1. International Capital Market Theory(II) J.D. Han King’s College, UWO

2. I. CORPORATE Funding Methods 1)3 General Sources of Funds: -Internally-generated cash -Short-term external funds -Long-term external funds 2)Forms of External Funding Sources (1)Equity (2)Debt: the most preferred form a)Commercial Bank Loans b)Bonds Publicly issued or Privately issued

3. 3)Financial Markets v. Financial Intermediaries: Securities versus Bank Loans -Securitization (bonds and equities) issuing/selling securities issued in international financial markets- could be cost effective and risky underwrite * International Securities Firms underwrite. - Intermediation (bank loans) * Two kinds of International Banks: specialized vs. Universal banking 4)Globalization of Financial Market -reflects reduction in access costs due to Technical Innovation, International Legislation (IMF, WTO) -results into - Global competition of Financial Centres and Firms - Regulatory Arbitrage -Down side of abrupt shifts of capital flows : “Hot Money”, “Financial Crisis”, “Contagion”, etc.

5. 2. International Financial Centres 1) International Financial Market (1)Development of most important: a.London b.New York c.Tokyo (2)Other Centers (entrepots) a.Singapore b.Hong Kong c.the Bahamas *Prerequisites to be a financial center political stability; minimal government interventions; legal infrastructure; financial infrastructure

6. 2).Foreign Access to Domestic Markets: International Financial Liberalization (1) The Foreign Bond Market a. Extension of domestic market b. Issues floated by foreign cos. or governments c. Examples: Yankee bonds, Samurai bonds, Shogun bonds, Eurobonds

7. (2)The Foreign Bank Market a.Extension of domestic markets b.Important funding source: Japanese banks for U.S. firms c. Offshore banking

8. 3)The Foreign Equity Market Cross listing internationally can 1.) diversify risk 2.) increase potential demand 3.) build base of global owners.

9. International Financial Market Indices www.msci.com Equity index and indices Bond index and indices Hedge fund index and indices