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International Finance > Financial market > Flashcards

Financial market Flashcards

1
Q

What are the three financial centres?

A

Tokyo, London and New York

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2
Q

What are the principal functions of financial centres?

A
  1. Transferring purchase power
  2. Allocating funds

(transfer purchasing power denominated in one currency to another and thereby facilitate international trade and investment)

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3
Q

What are some financial centres for intermediaries?

A
  1. Hong Kong,
  2. Singapore,
  3. the Bahamas,
  4. Switzerland,
  5. Luxembourg

Some countries that have relatively unimportant domestic financial markets are important world financial centres.

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4
Q

What are the prerequisites for becoming a global financial centre?

A
  1. political: minimal government intervention
  2. political: political stability
  3. financial: financial infrastructure
  4. legal: legal infrastructure

(Good for businesses - minimize risks)

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5
Q

What are some ways for MNCs to access capital in foreign markets?

A
  1. The foreign bond market
  2. The foreign equity market
  3. The foreign bank market
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6
Q

What are some types of bonds?

A
  1. Fixed rate
  2. Floating rate
  3. Equity related

(Equity-related bonds combine features of the underlying bond and common stock. The two principal types of equity-related bonds are convertible bonds and bonds with equity warrants)

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7
Q

What is the foreign bank market?

A

Extension of domestic market:

The foreign bank market represents that portion of domestic bank loans supplied to foreigners for use abroad. (example: HSBC, RBC, CIBC and etc. HSBC has the largest network.)

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8
Q

What is the advantage of a foreign bank?

A

Helps MNCs transfer funds within the bank/internally easily.

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9
Q

What is the foreign bond market?

A

portion of the domestic bond market that represents issues floated by foreign companies or governments. (i.e. an American MNC raises money through bond in China)

They are subject to local laws and restrictions (i.e. queuing system)

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10
Q

What is a Yankee bond?

A

Dollar-denominated foreign bonds sold in the United States are called Yankee bonds.

(i.e. if a foreign company comes to US to raise money through debt, then it is a Yankee bond)

two criteria:

    • dollar denominated
    • foreign bonds in US
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11
Q

What is the counterpart of Yankee bonds in Japan? (The foreign bonds sold in Japan – money goes to foreign company?)

A

Samurai bonds:

Yen bonds sold in Japan by a non-Japanese borrower are called Samurai bonds.

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12
Q

What is the bond which local Japanese companies issue to get foreign currency?

A

Shogun bonds:

Foreign currency bonds issued within Japan by Japanese corporations

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13
Q

What are some benefits of cross-listing internationally?

A
  1. Diversify the risks
  2. Increase potential demand
  3. Build base of global investors

–A pool of funds from a diversified shareholder base insulates a company from the vagaries of a single national market. Second, the domestic market could be too small for big operation

–Selling stock overseas also can increase the potential demand for the shares, and hence its price, by attracting new shareholders. An international stock offering can also spread the firm’s name in local markets, an advantage for a firm that wants to project an international presence.

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14
Q

Why would some MNCs delist from foreign markets?

A
  1. They want to get listed in a market that gives them the best price (which is usually their domestic market)
  2. They need to pay annual fees to be listed. Delist if the cost is not justified
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15
Q

What are some types of development banks?

A
  1. World Bank Group
  2. Regional development banks
  3. National development banks

The banks that are willing to lend money to foreign companies

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16
Q

What is the International Bank for Reconstruction and Development? IBRD

A

IBRD (sounds like i-bird)

  1. Original institution of World Bank Group
  2. aims to reduce poverty in middle-income countries and creditworthy poorer countries
  3. promoting sustainable development

(Strategic - finance a construction of a shipping point for a poor country so that MNCs can establish its market)

17
Q

What are included in the World Bank Group?

A
  1. IBRD: International Bank for Reconstruction and Development
  2. IDA: International Development Association
  3. IFC: International Financial Corporation
18
Q

What does International Development Association do?

A

Lend to the poorest countries with low or no interests.
(i.e. lend to countries that have high inflation, impossible to pay back loans)

The International Development Association (IDA) provides interest-free loans—called credits— and grants to governments of the poorest countries.

19
Q

What does the International Finance Corporation do?

A

Lenders - injection to private institutions
not competing with private groups

IFC: is the largest global development institution focused exclusively on the private sector. We help developing countries achieve sustainable growth by financing investment, mobilizing capital in international financial markets, and providing advisory services to businesses and governments.

20
Q

How to remember the different functions of the three branches of World Bank Group?

A
  1. IBRD: Reconstruction and development - country-based; large infrastructure projects
  2. IDA: Development: country-based;
  3. IFC: Finance: company-based
21
Q

What is the function of Regional Development Bank?

A
  1. Finance industry, agricultural, and infrastructure projects

In a specific region
–Inter-American Development Bank, the Asian Development Bank; the African Development Bank; and the European Bank for Reconstruction and Development.

22
Q

What is the function of National Development Bank?

A
  1. Concentrate on a particular industry or region
  2. Help grow domestic market

–A National development bank is a finance institution, created by a country’s government, that provides financing for the purposes of economic development of the country.

23
Q

What are some examples of national development banks in Canada?

A

BDC - Business development bank of Canada

FCC - Farm Credit Canada

24
Q

What are three general sources of financing?

A
  1. Internally generated
  2. Short-term externally generated
  3. Long-term externally generated
25
Q

What are the functions of short-term and long-term loans?

A

Borrow short-term to finance working capital, long-term to finance projects

26
Q

What are some examples of covenants?

A
  1. Minimum amount of cash
    …
  2. Cross-default: another way of guarantee:

A provision in a loan agreement or other debt obligation stating that the borrower defaults if he/she goes into default on any other obligation.

For example, a cross-default provision may state that a person defaults on his car lease if he defaults on his mortgage. This provision exists to protect the lender.

27
Q

What are some instruments to raise debt?

A
  1. Commercial Bank Loans

2. Privately issued or publicly issued

28
Q

What are some reasons for the increasing popularity of financial markets?

A

Reflects the reduced access costs:

  1. Technological improvements
  2. Globalization (deregulation)
29
Q

What are the two models of corporate governance?

A
  1. Anglo-Saxon (AS)

2. Continental European-Japanese (CEJ)

30
Q

What is Continental European-Japanese model?

A

Banks have an equity interests; they are the investors of corporations; They are the biggest lenders

Banks are responsible to make sure everything is coordinated and runs smoothly.

31
Q

What is the advantage of the European-Japanese Model?

A

It is superior at implementing policies which involve relations with stakeholders. This is because of the concentration of ownership.

32
Q

What is the advantage of Anglo-Saxon model?

A

Control is dispersed, so it is good for market competition/innovation.

33
Q

What is an example of the European-Japanese Model?

A

Keiretsu. It is a system of interlocking directors. The whole supply chain is under several controlling banks.

International Finance (9 decks)

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