2. INTERNATIONAL FINANCIAL
MARKETS-MEANING
• THEY BRING TOGETHER PEOPLE WHO HAVE
SURPLUS OF FUNDS AND PEOPLE WHO ARE
IN NEED OF FUNDS AND ARE LOOKING
FORWARD TO BORROW THEM. THE
COVERAGE OF THESE MARKETS IS THE
ENTIRE GLOBE.
3. TYPES OF FINANCIAL MARKETS
• PHYSICAL Vs FINANCIAL ASSETS MARKETS
• SPOT Vs FUTURE MARKET
• MONEY MARKET Vs CAPITAL MARKET
• PRIMARY Vs SECONDARY MARKET
• PRIVATE Vs PUBLIC MARKETS
4. FINANCIAL INSTITUTONS
• INVESTMENT BANKING HOUSES
• HELP CORPORATIONS DESIGN SECURITIES WITH
FEATURES THAT ARE CURRENTLY ATTRACTIVE TO
INVESTORS,
• THEN BUY THESE SECURITIES FROM THE
CORPORATION, AND
• RESELL THEM TO SAVERS
• INVESTMENT BANKER ACTING AS A FACILITATOR TO
HELP TRANSFER CAPITAL FROM SAVERS TO
BUSINESSES.
• EXAMPLES :MERRILL LYNCH, MORGAN STANLEY,
GOLDMAN SACHS, OR CREDIT SUISSE GROUP,
KARVY CONSULTANTS ETC.
5. FINANCIAL INSTITUTIONS
• COMMERCIAL BANKS
• THEY SERVE A VARIETY OF SAVERS AND
BORROWERS.
• THEY ARE THE ORGANISATIONS THROUGH
WHICH CENTRAL BANKS EXPAND OR
CONTROL SUPPLY OF MONEY IN THE
ECONOMY
6. FINANCIAL SERVICES CORPORATIONS
• THEY ARE THE LARGE CONGLOMERATES THAT
COMBINE MANY DIFFERENT FINANCIAL
INSTITUTIONS WITHIN A SINGLE
CORPORATION.
• EXAMPLES OF FINANCIAL SERVICES
CORPORATIONS, MOST OF WHICH STARTED
IN ONE AREA BUT HAVE NOW DIVERSIFIED
TO COVER MOST OF THE FINANCIAL
SPECTRUM,
• EXAMPLES : CITIGROUP, AMERICAN EXPRESS,
FIDELITY, AND PRUDENTIAL, ICICI, IDBI, IFCI
ETC.
7. PENSION FUNDS
• THEY ARE RETIREMENT PLANS FUNDED BY
CORPORATIONS OR GOVERNMENT AGENCIES
FOR THEIR WORKERS AND
• ADMINISTERED PRIMARILY BY THE TRUST
DEPARTMENTS OF COMMERCIAL BANKS OR
BY LIFE INSURANCE COMPANIES.
• PENSION FUNDS INVEST PRIMARILY IN
BONDS, STOCKS, MORTGAGES, AND REAL
ESTATE.
8. MUTUAL FUNDS
• THEY ARE CORPORATIONS THAT ACCEPT MONEY FROM
SAVERS AND THEN USE THESE FUNDS TO BUY STOCKS,
LONG-TERM BONDS, OR SHORT-TERM DEBT
INSTRUMENTS ISSUED BY BUSINESSES OR GOVERNMENT
UNITS.
• THESE ORGANIZATIONS POOL FUNDS AND THUS REDUCE
RISKS BY DIVERSIFICATION. THEY ALSO ACHIEVE
ECONOMIES OF SCALE IN ANALYZING SECURITIES,
MANAGING PORTFOLIOS, AND BUYING AND SELLING
SECURITIES.
• DIFFERENT FUNDS ARE DESIGNED TO MEET THE
OBJECTIVES OF DIFFERENT TYPES OF SAVERS. HENCE,
THERE ARE BOND FUNDS FOR THOSE WHO DESIRE
SAFETY, STOCK FUNDS FOR SAVERS WHO ARE WILLING TO
ACCEPT SIGNIFICANT RISKS IN THE HOPE OF HIGHER
RETURNS, AND STILL OTHER FUNDS THAT ARE USED AS
INTEREST-BEARING CHECKING ACCOUNTS.
