 International Financial Markets

The International Financial Market is the place where financial wealth is traded between individuals
(and between countries). It can be seen as a wide set of rules and institutions where assets are traded
between agents in surplus and agents in deficit and where institutions lay down the rules. 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.

Example: Stock Market

 Foreign Exchange Markets

The Foreign Exchange Market is an over-the-counter (OTC) marketplace that determines the exchange
rate for global currencies. It is, by far, the largest financial market in the world and is made up of a global
network of financial centers that transact 24 hours a day, closing only on the weekends. This market
determines foreign exchange rates for every currency. It includes all aspects of buying, selling and
exchanging currencies at current or determined prices. It facilitates the exchange of one currency to
another and serves as a marketplace for individuals, businesses, and financial institutions to buy, sell,
and speculate on different currencies.

Types of Foreign Exchange Market:

1. Spot Market - currencies are bought and sold for immediate delivery.

2. Forward Market - currencies are bought and sold at an agreed exchange rate, but the actual exchange
happens at a future delivery date.

3. Futures Market - currencies are traded with specified delivery date, amount, and currency pair
typically for hedging and speculative reasons.

 International Money Markets

The International Money Market is a large-scale money market that allows many central banks to
conduct transactions from different countries. This includes both lending and borrowing funds. It
handles funds in trillions, with the main actors being central banks and major commercial banks. It is a
market where international currency transactions between numerous central banks of countries are
carried on. The basic operations of the international money market include the money borrowed or lent
by the governments or the large financial institutions.

Advantages:

1. Higher interest rates than traditional savings accounts

2. Higher levels of liquidity
3. More flexibility regarding the transfer between multiple accounts within the same bank.

 International Credit Markets

The International Credit Market is the market of bank loan liabilities. It is a marketplace for the
exchange of debt securities and short-term commercial paper. Companies and the government are able
to raise funds by allowing investors to purchase these debt securities. The credit market is where
investors and institutions can buy debt securities such as bonds.
Entities of the International Credit Market:

1. Commercial banks
2. Corporations
3. Financial intermediaries
4. Nonbank financial institutions (insurance companies and pension funds)
5. Central banks and other public bodies
6. Governments
7. Regional international banks of development
8. International financial institutes

 International Bond Markets

The International Bond Market is a market for bonds that are traded beyond national boundaries. The
bonds which are traded in international bond markets are called international bonds. An international
bond is generally a debt obligation that is issued by a non-domestic entity in its native currency.

Three classifications:

1. Foreign Bonds - in foreign bonds, the issuer is from one country, but he issues the bonds in some
other country. The issuer issues these bonds in the local currency of the country where he is
issuing bonds.
2. Euro Bond - in Euro Bond, a foreign entity issues a bond in the domestic market. The issuer
issues a bond in a currency that is not the domestic currency of that country.
3. Global Bonds -in global bonds, bonds are issued in multiple countries at a go and often in
multiple currencies. Usually, large multinational corporations issue global bonds.

 International Stock Markets

The International Stock Market refers to all the international markets that negotiate stocks from their
domestic companies. This market allows companies to raise a larger amount of capital than a single
market and investors to hold stocks in a number of different countries simultaneously.