Multinational Financial Management

The Euromarkets

The merchant has no country.

THOMAS JEFFERSON

LEARNING OBJECTIVES

• To describe the Eurocurrency and Eurobond markets and explain why they exist
• To describe the characteristics and pricing of Eurocurrency loans, Eurobonds, Euronotes, and Euro-commercial paper
• To explain the links between the Euromarkets and their domestic counterparts

The most obvious example of the globalization of financial markets is the rise of the Euromarkets. This term encompasses the Eurocurrency and Eurobond markets as well as the Euronote and Euro-commercial paper markets. The major participants in these markets are large commercial and investment banks, multinational companies, central banks, and international financial organizations such as the IMF and World Bank. London is home to the most important Euromarket, but smaller ones exist in Paris, Brussels, and Frankfurt. This chapter describes the functioning of these markets and then shows how each can be used to meet the multinational firm's financing requirements. It also discusses the links between these markets and their domestic counterparts.

13.1 THE EUROCURRENCY MARKET

A Eurocurrency is a dollar or other freely convertible currency deposited in a bank outside its country of origin. Thus, U.S. dollars on deposit in London become Eurodollars. Note that the prefix Euro as used here has nothing to do with the currency known as the euro ...