Global economic

CHAPTER 11
CAPITAL MARKETS
Investor + Buyers = Market

Investor-
1) non-bank - Financial Instuitions, Pension funds, Insurance co.
2) Corporation w/ cash
3) Individuals

Buyers-
1) Individuals
2) Companies
3) Goverments


Market maker tied Buyers and Investor together
- Comercial Bank - IR spread X + I
- Investment Banks - Bring parties together gone, examples bear stearn, leaman brothers

Debt is not bad, its a way of growing a business.
Liquidity = measure of how much cash flowing around?


Loans to corporations in 2 Primary forms
1) Equity: STOCKS ex. owed bank 800,000, the house worth 1mil, 200k is the equity
- dividends (voluntary)
2) Debt: note or bonds, corporate debts. Corporates bonds = Junk bonds (high risk, high yield)
- service


money is elastic goods.
Greater supply of liquidity, give us a lower cost of capital
more liquidity, there's more growth and capital.


Portfolio: --> Portfolio Risk = (Firm) Stock Specific Risk + Systematic(macroeconomic risk)

Portfolio: A+B
A: more diff stock = less risk (portfolio diversification)
at 30 stock we diversify all of the 75% of the risk.
the 25% is systematic risk

Can we diversify Macroeconomic risk?
Yes, by buying portfolio of foreign country
we can reducing risk by buying diff stock @ diff portfolio of foreign country, 90%

the more Integration of our global economy the more risk were vulnerable of one down being effects others.

GROWTH OF CAPITAL MARKET (good thing) "Fear & Greed drives all this."
cost less for capital in the future
are there more demand of capital currency when there are more capital?

Growth gives High liquidity, Low Cost of Capital, Greater acceleration of economic & GDP
Contagent & being able to contain contagent- Speculation (greed) lead alot of problems to this process and system (bubbles) -> Economic risk

"Hot Money" flow to where most profiting country, from develop to developing country. Money chasing highest return, the problem is when exist and left behind a country.

chasing 1 bubble to the next, 2000 market boom, taking all money out, put in housing, then oil.
next bubbles = stocks. The decision of the boom are controlled by the fews

Money leak out of system: Euro currency (nothing to do with europe)
ex. Bill gate build a bank in Macao and gov cant do anything about it.
Lower interest rate: Reserve Requirement: Bank must always have X amount requirement reserve in vault. to prevent bank run on.

100 deposit in fed system, 100 -10 = 90
10% of 90 = 9%

Euro System
100 - 0
9% = 9$