mercado de formación y de valores 1.pptx

Unit I: Overview of Financial.
Semester: 2021-II
Week 1
FINANCIAL MARKETS
1

Unit I:
Overview of Financial Markets
Learning results:
Understand the importance of financial markets, its
composition, structure and regulation.
Content:
1. Classification of Financial Markets
2. Primary Markets versus
3. Secondary Markets
4. Money Markets versus Capital Markets
5. Foreign Exchange and Derivative Security Markets
6. The Role of Financial Markets and Market Regulation
7. IPO in LATAM
8. Globalization of Financial Markets
9. Financial Markets and the Real Economy
2

CLASSIFICATION OF FINANCIAL MARKETS
3

International Financial Markets
4
Investment
Environment
Stock
Debt Securities
Property Securities
Equity rights Securities
Fix Income Securities
Variable Income
Securities
Stock Market
In relation to
negotiation
In relation to term
Primary Market
Secondary Markets
Fix Income or Debt
Variable Income
Money Market
Capital Market
Direct
Indirect
Stock exchage
OTC
Fix Income or Debt
Variable Income
Banking sytem
No Banking System
Financial intermediaries

INDICE BVL – Source: Bloomberg & Investing
5

S&P – Source: Bloomberg & Investing
6

Introduction:
• Financial Markets are in which funds are transferred from people who have an
excess of available funds to people who havea shortage.
• There are several barriers which avoid that markets for real or financial assets
be completely integrated:
• Tax Differentials
• Duty
• Fees
• Inmovility of Labor force
• Cultural differences
7

Introduction:
• Also, n that way investors and creditors look for doing business in some country in
order to take advantage of the favorable conditions of each one.
Imperfect Markets have caused internationalization of financial markets.
8

Reasons to invest in foreign markets
• Investors have more than one reasons to invest in foreign markets
• Economical conditions
• Exchange rate expectations
• International diversification
12

Motives for the internationalization of financial
transactions
• Differences in interest rates
• International diversification
• Economic growth prospects
• Exchange rate fluctuations
13

PRIMARY AND SECONDARY MARKETS
14

Primary Market
15
According to Martin Matos:
«The primary market is the one where new issues of securities are publicly sold.
The money is used to finance the issuer, which can be a company or the State.
The price is determined by means of the Initial Public Offering (IPO) »

Commitments of the placement agent and the
issuing company
• Best efforts, underwriters have the option to purchase and authorize the sale of
assets. In each case there is no success, the issue can be canceled or just one
installment issued.
• Firm commitment, agent buy the issuance of the bonds that are offered by the
issuer.Thus, the issuer is assured
• Dutch Auction: the issuer places all the instruments at a certain price or at a
certain rate (cut-off rate), with which the auction is resolved at a single interest
rate - or price - for all instruments. of the placement of the issue.
• American auction: or discriminatory, multiple prices (or interest rates) are
established, charging each investor the price they were willing to pay for each
instrument.
16

Secondary Market
17
• The secondary market is the one in which securities that have already been placed
and are in circulation are bought and sold, that is, it allows security holders to get
their money when they need it, even before its expiration. Provides liquidity (ease
of purchase and sale) to the securities and their owners.
• The stock exchanges are the most important and best organized part of the
secondary markets, but they are not the only ones, there are over-the-counter
transactions tailored to the buyers and sellers of the securities, they are the
operations called "Over The Counter", which They are not carried out in an
organized market but in a particular way between seller and buyer.

