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Chapter 11 Student P10 MGT 302

Chapter 11 Student P10 MGT 302 - Chapter11...

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The Global Capital Market Chapter 11 
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Growth of the Global Capital Market Advances in information technology Deregulation by governments 
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Financial Globalization Benefits of Financial Globalization Lower Cost of Capital Portfolio Diversification Dangers of Financial Globalization Excessive Speculative Capital Flows
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The Impossible Trinity Exchange Rate Stability Independent Monetary Policy Capital Mobility
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                                       Capital Mobility Exchange Rate Stability    Independent  Monetary Policy
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Advantages of the Eurocurrency Market Reserve requirements for eurocurrency  accounts are generally not regulated. The interest rate spread between the  eurocurrency deposit and lending rates is less  than the spread between the domestic deposit  and lending rates. Savers earn a higher interest rate and  borrowers pay a lower interest rate as  compared to domestic deposits. 
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Drawbacks of the Eurocurrency Market Because the eurocurrency market is  unregulated, there is a higher risk of  bank failure. Individuals and companies borrowing  eurocurrencies can be exposed to  foreign exchange risk.
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Foreign Exchange Risk  and the Cost of Capital Adverse changes in exchange rates can  increase the cost of foreign currency loans.
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