INTERNATIONAL CAPITAL MARKE

INTRODUCTION
CONCEPT
GROWTH
FUNCTIONS
PLAYERS
INSTRUMENTS
STRUCTURE
Prof. K. Omprakash
Kakatiya University - Warangal

INTRODUCTION
The rapid globalization of capital markets facilitates
the free flow of money around the world
Traditionally, national capital markets have been
separated by regulatory barriers. Therefore, it was
difficult for firms to attract foreign capital
Many regulatory barriers fell during the 1980s and
1990s, allowing the global capital markets to emerge
Today, firms can list their stock on multiple
exchanges, raise funds by issuing equity or debt to
investors from around the world, and attract capital
from international investors
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CONCEPT
International capital markets are a group
of markets (in London, Tokyo, New York,
Singapore, and other financial cities) that
trade different types of financial and
physical capital (assets), including stocks
bonds (government and corporate)
bank deposits denominated in different
currencies
commodities (like
bauxite, gold)

petroleum,

forward contracts, futures

swaps, options contracts
real estate and land

wheat,

contracts,
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GROWTH
INFORMATION TECHNOLOGY
Diminishing
information

costs

of

sharing

- Internet
- Computer Technology

Shocks in one
markets
DEREGULATION

market

affect

other

Response to:
- Eurocurrency market
- Financial services firms
Increasing acceptance to
concept

free market

Dismantling of national capital controls

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Less restrictions on inward / outward

FUNCTIONS
To bring together those who want to
invest in with who want to borrow
in international capital markets.
Invest :
- Firms with surplus
- Individuals
- Non-bank
(NBFCs)

Financial

Institutions

Borrow:
- Individuals
- Corporate firms / companies
- Governments

PLAYERS

The players in international capital

markets include:
1. Commercial Banks and other depository
institutions :
- Accept deposits
- Lend to governments, corporations,
other banks,
and / or
individuals
- Buy and sell bonds and other assets
- Some commercial banks underwrite
stocks and
bonds
by
agreeing to find buyers for those assets 6

PLAYERS

2. Non bank financial institutions:

pension
funds,
insurance
companies,
mutual
funds,
investment banks
Pension funds accept funds from
workers and invest them until the
workers retire.
Insurance companies accept premiums
from policy holders and invest them
until an accident or another unexpected
event occurs.
Mutual
funds
accept
funds
investors
and
invest
them
diversified portfolio of stocks.

from
in
a
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PLAYERS
3. Private firms:
Corporations may issue stock, may
issue bonds or may borrow from
commercial banks or other lenders to
acquire funds for investment purposes.
Other private firms may issue bonds or
borrow from commercial banks.

4. Central banks
agencies:

and

government

Central banks sometimes intervene in

foreign exchange markets.
Government agencies issue bonds to
acquire funds, and may borrow from
commercial or investment banks.
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INSTRUMENTS
Instruments
/
assets
in
international capital markets are
classified as either
1.

Debt instruments
Examples include bonds and bank deposits
They specify that the issuer of the instrument
must repay a fixed value regardless of economic
circumstances.

2.

Equity instruments
Examples include stocks or a title to real
estate
They
specify
ownership
(equity
=
ownership) of variable profits or returns,
which
vary
according
to
economic
9
conditions.

INTERNATIONAL BOND MARKET

Domestic bonds

Foreign bond
currency, by non-

- Issued within country of

resident issuers

Eurobonds Issued and sold in a

jurisdiction outside the
country of the currency of
denomination
Global Bonds - Issued in the domestic and
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the Eurobond

FOREIGN BONDS

A foreign bond is a bond issued in a

host country's financial market, in
the host country's currency, by a
foreign borrower.
The

three

markets

largest

are

Japan,

foreign

bond

Switzerland,

and the U.S., representing issuance

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EURO BONDS
A bond issued in a currency other than the
currency of the country or market in which it is
issued.
Usually, a euro bond is issued by an international
syndicate and categorized according to the currency
in which it is denominated. A euro-dollar bond that is
denominated in U.S. dollars and issued in Japan by an
Australian company would be an example of a euro
bond. The Australian company in this example could
issue the euro-dollar bond in any country other than
the U.S.
Eurobonds are attractive financing tools as they give
issuers the flexibility to choose the country in which to
offer their bond according to the country's regulatory
constraints. They may also denominate their eurobond in their preferred currency. Eurobonds are
attractive to investors as they have small par values
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and high liquidity.

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