Learned from the FT 10.05.2020

Things global reserve currency is used for

  • Foreign Exchange (FX) reserves
  • Cross-border exposures
  • International debt
  • Swift payments

A global reserve currency is one that no one minds owning or transacting with. So when doing transactions between parties in different countries, it makes sense a global reserve currency is the medium of exchange.

Moreover, on many metrics, the dollar faces few rivals. Whether in terms of its use in cross-border payments or its share of foreign exchange reserves held by global central banks, the dollar’s dominance is sweeping…

What is free float?

A company’s “free float” refers to its shares that are available to trade publicly. This excludes shares that are outstanding but not exercised, like stock options granted to company employees.

According to Investopedia, calculating a company’s market cap using the free float methodology more accurately reflects market trends, because it only takes into account shares that are available for trade.

As for NTT’s shareholders, a huge debt pile is about to surface. It will need to borrow more than ¥4tn to finance the deal. It had about ¥1tn in cash and equivalents earlier this year. There is little leeway for extra costs.

Worse, NTT’s free float is limited by locals laws that require the government to hold at least one-third of its shares. Any hopes of a buyback have just been pushed further out of reach. This record take-private deal should serve as a renewed warning to investors that, in Japan, telecoms stocks are not defensive investments.

Why use negative interest rates?

Central banks may lower their interest rates below zero as a way of driving cash out of bank accounts and into the economy. It’s a tool that central banks may turn to during a deep recession, after decreasing interest rates down to zero has failed to spur on the desired spending and investment activity.

Having to pay the bank to store your money there is not very appealing, and so a negative interest rate policy is an incentive to find other uses for your money.

Sterling rallied on Moday when Dave Ramsden, the deputy goveror for markets and banking, said the BoE was not about to use negative rates, but had not rejected the policy outright. Negative rates remained very much in the bank’s “toolbox”, he said…

What constitutes a hostile takeover?

A hostile takeover is when one company attempts to purchase ownership over another company against the wishes of the target company’s management/board. This can be done by going directly to the target company’s shareholders and asking them to either sell their shares, or allow the use of their proxy votes.

If enough shareholders sell their shares to the acquiring company, then the acquiring company will have dominant voting power in the target company.

Similarly, if enough proxy votes are acquired to vote out uncooperating board members, new board members may be installed who are more tolerating of a potential takeover deal.

UK security group G4S yesterday received a formal £3bn hostile takeover bid from Canadian rival GardaWorld, which said the company needed fresh management to deal with “scandals, crises and lawsuits”.

Matt Roll @mroll