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1、CHAPTER13THEEUROMARKETSThischapterdiscussestheEuromarkets.Ratherthantalkaboutfactualmaterial,whichstudentscanreadontheirown,Istressfourpoints:(1)theconceptualunderpinningsofinternationalfinancialmarkets,particularlytheabilitytoavoidtaxesandcostlyregulation;(2)t
2、hedistinctionbetweenEurocurrencyloansandEurobonds;(3)theongoingprocessofsecuritizationintheEuromarkets;and(4)whatitmeanstooperateinintegratedcapitalmarkets,whereeventsinonenation'scapitalmarketaffectscapitalmarketsinothercountries.Thislattertopicfitsnicelywitha
3、discussionofthelinksbetweendomesticandinternationalfinancialmarketsandthearbitrageactivitiesthatnotonlylinkthecostofcapitalacrossnationsbutalsorestrictstheabilityofgovernmentstounilaterallyregulatetheirdomesticcapitalmarkets.Italsofitsinwellwithadiscussionofthe
4、interestrateandcurrencyswapsthataretheembodimentoftheselinks.SUGGESTEDANSWERSTO“SIEMENSNEGOTIATESAEUROCURRENCYLOAN”1.WhatarethenetproceedstoSiemensfromeachofthesesyndicatedloanproposals?Answer.Withanup-frontsyndicationfeeof1.125%,netproceedstoSiemensfromtheBank
5、ofAmericaloanproposalare:$500,000,000-(0.01125x500,000,000)=$494.375million.Similarly,afterpayingthe0.75%syndicationfeewiththeDeutscheBankproposal,Siemenswouldendupwith$496.25million.2.Assumingthatsix-monthLIBORiscurrentlyat4.35%,whatistheeffectiveannualinteres
6、tcosttoSiemensforthefirstsixmonthsofeachloan?Answer.TheinterestrateontheBankofAmericaloanissetatLIBOR+0.25%,withLIBORreseteverysixmonths.GivenaninitialLIBOR6rateof4.35%,thefirstsemiannualdebtservicepaymentis0.5x(0.0435+0.0025)x500,000,000=$11,500,000Siemen'seff
7、ectiveannualinterestrateforthefirstsixmonthsisthus11,500,000/493,750,000x2x100=4.658%TheinterestrateontheDeutscheBankloanissetatLIBOR+0.375%,withLIBORreseteverysixmonths.GivenaninitialLIBOR6rateof4.35%,thefirstsemiannualdebtservicepaymentis0.5x(0.0435+0.00375)x
8、500,000,000=$11,812,500Siemen'seffectiveannualinterestrateforthefirstsixmonthsisthus11,812,500/496,250,000x2x100=4.761%ThecorrespondingeffectiveannualrateontheDeutscheBankpr
