Financial institutions became cautious with their funds and were less willing to lend funds to MNCs.
31 International Bond Market Foreign bonds are issued by borrower foreign to the country where the bond is placed. Eurobonds are bonds sold in countries other than the country whose currency is used to denominate the bonds. Features of Eurobonds Bearer bonds Annual coupon payments Convertible or callable Denominations of Eurobonds Commonly denominated in a number of currencies
32 International Bond Market Eurobonds (cont.) Underwriting Process Multinational syndicate; simultaneously placed in many countries. Secondary Market Market makers are in many cases the same underwriters who sell the primary issues. Impact of the Euro on the Eurobond Market Before the euro’s adoption, many MNCs issued bonds denominated in their local currency. With many bonds issued in euro denominations, the market is much larger and more liquid.
33 International Bond Market Development of Other Bond Markets Bond markets have developed in Asia and South America. Bond market yields among countries tend to be highly correlated over time. When economic conditions weaken , aggregate demand for funds declines with the decline in corporate expansion. When economic conditions strengthen , aggregate demand for funds increases with the increase in corporate expansion.
34 International Bond Market Risk of International Bonds Interest Rate Risk - potential for the value of bonds to decline in response to rising long-term interest rates. Exchange Rate Risk - represents the potential for the value of bonds to decline (from the investor’s perspective) because the currency denominating the bond depreciates against the home currency. Liquidity Risk - represents the potential for the value of bonds to decline because there is no consistently active market for the bonds. Credit Risk - represents the potential for default.
35 Issuance of Stock in Foreign Markets – the existence of various markets for new issues provides corporations in need of equity with a choice. Impact of the Euro - resulted in more stock offerings in Europe by U.S. and European-based MNCs. Issuance of Foreign Stock in the U.S. Yankee stock offerings - Non-U.S. corporations that need large amounts of funds sometimes issue stock in the United States. American Depository Receipts (ADR) - Certificates representing bundles of stock. ADR shares can be traded just like shares of a stock. International Stock Markets
36 International Stock Markets Non-U.S. Firms Listing on U.S. Exchanges Non-U.S. firms have their shares listed on the New York Stock Exchange or the Nasdaq market so that the shares can easily be traded in the secondary market.
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