International Financial Markets
INTERNATIONAL FINANCIAL MARKETS
1. INTRODUCTION This section begins the study of the international financial system by exploring the structure of the international financial markets. The two interrelated systems that comprise the international financial markets are the international capital market and the foreign exchange market.
2. INTERNATIONAL CAPITAL MARKET A capital market is a system that allocates financial resources in the form of debt and equity according to their most efficient uses. Its main purpose is to provide a mechanism to borrow or invest money efficiently.
A. Purposes of National Capital Markets
National capital markets help individuals and institutions borrow the money from lenders; intermediaries exist to facilitate financial exchanges. Commercial banks lend their investors’ deposits at a specific rate of interest and provide loans and finance import/export activities. Investment banks act as agents, introducing clients to organizations that provide investment or borrowing opportunities.
1. Role of Debt a. Debt consists of loans in which the borrower promises to repay the borrowed amount (the principal) plus a predetermined rate of interest. Company debt normally takes the form of bonds—debt instruments specifying the timing of principal and interest payments.
b. The holder of a bond (the lender) can force the borrower into bankruptcy if payment is not made on a timely basis. Bonds to fund investments are issued by private-sector companies and by municipal, regional, and national governments.
2. Role of Equity a. Equity is part ownership of a company in which the equity holder participates with other part owners in the company’s financial gains and losses. Equity normally takes the form of stock—shares of ownership in a company’s assets that give shareholders a claim on the company’s future cash flows.
1. INTRODUCTION This section begins the study of the international financial system by exploring the structure of the international financial markets. The two interrelated systems that comprise the international financial markets are the international capital market and the foreign exchange market.
2. INTERNATIONAL CAPITAL MARKET A capital market is a system that allocates financial resources in the form of debt and equity according to their most efficient uses. Its main purpose is to provide a mechanism to borrow or invest money efficiently.
A. Purposes of National Capital Markets
National capital markets help individuals and institutions borrow the money from lenders; intermediaries exist to facilitate financial exchanges. Commercial banks lend their investors’ deposits at a specific rate of interest and provide loans and finance import/export activities. Investment banks act as agents, introducing clients to organizations that provide investment or borrowing opportunities.
1. Role of Debt a. Debt consists of loans in which the borrower promises to repay the borrowed amount (the principal) plus a predetermined rate of interest. Company debt normally takes the form of bonds—debt instruments specifying the timing of principal and interest payments.
b. The holder of a bond (the lender) can force the borrower into bankruptcy if payment is not made on a timely basis. Bonds to fund investments are issued by private-sector companies and by municipal, regional, and national governments.
2. Role of Equity a. Equity is part ownership of a company in which the equity holder participates with other part owners in the company’s financial gains and losses. Equity normally takes the form of stock—shares of ownership in a company’s assets that give shareholders a claim on the company’s future cash flows.