This PPT deals with the global capital market which is a network of financial institutions and markets where individuals, companies, and governments can raise and invest capital on an international scale.

1. The Global Capital Markets
Sudhanshu Bhatt (https://www.linkedin.com/in/sudhanshu-bhatt-b3665115/)
MBA –IBA
30.04.2023
References
Bulatov, A. (2023). World Economy and International Business Theories, Trends, and Challenges. In Springer. https://doi.org/10.12737/16614
Hill, C. W. L. (2022). Global Business Today 12e Charles.
Hill, C. W. L. (2023). International Business: Competing in Global Marketplace. In McGraw Hill LLC. https://doi.org/10.4324/9780203879412
Shenkar, O., Luo, Y., & Chi, T. (2022). International Business, Routledge. Routledge.
Images sourced from the internet

2. What is Global Capital Market?
• Global capital market refers to a system where companies can raise
capital from investors worldwide, and investors can invest in companies
located in different countries.
• Over the last 30 years, national capital markets have become increasingly
integrated with each other, thanks to the removal of regulatory barriers that
hindered capital flows across borders.
• This integration has brought many benefits to corporations, including lower
cost of capital and access to larger investor bases.
• For Example - Nanox, an Israeli startup, raised $165 million by offering its
stock for sale on the NASDAQ stock exchange in the United States, taking
advantage of the higher demand for tech IPOs and lower cost of capital in the
US.
• Financial reporting requirements in the US provide greater investor
confidence, making the market more liquid and reducing the cost of capital for
firms raising funds.
• The global capital market includes the Eurocurrency market, the
international bond market, and the international equity market. However,
the growth of the global capital market also comes with macroeconomic risks
that must be carefully managed.

3. Working of a generic Capital Market
• A generic capital market connects investors who want to invest their money
and borrowers who want to borrow money. Market makers, such as
commercial banks and investment banks, connect these two groups either
directly or indirectly. Commercial banks take cash deposits from
corporations and individuals, pay them a rate of interest, and then lend that
money to borrowers at a higher rate of interest, earning a profit from the
interest rate spread. Investment banks bring investors and borrowers together
and charge commissions for doing so.
• Capital market loans to corporations can be equity loans or debt loans.
• Equity loans are made when a corporation sells stock to investors. The money the
corporation receives can be used for various purposes, and investors holding stock have a
claim to a firm’s profit stream, ultimately receiving dividends from the corporation. The price
of the stock reflects future dividend yields and stock prices increase when a corporation is
projected to have greater earnings in the future.
• Debt loan requires the corporation to repay a predetermined portion of the loan amount
at regular intervals, regardless of its profit. Debt loans include cash loans from banks
and corporate bonds sold to investors. Investors purchasing corporate bonds receive a
specified fixed stream of income from the corporation for a specified number of years until
the bond maturity date. The maturity period of debt loans can vary from very long-term loans

4. Benefit of the Global Capital Market
Capital markets provide benefits to both borrowers and investors by
offering access to a wider range of financing and investment
opportunities.
1. The Borrower’s Perspective: Lower Cost of Capital
• The cost of capital is the cost that a company incurs to raise funds from various
sources. Capital markets offer borrowers access to a wider range of investors,
including institutional investors such as pension funds, mutual funds, and
insurance companies. This can lead to a lower cost of capital for the borrower
compared to traditional bank financing.
• By accessing a broader pool of investors, companies can reduce their reliance
on a single lender and negotiate more favorable terms for their financing
needs. This can result in lower costs and improved financial flexibility for the
borrower.
2. The Investor’s Perspective: Portfolio Diversification
• Investors also benefit from capital markets by gaining access to a wider range
of investment opportunities. By investing in the capital markets, investors can
diversify their portfolios, spreading their investments across different sectors,
asset classes, and geographies.
• Investors can also benefit from capital markets by gaining exposure to
companies that they may not have access to otherwise.

5. Factors behind growth of global Capital Market
The global capital market is growing rapidly and two main factors
driving this growth are advances in information technology and
deregulation by governments.
1. Information technology has revolutionized the financial services
industry, making it possible for financial services companies to
engage in 24-hour-a-day trading and facilitating the emergence of
an integrated international capital market. However, the integration
facilitated by technology also has a dark side, as shocks that occur
in one financial center can quickly spread around the globe.
2. Deregulation has been a response to the development of the
Eurocurrency market and pressure from financial services
companies, which have long wanted to operate in a less regulated
environment. Deregulation in a number of key countries has
undoubtedly facilitated the growth of the international capital
market, enabling financial services companies to transform
themselves from primarily domestic companies into global
operations with major offices around the world.

