THE

GLOBAL
CAPITAL
MARKET 
INTERNATIONAL BUSINESS

[email protected]    2022
INDEX
Why Do Capital Markets Exist?
Alibaba’s Record-setting IPO
Who Are the Main Players in Capital Markets?
What are the risks of the global capital markets?
What Is a Eurocurrency?
What Is the Global Bond Market?
What Do Global Capital Markets Mean for Managers?
Questions
READING BOOK 

Chapter 12

The Global Capital

Market
LEARNING OBJECTIVES
12-1 Describe the bene ts of the global capital market.
12-2 Identify why the global capital market has grown
so rapidly.
12-3 Understand the risks associated with the
globalization of capital markets.
12-4 Compare and contrast the bene ts and risks
associated with the Eurocurrency market, the global
bond market, and the global equity market.
12-5 Understand how foreign exchange risks a ect the
cost of capital.
ALIBABA’S RECORD-SETTING IPO
Opening case study
$23 BN
Initial public o ering
$231 billion innitial
public o ering of
Chinese e-
commerce company
Alibaba
 ALIBABA'S IPO LAUNCHED ON
SEPTEMBER 18, 2014

HANG ZHOU
NEW YORK

HONG KONG

+ INO
QUESTION 1
Why did Alibaba’s
owners decide to
take the company
public?
What bene ts did
the decision o er
the company?
 OBTAIN CAPITAL FOR
FUTURE INVESTMENT

USE SHARES AS
A FORM OF
CURRENCY

EMPLOYEES SELF-
FINANCE BY TRADING
THEIR ALIBABA SHARES
 
QUESTION 2
Why did Jack Ma decide to list his company on the
New York Stock Exchange rather than in Hong
Kong? 
Was it a good decision for his company?
QUESTION 2 - ANSWER

The New York Stock

The Hong Kong Exchange (NYSE) 
 Stock Exchange - retain control
“one share one vote”  - so popular with
investors 
QUESTION 3
Why did Alibaba
attract so much
interest from
investors?

Should investors
expect to earn
signi cant pro ts
from shares in
Alibaba?
 INVESTORS ON THE NYSE ARE
PARTICULARLY INTERESTED IN
TECHNOLOGY-RELATED
STOCKS

ALIBABA HAS ALREADY

SHOWN IMPRESSIVE
EARNINGS

EARNING PROJECTION :
3 TIMES MORE IN 2017
 
 1. WHY DO 
CAPITAL
MARKETS
EXIST?
Overview of the capital market
CAPITAL MARKETS BRING TOGETHER
INVESTORS AND BORROWERS

Investors Borrowers

Market makers
WHAT CAN BE THE CAPITAL MARKET
LOANS ?
2. WHO ARE
THE MAIN
PLAYERS IN
CAPITAL
MARKETS?
 THE MAIN PLAYERS IN THE GENERIC
CAPITAL MARKET

corporations with the nancial individuals,

surplus cash, service companies companies, and
individuals, and that connect governments
non-bank nancial investors and
institutions borrowers
Investors Market makers Borrowers
CAPITAL MARKET LOANS

Equity Debt
loans loans
WHAT MAKES THE GLOBAL CAPITAL
MARKET ATTRACTIVE? 

INTERCONNECTED LOWERS THE COST 

OF CAPITAL

INVESTMENT
OPPORTUNITIES VOLATILE
EXCHANGE RATES 
WHAT MAKES THE GLOBAL CAPITAL
MARKET ATTRACTIVE? 
Today’s capital markets are highly
interconnected and facilitate the free ow of
money around the world
Borrowers bene t from the additional supply of
funds global capital markets provide
lowers the cost of capital
WHAT MAKES THE GLOBAL CAPITAL
MARKET ATTRACTIVE? 
Investors bene t from the wider range of
investment opportunities
diversify portfolios and lower risk
But, volatile exchange rates can make what
would otherwise be pro table investments,
unpro table
HOW HAVE GLOBAL CAPITAL MARKETS
CHANGED SINCE 1990?
Global capital markets have grown rapidly
the stock of cross-border bank loans was
just $3,600 billion in 1990, $7,859 billion in
2000, $33,913 billion in 2012
the international bond market has grown
from $3,515 billion in 1997, $5,908 billion
in 2000, $21,979 billion in 2012
 GLOBAL DOMESTIC EQUITY MARKET
CAPITALIZATION FROM 2013 TO 2021, BY REGION
(IN TRILLION U.S. DOLLARS)

