LO-1
When a company is starting up, it likely needs to borrow startup funds. A key advantage of borrowing from global capital markets is that it
lowers the borrower's cost of capital
Term for removal of trade barriers in international markets
Deregulation
What is "Hot Money"?
Money used for temporary gains
When was the Eurocurrency market born?
mid-1950s
Is it cheaper to borrow money domestically or in the global market?
Global Market
How does the Global Capital Market benefit borrowers?
Increasing the supply of funds available for borrowing and lowering the cost of capital
(___ ___ are private investment funds that position themselves to make “long bets” on assets that they think will increase in value and “short bets” on assets that they think will decline in value.)
Hedge Funds
What is an example of a lack of information? Hint: accounting
Differences in accounting standards between two countries
What factor of the Eurocurrency market makes it attractive to depositors and borrowers?
Lack of government regulation
jeopardy Forward exchange markets are more likely to lower risk with ____ borrowings (Short term or long term)
Short term
What is one way to minimize potential losses as an investor?
Investing in multiple companies can lower risk because if one companies performs poorly the risk can be offset by the good performance of other investments
The integration facilitated by technology has a dark side.13 “___” that occur in one financial center now spread around the globe very quickly.
Shocks
True or False: Most firms will keep their capital in their home country.
True. Even though globalization is increasing, most firms prefer to keep their money domestic.
True or False: When a bank receives a deposit domestically, they must keep a certain % of the amount in their reserves
True
What year did the Asian Financial Crisis occur?
1997
How could the integration of the Global Capital Market be a disadvantage?
As the markets become more connected, if one market starts to perform poorly this can then cause other markets to have a domino effect that causes them to do poorly also.
Since the advancement of technology in the Global Market, how many hours a day can stocks be traded?
24 Hours
What type of money is best for increasing exports and developing the market in a country? Patient or Hot money?
Long-term/"patient" money
What is one downfall of the Eurocurrency market?
The chance of losing money is greater, and borrowing internationally can expose a company to foreign exchange risk
Unpredictable movements in exchange rates are likely to _____ the risk associated with foreign currency borrowing.
Increase
___ ___ refers to movements in a stock portfolio’s value that are attributable to macroeconomic forces affecting all firms in an economy, rather than factors specific to an individual firm
Systematic Risk
What amount of US Dollars do stocks, bonds and bank loans account for?
300 Trillion Dollarss
How did the Global Capital Market fail Mexico?
Most of country's economy was financed by "hot money" which is easily taking out of the country at the first sign of poor economic performance. The decreasing value of the US bond caused firms to cut losses.
Which market has lower interest rates: the Eurocurrency market or a domestic market?
Domestic markets
The predominant factor that complicates the ability of an investor to reduce total risk by diversifying their portfolio in the global capital market is ___.
Foreign exchange risk