6. What are the risks associated with Global
Capital Market
1. Deregulation and reduced controls on cross-border capital flows have made individual
nations more vulnerable to speculative capital flows, which can destabilize national
economies. A lack of information about the fundamental quality of foreign investments may
encourage speculative flows in the global capital market.
2. Most of the capital that moves internationally is short-term "hot money" pursuing temporary
gains, which can shift quickly in and out of countries as conditions change. "Patient money,"
which would support long-term cross-border capital flows, is relatively rare because capital
owners and managers still prefer to keep most of their money at home. The lack of patient
money is due to the relative paucity of information that investors have about foreign
investments.
3. It is difficult for investors to get access to the same quantity and quality of information about
foreign investment opportunities as they can for domestic opportunities, due to different
accounting conventions in different countries.
4. Differences in accounting principles in different countries make the direct comparison of
cross-border investment opportunities difficult for all but the most sophisticated investor.
5. The problems created by differences in the quantity and quality of information mean many
investors have yet to venture into the world of cross-border investing, and those who do are
prone to reverse their decision on the basis of limited (and perhaps inaccurate) information.

7. What is Eurocurrency market
• Origin: The Euro currency market was established with the introduction of the Euro currency in
1999. The Euro replaced several European currencies, including the Deutsche Mark, the French
franc, and the Italian lira, among others. The Euro currency market allows businesses,
governments, and individuals to conduct transactions and trade currencies in the Eurozone,
which includes the countries that have adopted the Euro as their official currency.
• Functioning: The Euro currency market operates similarly to other foreign exchange markets. It
involves the buying and selling of currencies, including the Euro, against other major currencies
such as the US dollar, Japanese yen, and British pound. Transactions in the Euro currency
market can be conducted through various channels, including banks, financial institutions, and
online platforms. The market also involves the use of derivatives, such as currency swaps and
options, which allow market participants to hedge against currency risks.
• Benefits: The Euro currency market offers several benefits for businesses, governments, and
individuals operating within the Eurozone. First, it eliminates the need for currency conversion
when conducting cross-border transactions within the Eurozone, reducing transaction costs and
increasing efficiency. Second, the Euro currency market provides access to a larger pool of
potential customers and trading partners, promoting economic growth and development. Third,
the Euro's status as a major global currency provides greater stability and confidence in financial
markets.
• Risks: Like all financial markets, the Euro currency market carries risks that market participants
must be aware of. One risk is currency exchange rate fluctuations, which can cause losses for
businesses and investors who have exposure to foreign currencies. Another risk is market
volatility, which can lead to sudden and unpredictable movements in currency prices. Finally,
there is the risk of credit and counterparty risk, which can arise from transactions involving
financial institutions and other market participants. These risks can be mitigated through careful
risk management strategies, such as hedging and diversification.

8. What are Global Bond Markets
The global bond market has experienced substantial growth over the past 40
years, with bonds being a significant source of financing for many companies.
Fixed-rate bonds are the most common type of bond, providing investors with a
fixed set of cash payoffs. Each year until the bond matures, the investor
receives an interest payment, and at maturity, they receive the face value of
the bond.
International bonds are of two types:
1. Foreign bonds are sold outside of the borrower’s country and are
denominated in the currency of the country in which they are issued. Foreign
bonds have nicknames, such as Yankee bonds in the United States, Samurai
bonds in Japan, and bulldogs in Great Britain. Companies may issue
international bonds to lower their cost of capital. For example, many
companies issued Samurai bonds in Japan during the late 1990s and early
2000s, taking advantage of the low interest rates in Japan compared to the
United States.
2. Eurobonds are underwritten by an international syndicate of banks and
placed in countries other than the one in whose currency the bond is
denominated. They are usually offered simultaneously in several national
capital markets but not in the capital market of the country or to residents of
the country in whose currency they are denominated. Historically, Eurobonds
have been the dominant type of international bond issue, but foreign bonds

9. Benefits of Euro Bond Market
The Eurobond market has three attractive features:
1.Absence of regulatory interference - Eurobonds fall outside the
regulatory domain of any single nation, making them cheaper for
issuers to issue.
2.Less stringent disclosure requirements - Eurobond market
disclosure requirements tend to be less stringent than those of
several national governments, making it cheaper for firms to issue
Eurobonds.
3.Favorable tax status - The U.S. revised tax laws in 1984
(followed by many euro nations) to exempt foreign holders of
bonds issued by corporations of these nations from any
withholding tax, resulting in an upsurge in demand for Eurobonds
due to their tax benefits.

