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Capital markets

Capital markets. Bond Markets. Foreign Bond Euro Bond Foreign bank market Loans from euro currency market. Foreign bond. Bond sold in a foreign country in the currency of the country of issue E.g McDonald Inc sells a £ denominated bond in the UK. Foreign Bond markets.

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Capital markets

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  1. Capital markets

  2. Bond Markets • Foreign Bond • Euro Bond • Foreign bank market • Loans from euro currency market

  3. Foreign bond • Bond sold in a foreign country in the currency of the country of issue • E.g McDonald Inc sells a £ denominated bond in the UK

  4. Foreign Bond markets • Portion of the domestic bond markets that represent issues floated by foreign companies or govts. As such, foreign bonds are subject to local laws & denominated in the local curency

  5. Types of foreign bonds • Fixed rate issues • Floating rate notes(FRNs)-variable rates reset at fixed intervals(3 or 6 months) • Equity-related bonds: convertible bonds or bonds issued with equity warrants

  6. Euro Bond • Bond denominated in a currency that is not that of the country in which it is issued. E.g McDonald Inc issues a US$ denominated bond in the UK • Bonds sold outside the countries in whose currencies they are denominated

  7. Types of euro bonds • Similar as for foreign bonds • Moreover, entirely free of official regulation; self-regulated by the Association of International Bond Dealers

  8. Comparison of the 2 bonds • Foreign bonds are usually sold by brokers in the country in which they are issues • Must decide on the country of issue • Euro bonds are sold by international syndicates of banks or brokers- generally sold simultaneously in a no. of countries • Must decide on country of issue and currency

  9. Foreign bank market • Represents that portion of domestic bank loans supplied to foreigners for use abroad

  10. Euro currency market • A freely convertible currency deposited in a bank outside its country of origin. Thus, US$ deposited in London become Euro$

  11. Euro currency market, cont’d • Loans made from euro currency markets are on a floating rate basis • Maturity of loans: 3-10 years

  12. Activity • What is better? Fixed rate debt or floating rate debt • Investigate the difference between a euro bond and a euro currency loan

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