Note(s): Worldwide; 2013 to 2021 Further information regarding this statistic can be found on page 8. Source(s): WFE; ID 376681
CREDIT EXPOSURE AT DEUTSCHE BANK IN 2020, BY
INDUSTRY SECTOR (IN BILLION EUROS)

Note(s): Worldwide; 2020 Further

information regarding this statistic
can be found on page 8. Source(s):
Deutsche Bank; ID 253611
VIETNAM’S SECURITIES

Vietnam’s securities
experienced the highest
growth among the securities
markets in the South-East
Asian Region in 2019
Market size: USD 241.4 billion
(101% of country GDP)
WHY IS THE GLOBAL CAPITAL MARKET
GROWING?
Two factors are responsible for the growth of capital markets

ADVANCES IN
INFORMATION
TECHNOLOGY
DATA PROCESSING

DEREGULATION BY
GOVERNMENTS
RESTRICTIONS 
ADVANCES IN
INFORMATION
TECHNOLOGY
The growth of international
communications technology
and advances in data
processing capabilities 
24-hour-a-day trading 
so, shocks that occur in
one nancial market
spread around the globe
very quickly
DEREGULATION BY
GOVERNMENTS has facilitated growth in
international capital markets
 governments have
traditionally limited foreign
investment in domestic
companies, and the amount
of foreign investment citizens
could make 
since the 1980s, these
restrictions have been
falling
FINANCIAL
REGULATION?
Conduct and Culture
Technology regulation 
Governance
Doing right by customers
Privacy and Data Usage
Arti cial Intelligent
Cyber Risk Management 
3. WHAT ARE THE
RISKS OF THE
GLOBAL CAPITAL
MARKETS? 
WHAT ARE THE RISKS OF THE GLOBAL
CAPITAL MARKETS? 

Question

Could deregulation of capital markets and fewer

controls on cross-border capital ows make
nations more vulnerable to the e ects of
speculative capital ows?
can have a destabilizing e ect on economies
WHAT ARE THE RISKS OF THE GLOBAL
CAPITAL MARKETS? 

Speculative capital ows may be the result

of inaccurate information about
investment opportunities
 -    if global capital markets continue to grow,
better quality information is likely to be available
from nancial intermediaries 
4. WHAT IS A
EUROCURRENCY?
 WHAT IS A EUROCURRENCY?
A Eurocurrency is any currency banked outside its country of origin

The ABOUT TWO-THIRDS OF

ALL EUROCURRENCIES
Eurocurrency ARE EURODOLLARS
market is an DOLLARS BANKED
important OUTSIDE THE U.S.
source of low-
cost funds for OTHER IMPORTANT
international EUROCURRENCIES
companies ARE THE EURO-YEN,
THE EURO-POUND,
AND THE EURO-
EURO
WHY HAS THE
EUROCURRENCY
MARKET GROWN?
The Eurocurrency market began in the
1950s when the Eastern bloc
countries feared that the United
States might seize their dollars
so, they deposited them in Europe
additional dollar deposits came from
Western European central banks and
companies that exported to the U.S.
could earn a higher rate of interest
in London
 1950S
EASTERN BLOC COUNTRIES 
DEPOSITED THEIRS DOLLARS
IN EUROPE

1957
WHY HAS THE THE MARKET SURGED
AGAIN AFTER CHANGES IN
EUROCURRENCY BRITISH LAWS

MARKET GROWN?
1960S
THE MARKET GREW
ONCE AGAIN 

1973-74 & 1979-80 

THE NEXT BIG INCREASE
CAME AFTER THE OIL PRICE
INCREASES
WHAT MAKES THE EUROCURRENCY
MARKET ATTRACTIVE? 
The spread between the Eurocurrency
deposit and lending rates is less than the
spread between the domestic deposit and
lending rates
 -    Gives Eurocurrency banks a competitive
edge over domestic banks
LONDON
INTERNATIONAL
FINANCIAL CENTER
WHAT MAKES THE EUROCURRENCY
MARKET ATTRACTIVE? 
  Interest Rate Spreads in Domestic and Eurocurrency Markets
WHAT MAKES THE EUROCURRENCY
MARKET UNATTRACTIVE? 

there is a higher risk Companies borrowing

that bank failure Eurocurrencies can be
could cause exposed to foreign
depositors to lose exchange risk
funds
Eurocurrency market foreign exchange
is unregulated risk 
5. WHAT IS THE
GLOBAL BOND
MARKET?
BONDS ARE AN IMPORTANT MEANS OF
FINANCING FOR MANY COMPANIES
The most common bond is a
xed rate which gives
investors xed cash payo s
The global bond market grew
rapidly during the 1980s and
1990s and continues to do so in
the 20th century
THERE ARE TWO TYPES OF
INTERNATIONAL BONDS