10. What is a global equity market
• Origin: National equity markets were once separated by regulatory barriers,
hindering foreign investment in corporations. However, during the 1980s and
1990s, these barriers fell, giving rise to the global equity market, allowing
firms to raise funds from international investors, list stocks on multiple
exchanges, and issue equity or debt worldwide.
• Functioning: The global equity market comprises domestic equity markets
worldwide. Investors are increasingly investing in foreign equity markets to
diversify their portfolios. Companies list stocks in foreign equity markets to tap
into liquidity, reduce cost of capital, compensate local management and
employees, and increase their visibility.
• Benefits: The global equity market enables corporations to raise significant
equity capital, list stocks on multiple exchanges, and issue equity or debt
worldwide, tapping into the highly liquid global capital market and lowering their
cost of capital. Investors can diversify their portfolios, and firms listing stocks
on liquid markets with lower cost of capital receive a higher market valuation.
• Risks: Listing stocks on foreign equity markets require adherence to
stringent financial reporting requirements. Currency fluctuations pose a
risk to foreign investments. Listing stocks on foreign equity markets may lead
to potential conflicts with local laws, regulations, and customs.

11. Foreign Exchange Risk and Cost of
Capital: Implications for Global Capital
Markets
Foreign exchange risk:
• Refers to potential losses due to fluctuations in currency exchange rates
• Borrowing funds at a lower cost in the global capital market than in the domestic
market can be complicated by foreign exchange risk
• Adverse movements in foreign exchange rates can increase the cost of foreign
currency loans, as seen in the 1997-1998 Asian financial crisis
Cost of capital:
• Refers to the cost of raising funds for operations, investments, and growth,
including both debt and equity financing
• Borrowing from the global capital market increases the cost of capital due to
interest rates and potential losses from foreign exchange risk
• Forward contracts can reduce foreign exchange risk, but may not provide
adequate coverage for long-term borrowings
• A firm must weigh the benefits of a lower interest rate against the risks of an increase
in the real cost of capital due to adverse exchange rate movements

12. What is G20 and its role?
• The G20 (Group of Twenty) is an international forum made up of 19 countries
and the European Union, representing the world's major economies.
• The G20 was established in 1999 to bring together the world's leading industrialized
and emerging economies to discuss key issues in the global economy.
• The G20's primary focus is on international economic cooperation and decision-
making.
• The G20 meets annually to discuss key issues affecting the global economy,
including trade, finance, investment, and taxation.
• The G20 plays an important role in monitoring international finance by setting
standards for financial regulation and coordinating policy responses to financial
crises.
• The G20's financial regulatory agenda focuses on strengthening the resilience of the
global financial system, enhancing transparency and accountability, and promoting
financial inclusion.
• The G20 works closely with international financial institutions such as the
International Monetary Fund (IMF), the World Bank, and the Financial Stability
Board (FSB) to achieve its objectives.
• The G20's role in monitoring international finance has become increasingly
important in recent years, as global financial markets have become more

13. What are Bretton Woods institutions
The Bretton Woods Institutions are two international organizations
created at the end of World War II in 1944 at the United Nations
Monetary and Financial Conference held in Bretton Woods, New
Hampshire, United States. The two institutions are:
1.International Monetary Fund (IMF): It is an international organization that
promotes international monetary cooperation, exchange stability, and facilitates
the balanced growth of international trade by providing financial assistance to
member countries in need.
2.World Bank: It is an international financial institution that provides loans, grants,
and technical assistance to developing countries for development projects with a
focus on poverty reduction, infrastructure, and economic growth.
Together, the IMF and World Bank play a crucial role in the global
financial system and in promoting economic development
worldwide. They are headquartered in Washington D.C., USA and their
members consist of most of the world's nations.

14. Impact of global monetary institutions on IB
1. The global monetary institutions, such as the International Monetary Fund (IMF)
and the World Bank, have a significant impact on international businesses. These
institutions provide a predictable mechanism for companies to exchange
currencies and offer stability in the current monetary environment.
2. Global firms monitor the policies and discussions of these institutions to identify
new opportunities and use their leverage to protect their markets and businesses.
3. The Bretton Woods Institutions have extensive global influence and
occasionally use it to nudge countries to reduce trade barriers and adjust
the value of their currency.
4. For global businesses, this can be encouraging in several ways. Companies that
are eager to enter a country's market to sell their goods and services may find it
easier, or the general climate may be more welcoming of foreign businesses.
5. Additionally, the IMF report can legitimize the concerns, prioritize them and
offer opportunities to companies.
6. However, on the flip side, companies that compete with firms in other markets
may be frustrated by the cheap costs and undervalued currency of other
countries. Therefore, global businesses keep a close eye on the policies and
actions of these institutions to assess the potential impact on their operations and

15. • To be continued……………