What are International Capital Markets?


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International Capital Markets have come into existence to cater to the need of international financing by economies in the form of short, medium or long-term securities or credits. These markets also called Euro markets, are the markets on which Euro currencies, Euro bonds, Euro shares and Euro bills are traded/exchanged. Over the years, there has been a phenomenal growth both in volume and types of financial instruments transacted in these markets. Euro currency deposits are the deposits made in a bank, situated outside the territory of the origin of currency. For example, Euro dollar is a deposit made in US dollars in a bank located outside the USA; likewise, Euro banks are the banks in which Euro currencies are deposited. They have term deposits in Euro currencies and offer credits in a currency other than that of the country in which they are located.

 

A distinctive feature of the financial strategy of multinational companies is the wide range of external services of funds that they use on an ongoing basis. British Telecommunication offers stock in London, New York and Tokyo, while Swiss Bank Corporation-, aided by Italian, Belgian, Canadian and German banks- helps corporations sell Swiss franc bonds in Europe and then swap the proceeds back into US dollars.

 

Firms have three general sources of funds available: (i) internally generatedcash, (ii) short-term external funds, and (iii) long-term external funds. External investment comes in the form of debt or equity, which are generally negotiable (tradable) instruments. The pattern of financing varies from country to country. Companies in the UK get an average of 60-70% of their funds from internal sources. German companies get about 40-50% of their funds from external suppliers. In 1975, Japanese companies got more than 70% of their money from outside sources, but this pattern has since reversed; major chunks of finances come from internal sources.

 

Another significant aspect of financing behaviour is that debt accounts for the overwhelming share of external finance. Industry sources of external finance also differ widely from country to country. German and Japanese companies have relied heavily on bank borrowing, while the US and British industry raised much more money directly from financial markets by the sale of securities. However, in all countries, bank borrowing is on a decline. There is a growing tendency for corporate borrowing to take the form of negotiable securities issued in the public capital markets rather than in the form of commercial bank loans. This process known as securitisation is most pronounced among the Japanese companies.

 


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