Stock Exchange
Economic institution in which all kinds of securities are contracted: shares, bonds,
public funds, etc. It offers its members, in accordance with the mandates of its
clients, the necessary facilities so that they can, among other things, enter orders,
carry out negotiations for the purchase and sale of shares, such as shares of
corporations or corporations, public and private bonds. , participation titles,
certificates and a wide variety of investment instruments.
18

Common Stock vs. Preferred Stock
• Common Stock: Holders of common stock elect the board of directors and vote
on corporate policies. This form of equity ownership typically yields higher rates
of return long term. There are various classes of common stock, usually denoted
type A, type B, and so on.
• Preferred stock: A form of equity from a legal and tax standpoint. The difference
between the common stocks are the following:
– First, the holder receive a fixed dividend that never changes.
– Second the price normally stays flat over the time.
– Third, holders do not usually vote unless the firm has failed to pay the
promised dividend.
– Four, stockholders hold a claim on assets that has priority over the claims of
common shareholders but after that of creditors such as bondholders.
19

Actors who actively participate in the operations of
the exchanges
They are three:
1. Capital claimants (companies, public or private organizations and other
entities)
2. Capital providers (savers, investors)
3. Intermediaries
20

Other functions:
Putting companies or state entities in need of resources in contact with savers
who are willing to invest, confer liquidity to the investment, allowing their
shares to be converted into money, certifying prices in the market, favoring the
efficient allocation of resources and contributing to the valuation of financial
assets.
21

Diference Between Primary and Secondary Market
• The relationship in the primary market is carried out between the society and the
investors, whereas in the secondary market the society does not directly interact
since only the relationship is generated between investors.
• From the point of view of the issuing company, the issuance of shares and
placement in the primary market will generate an increase in the capital of the
company, on the other hand, since the shares of the secondary market are
already existing shares in the company, it will not generate any change in the
capital stock of the company.
22

• The primary market aims to obtain financing for the issuing company, on the
other hand, the secondary market seeks to give liquidity to the investments made
in securities and in turn establishes the final price of the securities.
• The secondary market will depend on the primary market insofar as the latter is
well organized. Both are mutually required for the proper functioning of the stock
market
23

Bolsa de valores de Lima (BVL)
24

MONEY MARKETSVERSUS CAPITAL
MARKETS
26

• DEBT MARKET:
• Money Market: Where debt instruments are negotiated which maturity is a year
or less, accoring to when it was issued. No every instrument of this market are
accesible for everyone.
– Short term
– They are usually sold in large denominations.
– Increased Liquidity
– They have low default risk.
29

• DEBT MARKET:
• Capital markets: Where debt instruments which have a maturity higher tan a year
are negotiated, according to when it was issued.
30

FOREIGN EXCHANGE AND DERIVATES
SECURITY
31

Foreign Exchange Market
• The Foreign Exchange Market is the world´s largest financial market
• The Foreign Exchange Market is an over the counter market
• That means there us no physical location where traders get together to Exchange
currencies
• Traders located in the offices of major comercial Banks around the world and
communicate using differents communication channels.
32

CURRENCY MARKET (EXCHANGE, FOREX) (1)
• Currency market allows Exchange currencies in order to facilitate both
international trading and financial transactions.
• The system to establish exchange rate has been modified through time:
33
1879 – 1913:
Exchange
rate was
established
according to
gold
standard. All
the countries
used gold to
support its
currency.
1914 - 1929:
Gold
standard
was
suspended
as a result to
the banking
panic in the
USA and
Europe after
the great
depression.
1930s: Some
countries
sought to link
its currency
to dollar and
pound
sterling, but
frequent
adjustments
were done.
1944:
Bretton –
Woods fix
the
Exchange
rate between
currencies
up to 1971.
1971: Agreement
Smithsoniano. USA
dollar was devalued in
connection to the main
currencies. It was the
first step to allow market
forces (supply and
demand) will determine
the appropriate price of
a currency

Foreign currency transactions (1)
• SpotTransactions: It’s the most common transaction of currencies for instant
exchange. It is done applying the current spot exchange rate.
• The market where these transactions are carried out are known as Spot Market.
• Different currencies are exchanged between them.
• A big part of the currency trading are done in London, NewYork andTokio.These
are considered the three main center of currency exchange.
34

• When a bank experiment lack of a particular foreign currency, it can buy it from
other banks.This trade between financial institutions take place in what is
commonly known as interbank market.
• Within this market, Banks get quotations or establish contact with the brokers
who occasionally act as intermediaries.They link a bank which is planning to sell a
foreign currency with another which is planning to buy one.
35

