Glossary Chapter 9 bonds debt instruments issued by private sector firms and by all levels of government.The lender promises to repay the principal and a predetermined rate of interest to the borrower. currency board charged by the government with the responsibility to exchange domestic currency for foreign currency at a specified and fixed rate. debt instrument an amount owed to a person or organization for funds borrowed. domestic bonds issued to raise funds within a nation and in the currency denomination of the country. equity instrument represents “ownership interest in a corporation in the form of common stock or preferred stock.” euro this prefix is given to all bonds and currencies deposited in any country outside the country of origin. Eurobond market comprises all bonds issued and sold in a jurisdiction outside the country of the currency of denomination. fiscal policy refers to the expenditures government makes and how it finances through taxation and borrowing to provide the necessary goods and services. fixed exchange rate a system where the exchange rate has a set (fixed) value against another currency. floating exchange rate one that is allowed to find its own level according to the forces of supply and demand. foreign bonds issued to raise funds outside of the country of origin and are denominated in the currency of the issuing entity’s country. hot money funds that flow into a country to exploit small differences in interest or exchange rates. investor bias an investor’s tendency to demonstrate a propensity to purchase domestic (home) debt and equity, rather than foreign instruments. liquidity the ability to exchange shares for cash in the global equity markets. London Interbank Bid Rate (LIBID) the deposit rate offered by banks to large depositors. market makers persons or firms authorized to create and maintain a market in a security. monetary policy controls the supply and availability of money in the domestic economy. money market raises, invests, and trades short-term capital using treasury bills, bankers' acceptances, commercial paper, and bonds maturing in one year or less. moral hazard a situation in which someone will purposely engage in risky behaviour, knowing that any costs incurred will be compensated by the insurer (lender). patient money money made in FDI in factories, equipment and land that cannot be readily withdrawn from a nation. pegged foreign exchange system nations adopt this type of system when one country ‘ties’ their currency to another countries currency. technopoly "a self-justifying, self-perpetuation system wherein technology of every kind has been cheerfully granted sovereignty over our institutions." underwriting a contractual arrangement between investment bankers to guarantee the sale of the bond issue at a predetermine price in return for a fee.