Figure

Globalization: A debt issue denominated in euros

Source: North West Water Finance PLC, April 1999.

pass-through securities

Pools of loans (such as home mortgage loans) sold in one package. Owners of pass-throughs receive all of the principal and interest payments made by the borrowers.

ican Stock Exchange) and thus enable U.S. investors to obtain diversified portfolios of foreign stocks in one fell swoop.

A giant step toward globalization took place recently when 11 European countries replaced their existing currencies with a new currency called the euro. The idea behind the euro is that a common currency will facilitate global trade and encourage integration of markets across national boundaries. Figure 1.1 is an announcement of a debt offering in the amount of 500 million euros. (Each euro is currently worth just about $1; the symbol for the euro is €.)

Securitization

In 1970, mortgage pass-through securities were introduced by the Government National Mortgage Association (GNMA, or Ginnie Mae). These securities aggregate individual home mortgages into relatively homogeneous pools. Each pool acts as backing for a GNMA pass-through security. Investors who buy GNMA securities receive prorated shares of all the principal and interest payments made on the underlying mortgage pool.

For example, the pool might total $100 million of 8%, 30-year conventional mortgages. The rights to the cash flows could then be sold as 5,000 units, each worth $20,000. Each unit

1,400 1,200 1,000 800 600 400 200

□ Debt obligations

□ Automobile

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