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International Capital Markets

Although U.S. capital markets are by far the world's largest, there are important debt and equity markets outside the United States. In the Eurobond market, which is the oldest and largest international bond market, corporations and governments typically issue bonds (Eurobonds) denominated in dollars and sell them to investors located outside the United States. A U.S. corporation might, for example, issue dollar-denominated bonds that would be purchased by investors in Belgium, Germany, or Switzerland. Issuing firms and governments appreciate the Eurobond market because it allows them to tap a much larger pool of investors than would generally be 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, a vibrant international equity market has emerged in the past decade. Many corporations have discovered that they can sell blocks of shares to investors in a number of different countries simultaneously. This market has enabled corporations to raise far larger amounts of capital than they could have raised in any single national market. International equity sales have also proved indispensable to governments that have sold state-owned companies to private investors in recent years, because the companies being privatized are often extremely large.

REVIEW QUESTIONS

RQ-3 Distinguish between the roles of primary and secondary markets.

RQ-4 Distinguish between money and capital markets.

RQ-5 How can corporations use international capital markets to raise funds?

 
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