9. HEDGE FUNDS
• HEDGE FUNDS ARE SIMILAR TO MUTUAL FUNDS
BECAUSE THEY ACCEPT MONEY FROM SAVERS AND
USE THE FUNDS TO BUY VARIOUS SECURITIES, BUT
THERE ARE SOME IMPORTANT DIFFERENCES. WHILE
MUTUAL FUNDS ARE REGISTERED AND REGULATED BY
THE SECURITIES AND EXCHANGE COMMISSION (SEC),
HEDGE FUNDS ARE LARGELY UNREGULATED. THIS
DIFFERENCE IN REGULATION STEMS FROM THE FACT
THAT MUTUAL FUNDS TYPICALLY TARGET SMALL
INVESTORS, WHEREAS HEDGE FUNDS TYPICALLY HAVE
LARGE MINIMUM INVESTMENTS (OFTEN EXCEEDING
$1 MILLION) THAT ARE EFFECTIVELY MARKETED TO
INSTITUTIONS AND INDIVIDUALS WITH HIGH NET
WORTHS.
10. STOCK MARKETS
• STOCK MARKETS ALSO SERVES AS A MEDIUM
FOR RAISING MONEY AT THE INTERNATIONAL
LEVEL.
11. MODES FOR TRANSFER OF FUNDS
• DIRECT TRANSFERS OF MONEY AND
SECURITIES OCCUR WHEN A BUSINESS SELLS
ITS STOCKS OR BONDS DIRECTLY TO SAVERS,
WITHOUT GOING THROUGH ANY TYPE OF
FINANCIAL INSTITUTION. THE BUSINESS
DELIVERS ITS SECURITIES TO SAVERS, WHO IN
TURN GIVE THE FIRM THE MONEY IT NEEDS.
12. THROUGH MIDDLEMAN
• TRANSFERS MAY ALSO GO THROUGH AN
INVESTMENT BANKING HOUSE SUCH AS MERRILL
LYNCH, WHICH UNDERWRITES THE ISSUE. AN
UNDERWRITER SERVES AS A MIDDLEMAN AND
FACILITATES THE ISSUANCE OF SECURITIES. THE
COMPANY SELLS ITS STOCKS OR BONDS TO THE
INVESTMENT BANK, WHICH IN TURN SELLS THESE
SAME SECURITIES TO SAVERS. THE BUSINESSES’
SECURITIES AND THE SAVERS’ MONEY MERELY “PASS
THROUGH” THE INVESTMENT BANKING HOUSE.
HOWEVER, THE INVESTMENT BANK DOES BUY AND
HOLD THE SECURITIES FOR A PERIOD OF TIME, SO IT
IS TAKING A RISK—IT MAY NOT BE ABLE TO RESELL
THEM TO SAVERS FOR AS MUCH AS IT PAID.
13. THROUGH A FINANCIAL INTERMEDIARY SUCH AS A
BANK OR MUTUAL FUND
• HERE THE INTERMEDIARY OBTAINS FUNDS FROM
SAVERS IN EXCHANGE FOR ITS OWN SECURITIES.
THE INTERMEDIARY USES THIS MONEY TO BUY AND
HOLD BUSINESSES’ SECURITIES. FOR EXAMPLE, A
SAVER MIGHT DEPOSIT DOLLARS IN A BANK,
RECEIVING FROM IT A CERTIFICATE OF DEPOSIT,
AND THEN THE BANK MIGHT LEND THE MONEY TO
A SMALL BUSINESS AS A MORTGAGE LOAN. THUS,
INTERMEDIARIES LITERALLY CREATE NEW FORMS
OF CAPITAL—IN THIS CASE, CERTIFICATES OF
DEPOSIT, WHICH ARE BOTH SAFER AND MORE
LIQUID THAN MORTGAGES AND THUS ARE BETTER
FOR MOST SAVERS OR INVESTORS.
14. INTERNATIONAL CASH SETTLEMENT
AND PROCESSING
• CLEARING HOUSE INTERBANK PAYMENTS
SYSTEM(CHIPS)
• SOCIETY FOR WORLDWIDE INTERBANK
FINANCIAL TELECOMMUNICATIONS(SWIFT)
15. CLEARING HOUSE INTERBANK
PAYMENTS SYSTEM(CHIPS)
• OPERATED BY NEW YORK CLEARING HOUSE
ASSOCIATION
• COMPUTERISED NETWORK THAT CONNECTS
MAJOR BANKS GLOBALLY
• TRANSFERS MORE THAN 1 TRILLION
DOLLARS A DAY
16. SOCIETY FOR WORLDWIDE INTERBANK
FINANCIAL TELECOMMUNICATIONS(SWIFT)
• ESTABLISHED IN 1971 BY MORE THAN 240 OF
THE LARGEST EUROPEAN AND NORTH
AMERICAN BANKS AS A PRIVATE
TELECOMMUNICATIONS NETWORK.
• IT PROVIDE USER BANKS WITH PRIVATE
INTERNATIONAL COMMUNICATION LINK
• CHIPS ACTUALLY CLEARS FINANCIAL
TRANSACTIONS, SWIFT IS PURELY A
TELECOMMUNICATION SYSTEM
