l.

Executive Summary

Capital markets provides a direct funding from saver to user through the issuance of securities. They can
offer funding for those activities that possess risk that cannot be served by the banking sector. Local
capital markets pays a vital role in the contribution and innovation of the economy. Capital markets
offers more attractive investing opportunities that has a better return. Capital market’s institutional
framework is critical because the markets will depend on the investor’s confidence and impenetrable
institutions provide the basis for investor and creditor protection. The most reliable and stable investor
base will be local.

ll. Statement of the Problem

The local capital market is the intermediation of savers and users in a domestic nation for raising
additional capital and building up business continuity that contributes to economic growth. However,
The importance of the local capital market for the financial development of a country is dependent on
the level of its economy and institutional regulations. The large extent and timing of founding local
capital market hard to establish, particularly in low-middle class earner country because they are taking
consideration of how the economy of this nation performing. In reverse, High earner country
successfully launched the local capital market. In fact, in Europe, particularly in the London stock
exchange leads to an industrial revolution. Hence, effective regulations and management of stock and
bond exchange will contribute to economic development.

lll. SWOT Analysis

Strengths

 Neutralizes Inflation
 The high return on investment
 Forex stabilization
 Manage foreign exchange risk and inflation
 Help investors to diversify their portfolios and manage risk
 Benefits at macroeconomic level that supports monetary policy transmission
 Reducing vulnerabilities to exchange rate stocks

Weaknesses

 Dependent on the economic level of a country

 Trust involvement in the engagement between investors and creditors
 Weak implementation and control of its regulations
 Government and banking sector cannot provide investment funding in household sector
 Low-income countries’ capital markets are at embryonic stage
 Asymmetric information between lenders and borrowers
 Lack of sufficient and efficient market infrastructure for issuing, trading, clearing and
settlement
Opportunities

 Enable the investors to gain a more stable rate of return

 Additional capital build-up
 Long-term income for investors
 Offers better pricing and longer maturities
 Gain access to local currency financing

Threats

 Competition of Local and Foreign Capital Market

 The complexity of securities will give higher risk.
 The non-transparency of the bank when it comes to the movement of the investment.

lV. Alternatives

The emergence of foreign capital market in a developing countries will cause a significant decrease of
liquidity and increase costs attributable to the transactions. Therefore, reducing foreign market
capital transaction will help to stabilize the cash flows of a domestic country (International Finance
Corporation, 2016). The said corporation stated that to achieve successful development of local
capital market should meet the following intervention:

 Increased market liquidity: Liquidity entails a diverse array of market actors who are able to
quickly and easily buy and sell assets at stable prices. This creates efficiency and transparency
through price discovery and risk mitigation, as investors in liquid markets can sell assets in
secondary markets instead of holding them to maturity. Issuances in emerging markets help
broaden the investor base, a pre-requisite for improved liquidity.
 Diversification: Stable local capital markets efficiently allocate capital from a broad and
diverse pool of sources to an equally diverse set of investments. This allocation results from a
matching of savings and investment whose maturities range from short to long term. Capital
markets also involve both foreign and domestic investors, national and international markets.
 Longer tenors: Access to long-term finance is critical to firm success, particularly with
infrastructure projects. Expanding a firm’s capacity and future potential often requires long-
term financing that can spread costs over the life of the investment or project, keeping debt
burdens manageable and lowering the cost of the final good or service. Accurate pricing of
longer tenors relies on the improved transparency that deeper capital markets provide via
mechanisms such as extending benchmark yield curves.
 Subsequent issuers: The number and diversity of subsequent issuers is a critical measure of
the impact and sustainability of a development bank’s intervention. Successful interventions
reduce information gaps and demonstrate the feasibility of new issues.