2. A financial market is the mechanism that facilitates the
transfer of funds from lenders (surplus units) to
borrowers (deficit units).
The institutions & instruments are integral part of
financial market.
When funds flow across national boundaries and the
transfer is between parties residing in different
countries, there comes into existence the international
financial markets
3. Meaning
The international financial market is the worldwide
marketplace in which buyers and sellers trade
financial assets, such as stocks, bonds, currencies,
commodities and derivatives, across national
borders.
5. The flow of funds from providers to seekers of
international funds takes place through different
institutions or agencies and through different financial
instruments.
The institutions or agencies that serve as the sources of
international funds are;
1. Multilateral development banks or agencies
2. Government / governmental agencies
3. International banks
4. Securities market
6. International financial market facilitates the transfer of funds
globally. The funds so transferred may be ownership funds or
debt funds. The funds may be transferred for different maturity
periods such as short term, medium term or long term. Segments
of International Financial Markets;
1. Foreign Exchange Market
2. International Bond Market
3. International Equity Market
4. International Money Market
5. International Credit Market
7. Foreign exchange market is the market for the
purchase and sale of foreign currencies.
It is an important segment of the international financial
markets.
Borrowing or investing internationally requires the use
of foreign exchange market for conversion of
currencies.
The foreign exchange market facilitates international
trade and international transactions.
8. The Foreign Exchange Market is the world's largest financial
market.
The Foreign Exchange Market is an over-the-counter market.
That means there is no physical location where traders get
together to exchange currencies.
Traders located in the offices of major commercial banks
around the world and communicate using the computer
terminals, telephones, telexes, and other communication
channels.
9. We can also calculate an exchange rate between two
currencies by using their respective exchange rates with
a common currency; the resulting rate is called a cross
rate. Frequently, the need arises to obtain the
relationship (price) between two currencies from their
relationship with (quotation in) a third currency.
A spot transaction is the purchase of foreign exchange
for immediate delivery (usually, delivery is within the
following two business days. Rate used for the spot
transaction is spot rate.
10. The forward rate is the rate at which two parties agree to exchange
currencies on a specified future date. The rate is agreed upon at the time
the contract is made, but payment and delivery are not required until
maturity. Forward maturities are normally 30, 60, 90, 180, 360 days in the
future. Maturities of one or two weeks are also common. Forward
premium: If the forward rate exceeds the existing spot rate (direct quotes)
that forward rate contains a premium.
Forward discount : If the forward rate is less than the spot rate, that
forward rate contains a discount
Bid Price: price at which a dealer will buy a currency.
Ask Price: price at which the dealer will sell a currency
11. Participants in foreign exchange market include;
Importers
Exporters
Portfolio managers
Commercial banks
Brokers: Bring buyers and sellers together for a small commission thereby helping to
preserve the anonymity.
Arbitragers: Seek to earn riskless profit from price differences in different foreign exchange
markets.
Speculators: Buy and sell in the hope that a price change will result in a profit.
Governments: Central Banks, Treasury Departments and other Government Agencies
sometimes participate in the market in order to influence the exchange rate of a particular
currency
Hedgers: Hedgers, mostly Multinational corporations, enter into forward contracts to protect
domestic currency value of foreign currency denominated asset and liabilities on their balance
sheet
12. It is that segment of international financial market where
international bonds are brought and sold. Companies may raise
long- term funds in foreign currencies through issue of
international bonds. Foreign bonds and Euro bonds are the two
types of international bonds. International bond market also
includes;
Straight bonds
Global bonds
Floating rate notes
Convertible bonds
Cocktail bonds
Callable and puttable bonds
Sinking fund bonds
13. Foreign bonds are underwritten by the underwriters of
the country where they are issued
Maturity based on the need of investors of a particular
country.
Foreign bonds are subjected to government regulations
in the country where they are issued
14. Underwritten by internationally.
Offered simultaneously to investors in a number of
countries .
Issued outside the jurisdiction of any single country.
They are not registered through a regulatory agency.
Make coupon payments annually.
Large in size offered for simultaneous placement in
different countries
15. Equity capital for a company is raised through the issue of
shares.
These shares are then traded in the stock exchange of the country.
A multinational company would often like to raise equity capital
from different countries by issuing shares in those countries.
The shares would also be listed trading in stock exchanges of
these countries.
This may be done to raise foreign currency funds required for
specific projects or for enhancing the prestige of the company in
the global market, or sometimes the domestic market may not be
large enough to absorb a large stock offering.
16. Money market is the market for transfer of short- term
funds.
In international money market , transactions takes
please in a variety o f different currencies.
International banks and financial institutions across the
world are the major suppliers of funds in these
markets, while MNCs and governments of different
countries are the major users of these funds.
The European money market is an important part of the
international money market.
17. MNCs can obtain short-term funds in foreign
currencies from the international money markets, and
can obtain long term funds in foreign currencies from
the international bond markets.
The segments o f the international financial market
where medium term funds are exchanged between the
suppliers and borrowers of such funds is sometimes
referred to as international credit market.
