Issue though also known beter in domesic markets b

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issue, though also known beter in domesic markets (b) Why Euro? Why internaional? Less regulaion, less capital reqs, less disclosure, special treatment, pick your market (c) Who? Issuers: Govts, govt-backed, large corporaions Holders: Large FIs, banks, large NBFIs Distributing prohibited | Downloaded by K C ([email protected]) lOMoARcPSD|2330446
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5. Equity (a) What? Encompasses primary market funcions (underwriing new equity issues) and secondary market funcions (trading of equiies outside issuer’s home country). Can list on foreign markets or sell new shares to foreigners Why list? To improve liquidity of exising shares by enabling foreign shareholders to trade in them, also allows company to broaden commercial and poliical visibility, allows support for new equity issues and broadens ownership outside naional froniers which may reduce price luctuaions. Beneits must be balanced against cost of implied commitment to full disclosure, easier for US irms to list abroad because of stringent requirements of SEC. Once decided to list abroad, must decide where to list, if to support new equity issue, target market should be lising market. If it is to increase visibility, should be where operaions are held. If it is to improve liquidity, should be in a major liquid market such as London, NY, Tokyo, Frankfurt or Paris. Can sell new shares to foreign investors in many ways: 1. Selling shares in a foreign exchange, underwriten by insituions in the host country, may be a private placement 2. Selling Euro-equity issues to foreign investors in muliple countries, integraion of world capital markets has led to emergence of euro-equity market 3. Selling foreign subsidiary’s shares to investors in the host country, can reduce cost of capital if host country awards a higher capitalizaion rate on the subsidiary’s earnings 4. Sell shares to foreign irm as part of strategic alliance. May involve sharing cost of developing new technology or pursuing complementary markeing acivites. (b) ADRs American Depository Receipts – Negoiable ceriicates issued by a US bank in the US to represent underlying shares which are held in a custodian bank. ADRs can be exchanged for underlying shares and vice versa, while arbitrage keeps foreign and US prices at the same level. Dividends are passed on to custodial bank, which are then passed on to bank issuing ADRs and then converted to USD and then given to purchasers. The Exchange Rate : Jargon The exchange rate: deiniion Distributing prohibited | Downloaded by K C ([email protected]) lOMoARcPSD|2330446
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Value of one currency in terms of another Spot/forward Spot: The price quotes for immediate setlement on a currency, is based on the value of the currency at the moment of the quote Forward: A forward contract is a contract that involves an agreement of contract terms on the current date with delivery and payment at a speciied future date, used to quote a inancial transacion that takes place on a speciied future date. Used by hedgers, speculators and arbitragers for various FX transacions Direct/indirect quotes
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