This chapter explained the functions and form of the global capital market and defined the implications of this for international business practice. This chapter made the following points:

1. The function of a capital market is to bring those who want to invest money together with those who want to borrow money.

2. Relative to a domestic capital market, the global capital market has a greater supply of funds available for borrowing, and this makes for a lower cost of capital for borrowers.

3. Relative to a domestic capital market, the global capital market allows investors to diversify portfolios of holdings internationally, thereby reducing risk.

4. The growth of the global capital market during recent decades can be attributed to advances in

   information technology, the widespread deregulation of financial services, and the relaxation of regulations governing cross-border capital flows.

5. A eurocurrency is any currency banked outside its country of origin. The lack of government regulations makes the eurocurrency market attractive to both depositors and borrowers. Due to the absence of regulation, the spread between the eurocurrency deposit and lending rates is less than the spread between the domestic deposit and lending rates. This gives eurobanks a competitive advantage.

6. The global bond market has two classifications: the foreign bond market and the eurobond market. Foreign bonds are sold outside of the borrower's country and are denominated in the currency of the country in which they are issued. A eurobond issue is normally underwritten by an international syndicate of banks and placed in countries other than the one in whose currency the bond is denominated. Eurobonds account for the lion's share of international bond issues.

7. The eurobond market is an attractive way for companies to raise funds due to the absence of regulatory interference, less stringent disclosure requirements, and eurobonds' favorable tax status.

8. Foreign investors are investing in other countries' equity markets to reduce risk by diversifying their stock holdings among nations.

9. Many companies are now listing their stock in the equity markets of other nations, primarily as a prelude to issuing stock in those markets to raise additional capital. Other reasons for listing stock in another country's exchange are to facilitate future stock swaps; to enable the company to use its stock and stock options for compensating local management and employees; to satisfy local ownership desires; and to increase the company's visibility among its local employees, customers, suppliers, and bankers.

10. When borrowing funds from the global capital market, companies must weigh the benefits of a lower interest rate against the risks of greater real costs of capital due to adverse exchange rate movements.

11. One major implication of the global capital market for international business is that companies can often borrow funds at a lower cost of capital in the international capital market than they can in the domestic capital market.

12. The global capital market provides greater opportunities for businesses and individuals to build a truly diversified portfolio of international investments in financial assets, which lowers risk.