CHRISTIAN COLLEGES OF SOUTHEAST ASIA

Rosario Building, Don Julian Rodriguez Avenue, Ma-a, Davao City

Student: KARLO DAVE PALER Professor: DR. KHAREN S. BIJE

Subject: Financial Markets Date Submitted: Dec. 17, 2020

THE IMPORTANCE OF LOCAL CAPITAL MARKETS FOR FINANCING

DEVELOPMENT

I. Executive Summary

Capital markets gives an immediate financing from lenders to

borrowers through the issuance of securities. They can offer subsidizing for
those exercises that have potential risks that can't be served by the banking
sector. Neighborhood capital business sectors plays a crucial function in the
commitment and development of the economy. Capital markets offers more
appealing contributing open doors that has a superior return. Domestic
capital business sectors assumes a significant function in assembling cash-
flow to finance domestic development. Capital market's institutional
structure is basic on the grounds that the business sectors will rely upon
the financial specialist's certainty and invulnerable foundations gives
premises to speculator and bank insurance.

II. Statement of the Problem

Local capital market is the intermediation of lenders and borrowers in

a residential country for raising extra capital and building up business
progression that contributes to financial growth. In any case, the
significance of the local capital market for the financial improvement of a
nation is subordinate on the level of its economy and institutional controls.
The expansive degree and timing of establishing local capital market is
difficult to set up, especially in low-middle class earner nation since they are
taking thought of how the economy of this country is performing. In reverse,
High earner nation effectively propelled the local capital market.
III. SWOT Analysis

Strengths

 Manage foreign exchange risk and inflation

 High return on investment

 Help investors to diversify their portfolios and manage risk

 Reducing vulnerabilities to exchange rate stocks

 Benefits at macroeconomic level that supports monetary policy

transmission

Weaknesses

 Trust involvement in the engagement between investors and creditors

 Dependent on the economic level of a country
 Government and banking sector cannot provide investment funding in
household sector
 Weak implementation and control of its regulations
 Lack of sufficient and efficient market infrastructure for issuing,
trading, clearing and settlement

Opportunities

 Long-term income for investors

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

 Gain access to local currency financing

 There is an additional capital build-up

 Offers a better pricing and longer maturities

Threats

 Non-transparency of the bank when it comes to the movement of the

investment.

 Competition of Local and Foreign Capital Market

 Complexity of securities which will give higher risk.

IV. Alternatives

The rise of foreign capital market in a developing nations will cause a

critical diminish of liquidity and increment costs inferable to the exchanges.
In this manner, decreasing foreign market capital exchange will offer
assistance to stabilize the cash flows of a domestic nation. The said
corporation stated that to realize effective improvement of local capital
market, they ought to meet the taking after intercession:

 Increased market liquidity: Liquidity involves a different cluster of

market actors who are able to rapidly and effortlessly purchase and
offer resources at steady costs. This creates productivity and
straightforwardness through cost discovery and risk moderation, as
investors in liquid markets can sell assets in secondary markets
rather than holding them to maturity. Issuances in developing
markets offer assistance to broaden the investor base, a pre-requisite
for progressed liquidity.

 Diversification: Stable local capital markets productively designate

capital from a wide and differing pool of sources to a similarly differing
set of ventures. This allocation comes about from a matching of
investment funds and speculation whose maturities range from short
to long term.
 Longer tenors: Access to long-term finance is critical to firm's victory,
especially with infrastructure projects. Precise pricing of longer tenors
depends on the improved transparency that more profound capital
markets provide by means of mechanisms such as amplifying
benchmark yield curves.

 Subsequent issuers: The number and differences of ensuing issuers

could be a critical degree of the impact and sustainability of a
development bank’s intercession. Effective intercessions decreases the
data gaps and illustrates the possibility of new issues.

V. Conclusion and Recommendation

There must be a continuance as to providing local currency solutions

ad credit enhancements to regulate the access to capital markets for its
clients. The sequencing of arrangements as to the improvement of the
capital markets is exceptionally fundamental. Making the most out of the
developing capital markets to support private investment and financial
needs happens in stages. Understanding the relationship between the
distinctive segments of market is critical to provide an affirmation about the
right sequencing of policy and administrative reforms. It requires an
impenetrable leadership skills from government authorities to create a
development in capital markets. One thing to remember is the commitment
of time and resources because this is a gradual process.
VI. References

International Finance Corporation (World Bank Group) (2016). Developing

Domestic Capital Markets. Inter-Agency Task Force on Financing for
Development, 1-5.

Narayanaswamy, M., Blitzer, C., & Carvajal, A. (2017). The importance of

local capital markets for financing development.