Intenational Fixed Income and Stock Markets

Transcription

1 International Finance, 9-th lecture IES, UK December 15, 2015

2 Outline International Banking Products 1 International Banking Products 2 3

3 International Banking Products International deposits: term deposit - nonnegotiable, registered instrument w/ a fixed life certificate of deposit - tradable security version of the traditional term deposit; negotiable (can be sold to another investor at any point in time) Pecularities: there is not interim interest payments on short-term deposits (like overnight, week, or one, three, and six months) for long-term deposits or CDs there is a fixed or floating coupon for a floating coupon the live of the instrument has subperiods for each subperiod the interest is constructed by a risk-free market rate for the period - a fixed spread laid in the contract

4 International Banking Products International credits and loans consotia - an international loan extended by a syndicate or consortium of banks revolving or floating-rate loans - the interest is reset every period on the basis of prevailing money market rate + a spread recall, domestic loans usually have the fixed interest payments the purpose of this feature is to reduce the risk of international lending: the risk comes from the fact that bank lends for long-term but opens short-term deposits, the interest on which will also change in the short run revolving loans with caps or floors there is a cap and/or a floor to the effective interest rate

5 International Banking Products Credit lines a standard line of credit - the beneficiary has the right to borrow up to some amount at the prevailing interest rate + preset spread the difference from the loan - the money is drawn down only if and when it is needed and paid back at any date before the expiry date they are usually short-term - like three months the credit line can be revoked by the bank if there are substantial changes in the creditor s credit standing revolving commitment - like a credit line, except that it cannot be revoked during its life

6 Institutional Aspects of the International Bond Market International bonds - bearer securities they are anonymously held (investors are not registered) Interest payments fixed coupons are paid annually floating-rate notes - the interest is periodically reset on the basis on then prevailing Libor + a spread capped and floored floating-rate notes bullet bond is bought back or repaid at the maturity purchase-fund or sinking-fund provision - the borrower can buy back predetermined amounts of bonds in the open market every year

7 Institutional Aspects of the International Bond Market Currency of denomination - usually USD, EUR, JPY, and CHF some bonds have currency options attached to them (e.g., a bondholder has the right to choose the currency of the principal) striped bonds - coupons and principal are sold separately Issuing procedure: consortium - there are a number of players alternatives to the consortium bought deal - a bank single-handed buys the entire issue fixed price reoffer - the price to be paid is set, the sellers get the commission if and when they place paper yield pricing - price is set taking into account yields of comparable bonds in the secondary market au robinet (medium-term note) - bank issue of its own CDs to the general public

8 Commercial Paper International Banking Products Commercial paper (CP) - short-term security (from 7 days to a few years) issued by private companies like a disintermediated counterpart of short-term bank loan CP issue can be one-time affair but many issuer have a CP-program contract w/ a syndicate - no need to get the syndicate together each time commercial paper needs to be place moreover, the syndicate may offer the underwriting commitments

9 How Do Stock Markets Work? Quote driven markets the market consists of market makers (financial institutions) that post prices and which they are ready to buy and sell Order driven markets investors enter their limit orders into a computer which aggregates them into market-wide supply and demand schedules at the opening (call), the system crosses supply and demand, which provides the opening price and already executes the highest possible volume of orders unmatched orders remain displayed in a public limit-order book - computer screens - and remain there until they expire, are matched with a new order that came in later, or are withdrawn Hybrid markets market makers + limit-order book

10 Different Aliases for a Company s Stock Registered shares - the shareholder is registered as a company s shareholder Bearer shares - anonymous holding custodian institution buys and holds registered shares it then issues bearer certificates or receipts that represents n original stocks a custodian is doing this for a fee at the request of the depository institution (a bank or a trust corporation) a depository institution is a transfer agent btw the custodian and the investors it takes care about distributing dividends, paying taxes, distributing periodic financial reports issuing company can request a custodian to convert shares into the registered shares American depository receipt - a dollar-denominated negotiable certificate that represents ownership of shared in a non-u.s. company

11 Future of the Exchanges Why don t exchanges simply merge? home bias - the tendency of investing into home assets more than predicted by the efficient portfolio criteria differences in corporate governance and legal/ regulatory environment Financial center concentration is explained by finding employees - it is easier to find a professional in the fin. center outside help and expertise - firms providing expertise services are at the same market contact and visibility - informal contact during lunch hours can be of help signaling - the presence in the metropolis says that the firm is ambitious and successful enough to pay rent and bonuses cross-pollination - when people meet face to face the communication is faster, new ideas come up easier outlets for risk - there are a lot of instrument around to shift at least part of the risk due to the presence of many players... but disadvantages: Iuliia too Brushko high rental Intenational costs, Fixedtransportation Income and Stock Markets mess,