• Future/Forward Transactions: It allows to ensure the future Exchange rate which it
will be bought or sold.
• The future agreement specify the quantity of a particular foreign currency that a
Company will buy or sell at a determine time in the future after some specific
changes.
• Companies use Forward market to safeguard future payments that they expect to
do or receive in foreign currency. In that way, companies do not need to worry the
fluctuations of Spot Exchange rate at the moment of the future payments.
36

Banks attributes which support foreign currency (1)
• Quotation competiveness.
• Special relationship with the bank.
• Quick performing.
• Consulting about current market conditions
• Consulting about forecast.
37

• Differential of the banks among kind of supply / demand: Commercial banks
supply foreign currency transactions in exchange of a honorary. At any time the
quotation of purchasing a foreign currency will be less than the saleprice.
• The aim of the differential of supply and demand is to cover the costs incurred
when receiving foreign currency request.
38

• Cross rate: Most of quotation tables of exchange rate show foreign currencies
concerning to dollar. However,There are some situations where interest is
focused on exchange rate between two foreign currencies distinct than dollar.
• Cross rate indicate the quantity of a foreign currency for a unit of another one.
39

Key Currency Cross ratesVs Dollar
• Fuente: Banco Central de Reserva del Perú
41
Euro Yen
Real
Brasileño
Libra
Esterlina
Peso
Chileno Yuan Chino
Peso
Colombiano
Peso
Mexicano
Peso
Argentino
Franco
Suizo
(euro)
(Japanese
Yen)
(Brazilian
Real ) (Pound)
(Chilean
Peso)
(Chinese
Yuan)
(Colombian
Peso)
(Mexican
Peso)
(Argentine
Peso)
(Swiss
Franc)
(E) 3/ ( ¥ ) (R) (£) 3/ ($) (元) ($) ($) ($) ($) 3/
2021 1.1992 108.28 5.3365 1.3874 732 6.4715 3688 20.1219 92.5942 1.0994
Ene. 1.2174 103.73 5.3536 1.3644 723 6.4722 3497 19.9315 85.8603 1.1277
Feb. 1.2094 105.37 5.4113 1.3868 722 6.4610 3558 20.2888 88.6390 1.1140
Mar. 1.1900 108.73 5.6462 1.3861 726 6.5117 3618 20.7624 91.0583 1.0755
Abr. 1.1971 109.04 5.5666 1.3842 708 6.5196 3659 20.0584 92.7314 1.0849
May. 1.2148 109.15 5.2969 1.4088 713 6.4296 3736 19.9693 94.0798 1.1079
Jun. 1.2040 110.15 5.0262 1.4020 729 6.4259 3692 20.0289 95.2156 1.1009
Jul. 1.1825 110.24 5.1640 1.3813 753 6.4763 3834 19.9689 96.2179 1.0901
Ago 1-17 1.1781 109.83 5.2272 1.3860 779 6.4760 3910 19.9669 96.9515 1.0939

International foreign currency market (1)
• Eurocurrency market have two main functions for multinational companies:
• Investment market:
» Eurocurrency deposits are an alternative for many companis to get rentability
for its excess.
» Fix term deposits of eurocurrency have commonly a mayurity from overnight to
six months, but they can easily last for 5 years; these are not under insurance.
» Minimum investment of $100,000; non negotiable.
42

International foreign currency market (1)
• Loan market
– Eurocurrency loans are a good way to financing to short
and mid term for international companies in order to
finance their capital working needs.
43

International money market (1)
• Sometimes multinational companies and national companies get financing to mid
term through fix term loans from local institutions or through stock issue (debt
obligations to mid term) in its local markets.
44

International money market – concepts (2)
• Nominal Value: Amount of money of the financial instrument and which the
investor will receive at its maturity.
• Discount: It’s the difference between the price and the nominal value. Investor
always will pay less than what he will receive in the future. It includes implicit
interests
• Price: It’s the amount of money given for the asset. To fix a price is known as
quote.
45
Discount
Nominal
Value
Price
0 Time 12

