Textbook Notes (363,094)
Canada (158,187)
Finance (37)
MGFC10H3 (13)
Derek Chau (13)
Chapter 32

Chapter 32 Notes

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University of Toronto Scarborough
Derek Chau

Chapter 32 International Corporate Finance Notes321 Terminologysome of the most common terms used in international finance are the following1A European currency unit euro was a basket of 10 European currencies devised in 1979 and intended to serve as a monetary unit for European Monetary System EMS Effective January 2002 the euro replaced 10 domestic currencies2The cross rate is the exchange rate between two foreign currencies generally neither of which is the US dollar The US dollar however is used as an interim step in determining the cross rate3Eurobonds are bonds denominated in a particular currency and issued simultaneously in the bond markets of several European countries For many international companies and governments they have become an important way to raise capital Eurobonds are issued outside the restrictions that apply to domestic offerings and are typically syndicated in London Trading can and does take place anywhere there is a buyer and a seller4Eurocurrency is money deposited in a financial centre outside of the country whose currency is involved5Foreign bonds unlike Eurobonds are issued in a single country and are usually denominated in that countrys currency Often the country in which these bonds are issued will draw distinctions between them and bonds issued by domestic issuers including different tax laws restrictions on the amounts issued or tougher disclosure rules6An American Depository Receipt ADR is a security issued in the US to represent shares of a foreign stock allowing that stock to be traded in the US Foreign companies use ADRs which are issued in US dollars to expand the pool of potential US investors ADRs are available in two forms for about 690 foreign companies companysponsored which are listed on an exchange and unsponsored which are usually held by the investment bank that makes a market in the ADR Both forms are available to individual investors but only companysponsored issues are quoted daily in newspapers7The London Interbank Rate LIBOR is the rate that most international banks charge one another for loans of Eurodollars overnight in the London market LIBOR is a cornerstone in the pricing of moneymarket issues and other shortterm debt issues by both government and corporate borrowers Less creditworthy issuers will often borrow at a rate about LIBOR8There are two basic kinds of swaps interest rate and currency An interest rate swap occurs when two parties exchange debt with a floatingrate payment for debt with a fixedrate payment or vice versa Currency swaps are agreements to deliver one currency against another currency Often both types
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