A bond issued by a us company that is denominated in

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Unformatted text preview: Germany, or Switzerland. Through the Eurobond market, issuing firms and governments can tap a much larger pool of investors than would be generally available in the local market. The foreign bond market is another international market for long-term debt securities. A foreign bond is a bond issued by a foreign corporation or government that is denominated in the investor’s home currency and sold in the investor’s home market. A bond issued by a U.S. company that is denominated in Swiss francs and sold in Switzerland is an example of a foreign bond. Although the foreign bond market is much smaller than the Eurobond market, many issuers have found this to be an attractive way of tapping debt markets in Germany, Japan, Switzerland, and the United States. Finally, the international equity market allows corporations to sell blocks of shares to investors in a number of different countries simultaneously. This market enables corporations to raise far larger amounts of capital than they could raise in any single national market. International equity sales have also proven to be indispensable to governments that have sold state-owned companies to private investors during recent years. The Role of Securities Exchanges Securities exchanges create continuous liquid markets in which firms can obtain needed financing. They also create efficient markets that allocate funds to their most productive uses. This is especially true for securities that are actively traded on major exchanges, where the competition among wealth-maximizing investors determines and publicizes prices that are believed to be close to their true value. The price of an individual security is determined by the demand for and supply of the security. Figure 1.5 depicts the interaction of the forces of demand (represented by line D0) and supply (represented by line S) for a given security currently selling at an equilibrium price P0. At that price, Q0 shares of the stock are traded. Changing evaluations of a firm’s...
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This document was uploaded on 01/19/2014.

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