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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
Changing evaluations of a firm’s...
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This document was uploaded on 01/19/2014.
- Fall '13