to the issuance of bonds by governments and corporations representing borrowing by issuing entities with a time period of generally longer than one year
Underwriters
• Banks and other financial institutions
• Purchase the bonds • Assume the risks • Loan syndicate
Types of international bond marketForeign bond market
Eurobond marketThe borrower in one country issues
bonds in the markets of many countries, with the help of
multinational loan syndicate, to residents of many countries. The
bonds can be denominated in any of several different currencies
The borrower in one country issues bonds in the market of another
country The sale is mainly to residents of the host country, and the bonds are denominated in the
currency of the host country
Data on international bond issue Dec. 2012 Dec. 2011 Dec. 2010 Dec. 2002
Money market instruments 844.0 895.0 914.0 438.0
Bonds and notes 21,135.0 27,820.0 26,751.0 8,780.8
21,979.0 28,715.0 27,665.0 9,218.8
Data on international bond issue
Dec. 2012 Dec. 2011 Dec. 2010 Dec. 2002
Euro area 9,364.0 11,713.0 11,584.0 3,591.2
United States 2,043.0 6,821.0 6,599.0 2,749.3
Japan 182.0 181.0 184.0 258.2
Others 5,811.0 5,846.0 5,711.0 1,525.7
17,400.0 24,561.0 24,078.0 8,124.4
Dec. 2012 Dec. 2011 Dec. 2010 Dec. 2002
Developed countries 17,400.0 24,561.0 24,078.0 8,124.4
Offshore centers 1,718.0 1,593.0 1,545.0 106.9
Other countries 1,503.0 1,287.0 1,149.0 549.0
International institutions 1,358.0 1,274.0 893.0 438.5
21,979.0 28,715.0 27,665.0 9,218.8
Data on international bond issue Dec. 2012 Dec. 2011 Dec. 2010 Dec. 2002
Commercial banks 16,507.0 20,860.0 20,849.0 6,630.2 Governments 1,629.0 2,535.0 2,423.0 879.5 Corporations 2,483.0 4,045.0 3,570.0 1,270.6 Other issuers 1,360.0 1,275.0 823.0 438.5
21,979.0 28,715.0 27,665.0 9,218.8
Economic implicationsFinancial capital is increasingly able to flow across international borders
More efficient allocation of financial capital
Foreign exchange markets themselves will be more active
End of Global Capital Market
International Lending
DBA 722 International EconomicsProfessor Ruben M. Nayve Jr., Ph.D.
Presented byFerdinand C. Importado
April 2013
Banking Institutions
AgencySubsidiary
Foreign branch
International Lending Defined
International Lending
International lending is defined as cross-border lending in all foreign and domestic currencies and lending to residents in foreign currencies.
Reasons for International Lending
Favorable interest rates
Higher rates of return
Working capital requirements
Net international bank lending Sept. 2012 Dec. 2011 Dec. 2010 Dec. 2002
Total cross-border bank claims 29,420.8 29,824.2 29,757.8 13,425.60
Local claims in foreign currency 3,987.3 3,905.4 3,839.5 1,732.80
Unallocated claims 505.4 489.3 439.0 0.0
Gross international bank lending 33,913.5 34,218.9 34,036.3 15,158.4
Less: Interbank deposits 18,032.1 18,709.5 18,474.6 9,567.40
Net international bank lending 15,881.4 15,509.4 15,561.7 5,591.0
Eurocurrency / Eurodollar Market
• The concept of extending loans in foreign currency to residents and non-residents
• Deposit in a financial institution that is denominated in a currency other than the currency of the country in which the financial institution is located.
• Originally, this market was called Eurodollar.
Rise of euro currency market
• Cold War between the U.S. and the former U.S.S.R
• Restricted use of the pound to finance capital outflow transactions
• Legal ceilings in interest rates for time and savings deposits in the U.S.
• Difficulty to obtain U.S.$ in the U.S. mainland.
• The first oil-shock between 1973-1974
Consequences
Interest rates are
not equalize
d
No effective control
of money in
existence
End of International Lending