Foreign bonds Eurobonds

are sold outside the are underwritten by a
borrower’s country and syndicate of banks and placed
are denominated in the in countries other than the one
currency of the country in in whose currency the bond is
which they are issued denominated
WHAT MAKES THE EUROBOND MARKET
ATTRACTIVE?
It lacks
It has less regulatory
stringent interference
disclosure
requirements
than domestic
bond markets It is more
favorable from a
tax perspective
5. WHAT IS THE
GLOBAL EQUITY
MARKET?
THE GLOBAL EQUITY MARKET ALLOWS FIRMS TO

Attract Raise funds

List their by issuing
capital from stock on debt or equity
international multiple around the
investors exchanges world

many investors buy this type of trend may result in by issuing stock in other
foreign equities to an internationalization of countries, rms open the door to
diversify their portfolios corporate ownership raising capital in the foreign
market
THE GLOBAL EQUITY MARKET ALLOWS FIRMS TO

Attract Raise funds

List their by issuing
capital from stock on debt or equity
international multiple around the
investors exchanges world

many investors buy this type of trend may result in by issuing stock in other
foreign equities to an internationalization of countries, rms open the door to
diversify their portfolios corporate ownership raising capital in the foreign
market
BY ISSUING STOCK IN OTHER COUNTRIES, FIRMS OPEN
THE DOOR TO RAISING CAPITAL IN THE FOREIGN MARKET

provides for local

ownership

gives the rm the

option of increases visibility
compensating local with local
managers and stakeholders  
employees with stock
 HOW DO EXCHANGE RATES AFFECT THE
COST OF CAPITAL?
it may be less attractive
when exchange-rate
risk is factored in when
borrow foreign
currencies

Adverse exchange Firms must weigh the

rates can increase the bene ts of a lower
cost of foreign currency interest rate against the
loans risk of an increase in
the real cost of capital
6. WHAT DO
GLOBAL CAPITAL
MARKETS MEAN
FOR MANAGERS?
WHAT DO GLOBAL CAPITAL MARKETS
MEAN FOR MANAGERS?
1 Growth in global 2 Growth in capital 3 Capital markets
capital markets markets o ers are likely to
has created opportunities for continue to
opportunities for rms, institutions, integrate,
rms to borrow and individuals to providing more
or invest diversify their opportunities for
internationally investments and business
  reduce risk
GROWTH IN GLOBAL CAPITAL MARKETS HAS
CREATED OPPORTUNITIES FOR FIRMS TO BORROW
OR INVEST INTERNATIONALLY
3
1 rms can often 2 rms must balance the
borrow at a lower cost savings against the
cost than in the foreign-exchange risk
domestic capital associated with
market borrowing in foreign
currencies
 
CRITICAL THINKING AND DISCUSSION
QUESTIONS?

Why has the global capital market grown

so rapidly in recent decades?  
Do you think this growth will continue
Question 1 throughout the next decade?  
Why?
 CRITICAL THINKING AND DISCUSSION
QUESTIONS?
Question 1

Two key factors : advances in information technology

and deregulation by government
This trend will continue
The nancial services industry has been
revolutionized by advances in information technology
The deregulation of the nancial services industry
that began in the United States and spread to other
markets
CRITICAL THINKING AND DISCUSSION
QUESTIONS?

In 2008-2009, the world economy

retrenched in the wake of a global
nancial crisis.
Did the globalization of capital markets
Question 2
contribute to this crisis?  
If so, what can be done to stop global
nancial contagion in the future?
CRITICAL THINKING AND DISCUSSION
QUESTIONS?
A rm based in Vietnam has found that its
growth is restricted by the limited liquidity of the
Vietnamese capital market. List the rm’s options
for raising money on the global capital market.
Discuss the pros and cons of each option, and
make a recommendation.
Question 3 How might your recommended options be
a ected if the Vietnamese Dong depreciates
signi cantly on the foreign exchange markets
over the next two years?
CRITICAL THINKING AND DISCUSSION
QUESTIONS?
Question 2

Two key factors : advances in information technology

and deregulation by government
This trend will continue
The nancial services industry has been
revolutionized by advances in information technology
The deregulation of the nancial services industry
that began in the United States and spread to other
markets
 THANKS!

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