Assignment: Chapter 9 - International Financial Markets
Quick Study 1, Page 229: 1. What are the three main purposes of the international capital market? Expands the money supply for borrowers – Connects borrowers and lenders in different national capital markets. If a company can’t obtain funds from within its own borders, it can seek financing outside them. This is especially a good idea when it comes to firms within nations with small/ emerging capital markets. Reduce borrowers’ cost – An expanded money supply reduces the cost of borrowing. As supply increases, interest rate falls. Therefore excess supply creates a borrowers market, forcing down interest rates and the cost of borrowing. Projects that aren’t expected to really return on investment quickly or correctly might be an option at lower financing cost. Reduces lenders’ risk – The international capital market broadens the set of available lending opportunities and reduces lenders’ risk in two ways; investors enjoy a greater set of opportunities from which to choose and investing in international securities benefits investors because some economies are growing while others are in decline. Quick Study 2, Page 234: 1. Describe the international bond market. What factor is most responsible for fueling its growth? The international bond market consists of all bonds sold by issuing companies, governments, or other organizations outside their own countries. Interest rates contribute to its expansion. Low rates in developed nations means investors earn relatively little interest in bonds in those markets. As result, banks pension funds and, mutual funds are seeking higher returns in emerging markets, where higher interest payments reflect the greater risk of bonds. Simultaneously, corporate and government borrowers in emerging markets desperately need capital to invest in expansion plans and public works projects. Quick Study 3, Page 238: 1. Explain...
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