The New Euromarkets : A Theoretical and Practical Study of International Financing in the Eurobond, Eurocurrency and Related Financial Markets

XV1l 2 Yields on US corporate bonds on the US domestic and eurobond markets 1966-70 3 US companies' borrowing rates in the US domestic and eurobond markets 1971-3 4 Movement of interest rates and domestic sales of euro DM bonds 5 DM domestic and DM eurobond corporate yields 1972--4 6 Weighted averages of yields on selected long-tenn straight international bonds 1970-March 1974 7 Amount of devaluation of the dollar implied by the dollar/DM yield differential 8 Bank lending rates (eurodollar/US domestic) 9 Six-month interbank interest rate fluctuation (actual and moving average) 1967-73 \* Over the long term, the Swiss franc has tended to revalue by an amount approximately equal to the coupon advantage in the Swiss market. • The prefix 'euro' is attached to the name of a currency simply to differentiate between that currency circulating within an issuing country and the same currency being deposited and loaned in a foreign market. Depositors and lenders are resident in many countries. It is only the banks operating in the market which are mainly in Europe. Many of these are branches of United States banks. As the eurodollar is the most important euro-currency, it is the principal focus of the remaining discussion. • Note that a balance of payments deficit is not a requirement for an external market to develop in a currency. The euro-Deutschmark market grew exceptionally fast at the time when Germany had record surpluses. \* Regulation Q of the Federal Reserve imposes interest rate ceilings on time deposits with United States banks, and prohibits interest payments on deposits of less than thirty days. In addition United States banks must conform to statutory reserve requirements on domestic dollar deposits, but in most European countries there are no statutory reserve requirements on foreign currency deposits. (For details of institutional constraints see: Federal Reserve Bank of Cleveland, 'The Eurodollar Market', Economic Papers, June 1970 p. II.) \* The attraction of gold as an investment medium vis-a-vis dollar paper during much of 1972 and 1973 would seem to have been one reason for the difficulty in raising dollar funds in this period. \* The actual fall in value created investor expectations that it would fall yet further. \* In 1968 the comparable figures for bonds outstanding in the two markets were: United States domestic $152,000 million and eurobond market (dollar only) $6500 million (gross). \* An exception was the March 1974 loan of $2500 million raised by the, United Kingdom clearing banks on behalf of the Treasury. t With the exception of the United Kingdom Treasury loan. \* The total amount of Treasury guaranteed public loans arranged Front Matter....Pages i-xxii Front Matter....Pages 1-1 Introduction....Pages 3-8 Capital Flows....Pages 9-17 Foreign Bonds to Eurobonds....Pages 18-33 The Genesis of the Roll-over Credit....Pages 34-44 Front Matter....Pages 45-45 Eurobonds and Euroequities....Pages 47-74 The Eurobond Secondary Market and Clearing System....Pages 75-82 The Eurobond and Taxation....Pages 83-88 Eurocurrency Credits....Pages 89-98 Front Matter....Pages 99-99 The Currency Choice and its Relation to the Interest Rate....Pages 101-111 Currencies Used for Denomination....Pages 112-137 Multi-Currency Options, Indexed Loans, European Currency Unit, European Unit of Account, the Eurco....Pages 138-150 Interest Rate Levels and Differentials....Pages 151-172 Front Matter....Pages 173-173 Who Uses the Euromarkets and Why?....Pages 175-182 United Kingdom Financing in the Eurobond Market....Pages 183-201 Other Borrowers in the Eurobond Market....Pages 202-222 Financing in Eurocurrencies....Pages 223-233 Back Matter....Pages 235-274