International money market – concepts (2)
• Yield: Benefit which is frequently predictable, with a fixed coupon at regular
intervals and redemption on a specific date or dates.
46
Price
Discount
t
365
Yield 

Nominal
Discount
n
360
%
Discount
Annual 

360
Disc.
Annual
period
the
of
Discount
n


Simple Yield: Simple Yield Annualized:
ice
Discount
Pr
period
the
of
Yield 

THE ROL OF FINANCIAL MARKETS AND
MARKET REGULATION
47

International money market (2)
• Participants
48

International money market– instruments (2)
• Treasury Bills:
– Securities issued at discount.
– These are offered in auctions and issued with the aim of monetary management.
– Issuing entity: Department of public treasure of each country.
– Nominal Value: US$1,000 or €.
– Maturity: are sold with 4-, 13-, 26-, and 52-week maturities.
49

• Treasury Bills:
– Competitive proposals:
• American auction.
• Rate and quantity are fixed.
• US$ 1 millón or more: Participants are institutional investors.
• A Bidder cannot earn more than 35% of the issue.
– Non Competitive proposals:
• Max of US$ 1 million per auction ofT-Bills.
• Max of US$ 5 millions per auction ofT-note,T-bond orTIPS.
• Price andYield are fixed as an weighted average according to rates of the auction.
50

• AmericanAuction:
– Proposals are ordered from the lowest rate to the higher (Higher Price to Lower one).
– StopYield: Higher yield accepted by the treasure.
– An apportionment is performed with those bidders that concured to ask the stop yield.
– The difference between average rate of every acepted proposal and the stop yield is
called tail.
51

• AmericanYield:
52
yield (%)
3.50
3.52 > $7.5 Billion
3.54
3.57
3.60
3.61
3.62
3.63
3.64
3.65
stop yield

• International money market– instruments (2)
53

• Certificate of deposit: Instrument issued by a Bank at an amount of money which
has been deposited in such Bank.
– Issuing entity: Financial Institution (Bank)
– Denomination: range between US$100,000 and US$ 1’000,000.
– Maturity: 6 months - 1 year.
– Note:Transferable and negotiable.
54
Price
Coupon
Nominal
Value
0 Time 12

International money market(2)
• Certificate of deposit
55
in the US

International money market – instruments (2)
• Certificate of deposit
56

• Brokerage CDs: stock brokerage separate them in smaller denominations to be
resold to its clients.
• Federal Deposit Insurance Corporation (FDIC): They have an insurance up to
US$ 100,000 since they are bank deposits.
57

• Commercial Papper: Assets to short term without guarantee. These are issued by
companies and are destined to public offer in order to catch financing in the
market.
• Overall, its yield is by discount. When the risk is higher, higher discount and so
higher yield.
58

• Commercial Pappers:
– Maturity: Between 30 and 50 days. No higher than 270.
• Registering to SEC its avoided since these are short term instruments.
• Higher credit risk and lower liquidity.
– Denomination:
• For maturity lower to 90 days, Minimum of US$ 500,000
• For maturity higher or equal to 90 days, Minimum US$ 100,000
59

– 60% of commercial pappers are sold directly by the issuing entity to the
purchaser.
– Rest is sold to dealers.
– There is no secondary Market organized of Commercial Pappers.
60

61

62

• Repurchase agreement - REPO: sale of securities together with an agreement for
the seller to buy back the securities at a later date.
• Repo works as a short term loan and securities as guarantee.
• These are operations to get instant financing and at a very short term.
63

• Repurchase agreement – REPO:
– Obtainment of monetary resources.
– Allows purchase of securities in the market instantly.
– Sure alternative of investment.
– Investment strategy.
64

• Repurchase agreement REPO
65

International credit market (1)
• EuroCredit Market: Multinational corporations have access to short term
financing through eurobanks located in foreign markets.
One year loans or more are granted by eurobanks to multinationals. These
operations are known as loans of a eurocredit.
66

• Loans are termed on dollars or on much other foreign currencies. Generally, it has
a maturity of 5 years.
• The rate which is used is a floating rate for loans (aboid mismatch in terms) of
eurocredit.
• Loan rate fluctuate according to the movement of a market reference rate . For
instance: LIBOR – SOFRT in 2023
67

