ABSTRACT
Just as the take-off of the forward exchange markets in the early inter-war years and then the take-off of the Euro-markets in the 1970s and '80s had major implications for the flow of capital internationally, so it is with the swap markets. The natural limits to zonalization are related to limits on the size of efficiency gain made possible by the innovation of swaps. The power of the swap to promote both zonalization and democratization is exercised through expanding the Euro-bond and foreign bond markets beyond natural limits to their growth. In practice the development of swap markets has been accompanied by substantial further 'zonalization'. Some borrowers–lacking the eligibility to make issues in the international bond market–have the option of obtaining fixed-rate finance in a foreign currency for the first time. The expansion of the international bond market in general reduces the effective burden of withholding taxes, particularly those which are levied at a rate well the international average.
