When MNC finalize its foreign investment project,then it needs to
select a particular source or a mix of sources of funds. Domestic firm gets fund normally from domestic sources. it does get funds from international financial market too. But it is not easy for mnc. Mnc,Parent company funds for its foreign investment project. It tries to get funds from host country fin.markets & international fin. Markets. Discussion for sources of the funds in global financal market should be based on both the supply aspect and demand aspect.
Profitability:- exports benefits the higher profit margins in the
foreign market Growth:Achieving economies of scale Risk spread Access to imported inputs Uniqueness of product or service Marketing opprtunities due to life cycles Spreading R&D costs Resource utilization
Competition & costs
Quality Improvement Economic integration & free markets Living standards Emergence of wto Utility effect & peace
Continued growth of global financial assets:-The volume of
global financial assets such as government debt securities, corporate debt securities and equity securities will continue to expand.
Depth of financial markets:-Financial markets have been
growing faster than the global GDP over the years. Due to this the ratio of a countrys financial assets to GDP has been rising constantly over the past few years. In 1990, only 33 countries had financial assets whose value exceeded the value of their GDPs. By 2006, this figure had more than doubled to 72 countries. Brazil, China, India are some of the few countries whose financial assets have outnumbered the countrys Gross National Product (GNP).
Raise in the level of foreign investment:- The raise in the level of
investment is making the world more financially interdependent than it was a few years ago. By the end of 2006, it was around $ 74.5 trillion of assets.
Regulation of International Securities Market:-The worlds capital
markets have continued to undergo dynamic changes, both in terms of structure and complexity. The huge achievements in information and telecommunication technologies have virtually eliminated the boundaries between capital markets of different nations.
Financialization of Economy:-One of the recent developments is the
excessive financialization of economy with greater importance to financial activity over non-financial economic activity.
Financial Innovation, Deregulation and Globalization:- Financial
innovation played an important role in changing the dynamics between finance and real economy. It facilitated the introduction of new financial instruments (such as derivatives) and increased distance between financial instruments and productive assets. Certain kinds of innovation added to the complexity of the financial system.
The Growing Domination of Speculative Finance Capital
Recently experienced increased securitization.
The Financial Stability Forum (FSF) met in Rome on 28-29 March.
Members discussed the current challenges in financial markets, the steps that are being taken to address them and policy options going forward. Financial system risks & responses:- The financial system faces a number of significant near-term challenges. With many securitisation markets effectively closed, assets are accumulating on bank balance sheets. Strengthening market and institutional resilience:- The FSF discussed the report to be delivered to G7 Finance Ministers and Central Bank Governors in April that identifies the key weaknesses underlying the turmoil and recommends actions to enhance market and institutional resilience going forward.
Hedge fund industry:- In its 2007 report on highly leveraged
institutions the FSF called on the hedge fund industry to review and enhance sound practice benchmarks. Sovereign wealth funds:- The FSF discussed work underway at the IMF and OECD with regard to sovereign wealth funds (SWFs).
Classified into 3 parts
International International Money capital Market market
Global Foreign Exchange Market
The foreign exchange market (forex, FX, or currency market) is
a global decentralized market for the trading of currencies. foreign exchange market is a place where foreign moneys are bought and sold. Expoter sell the foreign currencies and importers buy them. The foreign exchange market assists international trade and investments by enabling currency conversion. For example, it permits a business in the United States to import goods from the European Union member states, especially Eurozone members, and pay euros, even though its income is inUnited States dollars. It also supports direct speculation and evaluation relative to the value of currencies, and the carry trade, speculation based on the interest rate differential between two currencies.
The foreign exchange market is unique because of the following
characteristics: its huge trading volume representing the largest asset class in the world leading to high liquidity; its geographical dispersion; its continuous operation: 24 hours a day except weekends, i.e., trading from 22:00 GMT on Sunday (Sydney) until 22:00 GMT Friday (New York); the variety of factors that affect exchange rates; the low margins of relative profit compared with other markets of fixed income; and the use of leverage to enhance profit and loss margins and with respect to account size.
LOWER TRADING COSTS:- The lower trading costs in the forex
market has made it possible for even small, individual investors to make decent profits from forex trading. With lower costs, the possible losses are also much lower. EXCELLENT TRANSPARENCY:- Transparency means the free access to trading information. Forex trading is a transparent process because the trader has full access to market data and information that are necessary to perform successful transactions. The excellent transparency of the forex market means that forex traders have more control over their investments and can decide what to do based on the information available. In a typical foreign exchange transaction, a party purchases some quantity of one currency by paying for some quantity of another currency.
SUPERIOR LIQUIDITY:- In a forex market, traders are free to
buy and sell currencies of their own choosing. STRONG MARKET TRENDS:- Forex traders make money by getting accurate market data and then analyzing the direction the market takes. Electronic Market:- Fx Market doesnt have a physical place. Geographical Dispersal:- A redeeming feature of the foreign exchange market is that it is not to be found in one place. Market is vastly dispersed of the world such as London, New York, Paris, Zurich, Amesterdam, Tokyo, Hong Kong, Toronto Frankfurt, Milan and other cities. Transfer of Purchasing Power:- Fx market aims at permitting the transfer of purchasing powerdominating in one currency to another. For example:-An indian exporter sells software to a U.S, firm for dollars and a U.S. firm sells super computers to an indian company for rupees.
Intermediary:- The market acts as an intermediary between the
buyers and sellersof foreign exchange. Volume:- A special feature of foreign excahnge market is that arround 95% takes form of cross-border purchase and sell of assets,i.e international capital flows. Only arround 5% relates to the export and import activities. Minimising Risks:- Fx market helps the importer and exporter in the foreign trade to minimizes their risk of trade
Spot Market Forward Market
Spot Market:- In which sale & purchase transactions are settled
within 2 days of the deal. Forward Market:- deal for sale & purchase of foreign currency at some future date,normally after 90 days of the deal.
Retail Market Wholesale Market
Banks and money
changers(currencies, bank notes, cheques)
Inter-bank(bank accounts or deposits) :- Direct & indirect Central bank
Fundamental change in the international monetary system from the
fixed exchange rates. Major financial deregulations A fundamental change in savings and investments. Major changes in international trade. Technological advances New thinking in terms of both theories and practices of finance.