• London interbank: bid rate (LIBID): interest rate payed by purchaser banks of
financing.
• London interbank: offer rate (LIBOR): interest rate offered for sale of financing.
• Term deposit with fix maturity.
68

69

International bond market (1)
• Multinational corporations, as well as national companies, get long term debt
issuing bonds in their local markets.
• Foreign bonds: Issued by a recognized foreign to the country where it is places.
Foreign currency in which is termed each kind of bond is determined by the
country where it is termed issued (Parallel bonds).
70

• Eurobonds: These are is issued by an international syndicate and categorized
according to the currency in which it is denominated.
• Corporations such as McDonalds, Nestlé, Volvo use this kind of instruments as a
financing source.
71

• Eurobond’s characteristics:
– Coupon payment: Annual
– Convertibility: Some of them have clauses that allow them to become common stock.
– Denominations: The tendency is to issue a debt in the foreign currency in which are
received from its operations. Generally, they use US$,Yen, sterling pounds, etc.
– Secondary market: Intermediaries are based in 10 different countries which do not act
just as brokers, but as dealers that maintain eurobonds in inventory.
– Score: There is a tendency to not consider score. Known names are preferred.
72

FOREIGN EXCHANGE AND DERIVATIVE SECURITY
MARKETS
73

International stock market (1)
• Multinational corporations get financing to long term issuing securities locally.
However, transnational also attract foreign investor funds when they issue shares
in foreign markets.
• Commonly, companies which issue share in USA are monitored by SEC which
demand to satisfy rules about exige satisfacer reglas de disclosure of their
financial situation.
74

• When a company, non american, issues shares in its own country, its number of
stakeholders are limited since few institutional investors have the majority of the
shares.
• When issuing shares in USA, this kind of companies diversify its base of
stakeholders, what reduces the volatility in the stock price. This last is commonly
caused when major investors sells their shares.
75

• Non american companies also get capital financing using ADRs (American
Depository Receipts) which are certifieds which represent stock packages.
• ADRs is used to avoid some requeriments of disclosure of information imposted
to the share offering in USA and, however, It allows to such companies to use the
american market to get financing.
76

• Corporations which need capital financing have several alternatives since there
are many markets for new issues. The competition between these markets
increase their efficiency.
• For example,
– Coca Cola negotiate in EEUU, Frankfurt and Suiza.
– TRW negotiate in EEUU, Londres and Frankfurt.
77

International derivative market – forwards (1)
• Derivatives about foreign currencies are used to cover positions in others foreing
currency.
• Forward Market: Forward is an agreement between a coporation and a
commercial bank to exchange a specified quantity of foreign currency at a
determined exchange rate (forward exchange rate) at a established date in the
future.
78

• Corporations use forward market to ensure the price in which a foreign
currency is sold. This strategy is used to take cover against the possibility that
our foreign currency depreciate over time.
79

• Discount over forward exchange rate: Future exchange rate will contain a
premium / a discount which shows the difference between local interest rate and
foreign one.
– If forward exchange rate is higher than existent spot, it has a premium.
– If forward exchange rate is lower than existent spot, it has a discount.
80

• Non-Deliverable Forward (NDF): it represents an agreement in connection with a
position in a specified quantity of a foreign currency at a determined exchange
rate at a specified future settlement date.
• NDF implies real exchange of foreign currency at a future date: Onve of the parts
of the agreement make a payment to the other one at the current exchange rate
at the future date.
• It is used for foreign currencies in emerging markets.
81

International derivative market
– futures (1)
• Future markets: In this market
agreements which specify an
standard volume of a particular
foreign currency are negotiated.
They will be exchange at a
settlement date in the future.
• Are commonly negotiated at
CME.
82
Futuros de Divisas que se negocian en el CME

International derivative market – futures (1)
• Comparison between Futures and forwards of foreign currency
– Both allow to fix the exchange rate in which it is purchased or sold a foreign
currency at a determined date in the future.
– Futures are negotiated in mechanisms centralized of negotiation and
forwards in the OTC market.
– Forwards are tailor made, while futures are standarized products.
83

