The International Capital Market

Major International Banks

1. A correspondent relationship: an agent relationship whereby one bank acts
as a correspondent, or agent, for another bank in the first banks home
country and vice versa. Services performed by correspondent banks
include paying and collecting foreign funds, providing credit information,
and honoring letters of credits. Each bank maintain accounts at the other
bank denominated in the local currency.
2. As the larger banks have internationalized their operations, they have
increasing provided their own overseas operations rather than utilizing
correspondent banks to improve their abiliity to complete internationally.
3. a. Subsidiary bank: overseas banking that seperately incoporated from the
patent
b. Branch bank
: not seperately incorporated
c. Sometimes an international banksmay choosen to create a affiliated
bank. Affiliated bank is an overseas operation in which it takes part
owneship in conjunction with a local or foreign partner.
Commercial banking services
- Exporters and tourists utilize such banking services when they
exchange their home currency or travelers checks for local currency
- The international department of the firms bank will provide any or all
of these sevices as part of its normal commercial banking operations
Investment banking services
- Corporate clients hire investment bankers to package and locate longterm debt and equity funding and arrange mergers and acquisitions of
domestic and foreign firms
- Competition has focused investment bankers to globalize their
operations to secure capital for their clients at the lowest possible cost.
The Eurocurrency Market
Originated in the early 1960s when the communist-controlled governments of
Central Europe and Eastern Europe needed dollars to finance their international
trade but feared that the US government would confiscateor block their holdings
of $ in US banks for political reason.
1. Thus Eurodollars, US$ deposited in European banks account were born. A
Eurocurrency is defined as a currency on deposit outside its country of
issue
2. Euroloan market has grown up with the Eurocurrency market. It is
extremely competitive and lenders operate on razor thin margin.
Euroloans are often quoted on LIBOR (London Interbank Offer Rate basis.
3. Euroloan market is often the low cost source of loans for governments and
MNCs. The reasons are: 1. Free of costly government banking regulations ;
2. involve large transactions ; 3. The most creditworthy borrowers use it
4. International Banking Facility (IBF) is an entity of US bank that it legally
distinct from the banks domestic operations and that may offer onlu
international banking services

The International Bond Market

1. represent a major source of debt financing for the worlds governemnt,

international organizations, and larger firms.
2. Foreign bonds are bonds issued by a resident of country A but sold to
residents of country B and denominated in the currency of country B
3. Eurobond is bond issued in the currency of country A but sold to residents
of other countries
4. Global bond is large, liquid financial asset that can be traded anywhere at
anytime. Pioneered by the world bank
Global Equity Market
A country fund is a mutual fund that specializes in investing in a given countrys
firms. The globalization of equity market has been facilitated by the globalization
of the financial services industry. Most major financial services firms have
ecpanded operations from their domestic bases into the major international
financial services. Those are eager to raise capital, provide investment advice,
offer stock market analyses and put together financing deals for clients
anywhere.
Offshore Financial Centers
It focues on offering bankng and other financial services to nonresident
customers. MNCs often use this to obtain low cost Eurocurrency loans and to take
advantage of the benefits they offer (political stability, a regulatory climate that
facilitates international capital transactions, excellent communications links to
other major financial centers. The efficiency of offshore financial centers in
attracting deposits and then lending these funds to customers is an important
factor in the growing globalization of the capitla market.