FINM8007 Chap.11 International Bond and Equity Markets
International Bond and Equity Markets
Raising debt across borders
The international bond market is far larger than the equity market.
This chapter classifies foreign bonds, Eurobonds and global bonds by issuer, currency and place of sale, then describes bearer and registered bonds, call provisions and sinking funds, and the main instruments: straight fixed-rate issues, floating-rate notes, convertibles, bonds with warrants and dual-currency bonds.
Raising equity across borders
It then compares Euroequity issues, cross-listing and cross-border IPOs, the liquidity and value-add that draw firms to New York and London, the benefits and costs of listing abroad, depositary receipts, and the limits of international diversification for investors.
How this topic is examined
No marked solutions are released for this week, and the Tutorial 10 questions are short conceptual ones on expanded sources of funds, market segmentation and market illiquidity.
Strong answers define the term, explain why it matters for a firm’s cost of capital and give an example from the lecture, such as a firm cross-listing in a more liquid market.
Bond questions turn on the three classifying features, and equity questions on the difference between cross-listing, a Euroequity issue and a cross-border IPO.
How it connects
This final chapter completes the funding menu begun in Chapter 9: bonds and shares raised abroad can lower the cost of capital when markets are integrated, while floating-rate notes and dual-currency bonds carry the interest-rate and currency exposures that Chapters 7 and 8 taught you to measure and hedge.
What this chapter covers
- 01
Foreign bonds
- 02
Eurobonds
- 03
Global bonds
- 04
Bond instrument types
- 05
Euroequity issues
- 06
Cross-listing and exchange choice
- 07
Depositary receipts
- 08
International diversification
Worked example · free
Value an ADR from its underlying shares
- 1Shares behind one ADR: 4 × £8.40 = £33.60.
- 1Convert at the dollar price of a pound: 33.60 × 1.2700 = $42.672.
- 1Round to the quote: about $42.67 per ADR, before depositary fees.
Key terms
- Foreign Bond
- A bond issued by a foreign borrower in a local market, in local currency, under local rules.
- Global Bond
- A very large bond issue sold and traded at once in the major markets, including the issuer’s home.
- Floating-Rate Note
- A bond whose coupon resets periodically at a spread over a reference rate.
- Cross-Listing
- Listing a firm’s shares on one or more foreign exchanges in addition to its home exchange.
- American Depositary Receipt
- A dollar certificate traded in the United States that represents shares held abroad.
- Dual-Currency Bond
- A fixed-rate bond that pays interest in one currency and repays principal in another.
International Bond and Equity Markets FAQ
What separates a Eurobond from a foreign bond?
A foreign bond is sold in one foreign market, in that market’s currency and under its rules, such as a Yankee bond in the United States. A Eurobond is sold across several markets in a currency foreign to them, usually under loose regulation.
Why do firms cross-list their shares?
To broaden their shareholder base, raise visibility with customers and governments, improve price discovery and liquidity, prepare share-based acquisitions abroad and pay local staff in shares. The costs are issue costs, recurring obligations and possible trading costs.
Why does international diversification help less in a crisis?
Returns are less correlated across countries than within them, which lowers portfolio risk in normal times. But markets move together more when volatility rises, so the protection shrinks exactly when investors need it most.
What is the difference between a sponsored and an unsponsored ADR?
A sponsored ADR is created at the foreign firm’s request, and the firm pays the costs of registration and issue. An unsponsored ADR is created by a US bank without the firm’s direct involvement, still needs its approval, and leaves investors to pay the depositary fees.
Exam move
Classify five bond issues by the three questions, then value two ADRs from their share prices and ratios, writing the direction of the currency quote each time. Then answer each Tutorial 10 question in three sentences: define the term, link it to the cost of capital, and give an example.
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