Comparison between forwards and futures
84

International derivative market – options (1)
• Options market: Alternative agreement which purchase or sale scalpers and
companies, and which are controlled by SEC. Options are purchased and sold
through brokers who receive a commission.
• Besides stock exchange market where there are options of foreign currencies,
there are a Over-the-counter (OTC) market where commercial banks and the
companies and the brokerage companies offer foreign currency options.
• Unlike foreign currency options negotiated in the stock exchange market , such
options are adapted to the specify needs of the companies.
85

• Due to these options are not standardized in the agreements, every condition
must be specified.
– Number of units.
– Strike price.
– Maturity date.
• Since these transactions are performed with a financial institution despite of a
stock market, non guarantee of credit. Because of that financial institutions
demand guarantees.
86

• Call: It ensure the right to buy a specified foreign currency at a established price
within a determined time.
• The price in which the owner is allowed to pay to acquire this foreign currency is
called strike price and for each option there are monthly settlement dates.
• Call are desired when the purchaser want to fix the maximum price which is
planning to pay for the foreign currency in the future.
87

• Put: It ensure the right to sell a specified foreign currency at an established price
within a determined time.
• As well as buying foreign currency, the owner of a put is not forced perform it.
Therefore, maximal potential lose of the purchaser will be the price or the
premium he paid for the put.
88

• Put option of foreign currencies are classified as:
– Over ParValue:When spot exchange rate is under the strike price,
– ParValue:When spot exchange rate is equal to the strike price
– Under ParValue:When spot exchange rate is over the strike price
• For a foreign currency and maturity determined, a put option over par value will
requier of a higher premium than the others.
89

• Factors which affect the premium about call and put of foreign currencies:
– Spot Price Level in connection to the strike price.
– Duration of the time before the maturity.
– PotentialVariability of the foreign currency.
90

Graphics of contingency for options in foreign
currencies
92

Foreign Cash Flow in a Multinational Corporation (1)
93

THE ROL OF FINANCIAL MARKETS AND
MARKET REGULATION
94

Structure and regulation of the financial markets (3)
• Importance of the models:
– Historical Development of public agencies.
– Evolution of financial system
– Effectiveness of supervision
95

• RegulationObjectives in the ambit of stock value market:
– Traditional areas of supervision:
• MarketTransparency
• Correct formation of Prices
• Protection of the investment
• Financial system stability
96
Market supervision
Entity supervision

• Regulation Objectives in the ambit of stock value market:
– New definition of supervision areas:
• Protection of the investor (transparency, market abuse, norms of
behavior....)
• Micro-prudential supervision (autorization of intermediaries and
prudential rules)
• Macro-prudential supervision (Systematic risk evaluation and treatment
of crisis of long range)
97

• Regulation Objectives in the ambit of stock value market:
– Traditional Areas
• Market supervision: Supervision agencies.
• Entity supervision:Central Bank. Other entities.
98

• RegulationObjectives in the ambit of stock value market:
– New Areas:
• Protection of the investor + Micro-prudential supervision: Supervision
Agencies.
• Different entities per areas.
• Macro-prudential supervision: Integral Model / Integral Approach.
99

• Regulation Objectives in the ambit of stock value market :
– Anchoring of the regulation → International Standards
• Basilea
• IASC
• Joint Forum
• IOSCO
100

• Design of the structures of regulation and supervision
101
CARACTERISTICS OF THE MARKET
OBJECTIVES
INTERNATIONAL STANDARDS
MODEL OF REGULATION
AND
SUPERVISION

• Design of the structures of regulation and supervision
– Regulatority entities / supervisors:
• Standard Case:
– Regulation: 1st level and 2nd level (Government, Ministery), 3rd level
(Supervision agencies)
– Supervision: Supervision agencies.
• Trends:
– Greater involvement of supervisor in the regulation.
– Supervisors in charge of the regulation.
102

