global capital market and international lending

Global Capital Market

DBA 722 International EconomicsProfessor Ruben M. Nayve Jr., Ph.D.

Presented byFerdinand C. Importado

April 2013

Evolution of the Global Capital Market

International Transactions

Points in International Trading

Risk aversion

Portfolio diversification

Exchanges of assets

Bonds Stocks

Factors of international capital market

Commercial banks

Corporations

Non-bank financial institutions

CB and other gov’t agencies

International bond market

International bond market refers to the issuance of bonds by governments and corporations representing borrowing by issuing entities with a time period of generally longer than one year

Underwriters

• Banks and other financial institutions

• Purchase the bonds • Assume the risks • Loan syndicate

Types of international bond marketForeign bond market

Eurobond marketThe borrower in one country issues

bonds in the markets of many countries, with the help of

multinational loan syndicate, to residents of many countries. The

bonds can be denominated in any of several different currencies

The borrower in one country issues bonds in the market of another

country The sale is mainly to residents of the host country, and the bonds are denominated in the

currency of the host country

Data on international bond issue Dec. 2012 Dec. 2011 Dec. 2010 Dec. 2002

Money market instruments 844.0 895.0 914.0 438.0

Bonds and notes 21,135.0 27,820.0 26,751.0 8,780.8

21,979.0 28,715.0 27,665.0 9,218.8

Data on international bond issue

Dec. 2012 Dec. 2011 Dec. 2010 Dec. 2002

Euro area 9,364.0 11,713.0 11,584.0 3,591.2

United States 2,043.0 6,821.0 6,599.0 2,749.3

Japan 182.0 181.0 184.0 258.2

Others 5,811.0 5,846.0 5,711.0 1,525.7

17,400.0 24,561.0 24,078.0 8,124.4

Dec. 2012 Dec. 2011 Dec. 2010 Dec. 2002

Developed countries 17,400.0 24,561.0 24,078.0 8,124.4

Offshore centers 1,718.0 1,593.0 1,545.0 106.9

Other countries 1,503.0 1,287.0 1,149.0 549.0

International institutions 1,358.0 1,274.0 893.0 438.5

21,979.0 28,715.0 27,665.0 9,218.8

Data on international bond issue Dec. 2012 Dec. 2011 Dec. 2010 Dec. 2002

Commercial banks 16,507.0 20,860.0 20,849.0 6,630.2 Governments 1,629.0 2,535.0 2,423.0 879.5 Corporations 2,483.0 4,045.0 3,570.0 1,270.6 Other issuers 1,360.0 1,275.0 823.0 438.5

21,979.0 28,715.0 27,665.0 9,218.8

Economic implicationsFinancial capital is increasingly able to flow across international borders

More efficient allocation of financial capital

Foreign exchange markets themselves will be more active

End of Global Capital Market

International Lending

DBA 722 International EconomicsProfessor Ruben M. Nayve Jr., Ph.D.

Presented byFerdinand C. Importado

April 2013

Banking Institutions

AgencySubsidiary

Foreign branch

International Lending Defined

International Lending

International lending is defined as cross-border lending in all foreign and domestic currencies and lending to residents in foreign currencies.

Reasons for International Lending

Favorable interest rates

Higher rates of return

Working capital requirements

Net international bank lending Sept. 2012 Dec. 2011 Dec. 2010 Dec. 2002

Total cross-border bank claims 29,420.8 29,824.2 29,757.8 13,425.60

Local claims in foreign currency 3,987.3 3,905.4 3,839.5 1,732.80

Unallocated claims 505.4 489.3 439.0 0.0

Gross international bank lending 33,913.5 34,218.9 34,036.3 15,158.4

Less: Interbank deposits 18,032.1 18,709.5 18,474.6 9,567.40

Net international bank lending 15,881.4 15,509.4 15,561.7 5,591.0

Eurocurrency / Eurodollar Market

• The concept of extending loans in foreign currency to residents and non-residents

• Deposit in a financial institution that is denominated in a currency other than the currency of the country in which the financial institution is located.

• Originally, this market was called Eurodollar.

Rise of euro currency market

• Cold War between the U.S. and the former U.S.S.R

• Restricted use of the pound to finance capital outflow transactions

• Legal ceilings in interest rates for time and savings deposits in the U.S.

• Difficulty to obtain U.S.$ in the U.S. mainland.

• The first oil-shock between 1973-1974

Consequences

Interest rates are

not equalize

d

No effective control

of money in

existence

End of International Lending