International Markets

Question 1

Retail and Institutional investors - Advantages of international markets and Methods of investing

Answer 1

Both R and II invest in overseas securities for ‘diversification’ and potentially ‘higher returns’

Retail - invest through Mutual or ETFs

Institutional - securities

Question 2

NYSE - Designated Market Makers (DMMs) and Processing System

Answer 2

On NYSE, DMMs are assigned specific to specific trading posts and thus specific stocks

Maintain an ‘orderly market’ for brokers to trade through

UTS is the primary processing system

Question 3

Challenges of investing in Emerging Markets

Answer 3

FX risk

Political risks such as coups and wars

Mis-priced risk due to lower transparency and regulation lower than developed markets

Generally less liquid than developed markets

Question 4

Risk and Returns from emerging markets

Answer 4

Due to the challenges, emerging markets are more volatile and seen as more risky

In strained global macro conditions, investors abandon emerging market stocks first

Emerging market indices rise faster than developed during positive global macro conditions, but fall faster in negative conditions

Question 5

Eurobonds - Definition and Client Base

Answer 5

Bonds denominated in a currency other than that of the country which they are issued

Considered ‘bearer bonds’ as they are not registered centrally, who ever holds the bond is the owner and this enables them to be held ‘anonymously’

Retail - use them to mitigate tax liability

Institutional - use them to diversify portfolios

Question 6

Eurobonds - Issuing process

Answer 6

1. The issuer (borrower) needs to raise funds selling bonds and approaches a bank
2. The bank ‘lead manager’ negotiates the terms and manages the issue by itself or through a multiple bank ‘managing group’
3. The managing group either sells the bonds to an ’underwriter’
4. Underwriters purchase the bonds at a low price and assume risk they will increase and sell to a ‘selling group’ who place with client investors
   (Underwriters can be skipped out, Managers > SG)

The managers, underwriters, selling group = ‘Syndicate’

Question 7

Eurobonds - Primary and Secondary markets

Answer 7

The syndicate companies and investor clients are the primary market

Then sold to general investors in the secondary market traded OTC

Participants are organised under the International Capital Markets Association (ICMA)

Question 8

Eurobonds - Settlement Systems and Settlement Period

Answer 8

1. Euroclear
2. Clearstream

However both are linked so members can use either system

ICMA rules specify settlement on T+2, but all trades should be confirmed on T+1

Question 9

Trading and Settlement of International Bonds

Answer 9

Government - local banks trading OTC, with settlement via Central Bank

Corporate - traded through central CSD associated with local exchange