International Financial Markets

The financial markets of the world consist of sources of finance, and uses for finance, in a number of different countries. On the other hand, national capital markets are partially linked and partially segmented. National capital markets are of very different stages of development and size and depth, they have very different prices and availability of capital.  The other aspect is the fact that domestic claims and liabilities are denominated in national currencies. These must be exchanged for another for capital to flow internationally; since relative values depend on supply and demand, the international financier faces exchange risk. Finally, the past few decades have seen a new phenomenon; the separation of currency of denomination of assets and liabilities from country of jurisdiction. There are three sets of markets – home, foreign and Euromarkets – faced by every investor or borrower, plus the fourth market, the foreign currency market, which must be crossed as one enters the world of finance.

• Domestic Capital Markets Developing Countries were not immune to these global developments and what happed in domestic capital markets across regions was to a large extent a reaction to global forces linked to financial globalization and innovation.   The international role of a regulatory climate prevails and the capital market is closely related. Appropriate regulations make markets more attractive.
• Foreign Financial Markets Major chunk of the savings and investments of a country take place in that country’s domestic financial markets. Domestic investors purchase foreign securities and invest funds in foreign financial institutions. Conversely, domestic banks can lend to foreign residents and foreign residents can issue securities in the national market or deposit funds with resident financial intermediaries.
• Euromarkets and their linkages: Euro currencies – which are neither currency nor are they necessarily connected with Europe – represent the separation of currency of denomination from the country of jurisdiction. Banks and clients make this separation simply by locating the market for credit denominated in a particular currency outside the country where that currency is legal tender.