• Current situation of the models of regulation and supervision
– Heterogeneity
– Predominance of the sectorial distribution → Several supervisor entities.
– Dynamism:Trends
– Advance of the integral model.
– Receding of the auto regulation.
– Emergency of the functional models.
103

• Current situation of the models of regulation and supervision
– Representative examples:
• Spain: Sectorial, partial territoriality
• France: Funcional, sectorial, multiplicity of agencies.
• Germany: Funcional, sectorial, territoriality
• United Kingdom: integral: Financial Services Authority (FSA)
• Sweden: integral: Finansinspektionen (SFSA)
• USA: Sectorial, territorialidad, autorregulación
• Australia: Integral, functional
104

• Future of the models of regulation and supervision
– Few practical experience to get conclusions about different models: functional models
and integral are new
– The model must be a determinant factor of the result: Defects inside the model can be
always corrected and new objective can be introduced.
105

• Market trend
– Financial conglomerates
– Transboundary activities: Merchandising of products and services supervised by other
agencies
– Non supervised areas.
– Coordination and cooperation as necessary conditions to the good functioning of the
models of multiple agencies
106

• SupervisorsTrend
– Increased cooperation between entities of national supervision, between
countries.
– Simplification of excessively complex system.
– Pressure to a convergence of supervision practices and organization of the
agencies.
107

• Trends in European Union
• Impact of the reform Lamfalussy
– SecuritiesCommittee
– Regulators Committee
• Consulting from European commission in regulation
• Consultation to participants in markets
• Cooperation in exchange of information
• Evaluation of national agencies
– Boost to the convergence of practices or supervision system
108

• Refers to the process of offering shares of a private corporation to the public in
a new stock issuance. Public share issuance allows a company to raise capital
from public investors.
• The transition from a private to a public company can be an important time for
private investors to fully realize gains from their investment as it typically
includes share premiums for current private investors.
• Meanwhile, it also allows public investors to participate in the offering.
110

IPO in Latin America and Caribbean
• Initial public offerings (IPOs) by non-financial
corporations in LAC and emerging markets
111
The region has not benefited from
the global shift in capital allocated
towards emerging markets.
The IPO offering activity in
emerging markets is driven
mostly by Asian economies and
not by LAC emerging markets.
More importantly, the activity in
the region has been lackluster
since the financial crisis in 2009,
although there has been a slight
rebound during the last two years.
Brazil has been responsible for most IPO activity in the region, while the
rest of the region has shown modest signs of activity in the past few
years.

Globalization
of Financial
Markets
112

Many of the channels used for financial transactions had been changing.
• There has been a major shift, relatively, from banks to nonbank financial
intermediaries, such as brokerage houses, securities firms, insurance companies,
and pension funds.
• There has also been a shift from loans to securities and a rise in the use of foreign
financial centers. In addition, there has been a surge in the use of new financial
instruments and of derivative products (such as financial options, futures, and
swaps on interest rates, foreign currencies, stocks, bonds, and commodities).
113

• These instruments have been developed to meet the needs and preferences of
different customers, including their desire to hedge risks in an environment of
fluctuating exchange rates, interest rates, stock prices, and commodity prices.
• The unprecedented changes in world financial markets have had significant
implications for public policy and data collection. Because of international capital
movements, policies and developments in other countries increasingly influence
domestic economic performance.
• Therefore, there is a need for information about the new and emerging global
financial environment. Yet changes that have taken place in world financial
markets themselves compound the difficulty of acquiring the information.
114

References
• Madura, J. (2013) International Financial Management (12th Ed.) Cengage
Learning.
• Bodie, Z. Kane, A. & Marcus, A. (2006). Essentials of Investments (6th Ed). Mc
Graw Hill/Irwin
• Fabozzi, F. J. (2015). Capital Markets: Institutions, Instruments and Risk
Management (5th Ed).The MIT Press: London.
• Mishkin, F. (2013). Economics of Money, Banking and Financial Markets. (10
Ed.). Pearson Education.
• Saunders, A. & Millon, M (2012). Financial Markets and Institutions (5th Ed).
Mc Graw Hill/Irwin
115

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