Value is for business purposes, although the commercial banks now make mortgage loans for enterprise

shares (stocks) and house purchase on a large scale.

Bank loans are normally secured (collateral security), repaid in regular instalments and with interest

charged at rates which vary with the bank’s base rate. European banks have been compared unfavourably

with banks in other countries in the extent to which they provide long-term loans to industry. It is true that

until about twenty-five years ago the bulk of bank advances were in the form of overdrafts, which are

repayable on demand. This was partly because the banks in Europe have not, in general, been able to

attract long-term deposits, and it is regarded as bad banking practice “to borrow short and lend long.”

However, commercial customers of the banks in Europe have also preferred overdraft finance, which is

cheaper and more flexible than other types of borrowing, provided the banks were willing to renew overdraft

facilities and allow, as they have done, much overdraft borrowing to become “hard core.” In recent

years the European Banks have greatly increased contractual medium-term lending (term loan), and this

type of advance now accounts for over half the bank advances to foreign customers.

Export of entrepreneur’s capital.

It takes place by means of constructing foreign enterprises (subsidiaries) and purchasing a block

of shares (stocks) of acting foreign enterprises.

There are two kinds of entrepreneur’s capital depending upon the investment verification (control)

— direct foreign investments and portfolio (indirect) foreign investments (Table 11.1).

In 1995, e.g., it increased by $235 billion and reached $2,6 trillion. The largest international

creditors (lenders) and borrowers are presented in Table 6.

Loan capital differs from entrepreneur’s capital in the following: in the first case an investor

receives an interest (when lending money), while in the second case an investor makes a profit.

153

Table 11.1. The largest lenders and borrowers in the world capital market (in percent)

1970 1975 1980 1985 1990 1995 2000 2003

Canada

Portfolio investment 2.0 1.9 2.1 2.4 6.0 12.9 18.7 14.3

Equity 3.1 3.2 3.6 3.5 9.6 25.4 29.3 21.2

Bonds 0.7 0.6 0.4 1.3 1.9 2.2 3.2 3.6

Germany

Portfolio investment 4.9 2.4 2.7 5.8 10.2 14.5 30.0 31.1

Equity 16,9 37,8 42,1

Bonds 13 23 25,7

Japan

Portfolio investment 1.3 2.0 6.9 10.7 12.1 13,6 13,7

Equity 2,2 4 8,3 9,9

Bonds

United Kingdom

Portfolio investment 9.5 8.6 11.4 27.5 34.0 37.1 42.6 48.1

Equity 33.1 33.5 40.9 52.4

Bonds 35.6 43.4 46.4 42.1

United States

Portfolio investment 1.5 2.1 2.3 2.2 3.5 6.4 7.8 7.4

Equity 0.8 1.1 1.3 2.0 5.6 9.3 10.5 12.7

Bonds 2.7 3.1 3.3 2.4 2.1 3.5 3.8 2.3

Sources: Tesarand Werner (1995); Lane and Milesi-Ferretti (2005b); IMF, Balance of Payments Statistics;

national flow of funds and balance sheet statistics; and IMF staff calculations.

It is also usual to take into account a national export of capital, mainly as international loans,

and a private export of capital (large industrial companies, transcontinental corporations, commercial

banks), mainly as loans (lending).

Foreign direct investment. Foreign investment that establishes a lasting interest in or effective

management control over an enterprise. Foreign direct investment can include buying shares of an

enterprise in another country, reinvesting earnings of a foreign — owned enterprise in the country

where it is located, and parent firms extending loans to their foreign affiliates. International Monetary

Fund (IMF) guidelines consider an investment to be a foreign direct investment if it accounts

for at least 10 percent of the foreign firm’s voting stock of shares. However, many countries set a

higher threshold because 10 percent is often not enough to establish effective management control

of a company or demonstrate an investor's lasting interest.

Foreign Portfolio Investment (FPI) is a category of investment instruments that are more easily

traded, may be less permanent, and do not represent a controlling stake in an enterprise.

These include investments via equity instruments (stocks) or debt (bonds) of a foreign enterprise

that does not necessarily represent a long-term interest.