The international financial markets have changed over the years. Laws and regulations involving these markets are adjusted from time to time. Meetings conducted in the early 1980s between powerful forces resulted in a major flowage of funds around the globe. This led to the desegregation of financial markets and increased the complexity of transactions. The mechanisms of transactions also have been altered progressively, from banks to non-banks financial exchange such as pension funds, brokerage houses, insurance companies, and security firms. Loans have also been altered to securities.
The extraordinary fluctuation of the world markets has developed consequences for acquiring information and public policy. As a result of policies, world fund transfer growth on other republic affecting the domestic market. This has made the need for information and how the global financial market is growing, however due to the changes in the international financial market.
1.1 Types of international financial institutions and financial markets
Types of international financial institutions include internet banks, savings, and loans associations, brokerage firms, investment banks and companies, mortgage companies, insurance companies, retail and commercial banks, and central banks.
Central banks oversee and manage the rest of the banks, they are in charge of laws and regulations making regarding the country’s funds. They do not have individual customers rather big institutional financial institutions deal with them to provide services to the public. An example is the European Central Bank.
Internet banks are similar to normal banks but offer their services online instead of buildings and or permanent locations. Savings and loan associations are financial institutions that are commonly owned and loan 20% and less to businesses. An example is Mountaintop Savings Bank.
Brokerage firms are institutions that help in the trading of securities such as stocks, mutual funds, and bonds among investors. An example is the fidelity investments. Mortgage companies are firms that fund mortgage loans. An example is the luxury mortgage.
An insurance company facilitates consumer transfer risk. Types of insurances that are offered are death, accidents, property damage among others. An example of an insurance company is the Allstate insurance company. Retail offers services to individuals while commercial banks do the same to businesses. An example is the gulf international bank.
1.2 Foreign currency market functions in international financial markets
The foreign exchange market is where the exchange rate of currencies fixed on. The customers trade with the currencies.
They include investors, banks, foreign exchange retailers, investment banks, and commercial companies.
The market has two major functions in the international financial markets that include putting currency prices comparing to other countries’ currencies. The other function is to facilitate the trading of funds between countries hence aiding in liquidity in case one has or does not have.
1.3 Global financial system promoting the economic growth of a country
My country of choice would be Togo, a third-world country found in the west of Africa. Togo has been helped by the International Monetary Fund since its request in 1979. Togo had two programs, the Paris club debt, and World Bank loans at the time. In order for the IMF to help the country, it had to restructure major goals for the country’s business and rural development which removed monopolies, privatized the state businesses, and simplified taxes. This greatly improved their economy.
Togo became better also due to the international financial institutions’ programs.
1.4 MNC usage of global markets to raise capital
MNC is the abbreviation of multinational corporations. They are an organization that has dominance in one or more countries other than itself. The MNC uses the global market to raise capital through two different ways that are equity and debt financing.
1.4.1 Equity Financing
This is whereby companies trade their shares so to acquire funds. It may be due to wanting to invest or clearing of bills. Companies can trade shares outside their own country. The majority repeated ways of acquiring equity is cross-listing on a domestic exchange in other countries. Global equity matters more for multinational corporations than local ones. Foreign proprietorship of corporation grows with foreign sales.
1.4.2 Debt financing
Debt financing is the process where a corporation raises funds by trading to investors, debt instruments. The significant types of debt financing are publicly traded bonds and bank debt. 20 % of the funds raised in a company are commonly from bonds traded from outside the country. Loans are elements of funds from a number of countries due to the majority of big bank loans originate from various countries are managed by multiple banks. Debt financing’s advantage to equity financing is that the corporation still maintains its sole proprietorship.
1.4.3 International financial institutions helping the Foreign Direct Investors to establish MNCs
Financial Direct Investing is when a company or an individual makes an investment in other enterprises in another country. It goes through when an investor gets assets in a foreign firm. Financial institutions may facilitate the FDI in becoming MNC’s by making it conducive for FDIs in pursuing their business. For example, the central bank could establish laws and regulations of a smooth transition from FDIs to MNCs. Banks issuing loans to FDIs may also ensure smooth flowing of FDIs transitioning to the MNCs.
1.5 Finance mechanism outside the banking system
The global financing system promotes trade through financing mechanisms outside the banking system, like trade credit, hedge funds, etc. In order to understand this matter, we look into (Tsai., 2009) and how he explains how China survived with shadow banking. This will help us to have an overall understanding of how this mechanism works on a global stage.
The most productive part of the Chinese population does not have access to formal credit. Over 30 million enterprises owned by the private sector have come up in China over the last two decades, however out of these they only 1.3% had attained loans from the banks.
So how were these businesses financed through the non-banking system? Most of China’s private businesses depend on informal financing. Informal financing involving interest-free loans from relatives and friends to a well-organized financial mechanism that go around banking in innovative ways. This is one way those global financial systems promote trade through non-banking finance systems.
A definite level of leakage has happened to the private sector from the national banks.
The international financial systems are changing every day the question is are people ready to change with, to conform, to adapt, and embrace the new global financial error. Having the knowledge of how the financial system works both locally and internationally may improve this. Rules and regulations also need to change how the global financial system operations so as to ease the way in which people conduct their business.
Tsai, K. S. (2009). Beyond banks: the local logic of informal finance and private sector development in China. Informal finance in China: American and Chinese perspectives, 80-103.