INTRODUCTION

INTRODUCTION

Capital markets are markets where people,companies, and governments with more funds than they need (because they save some of their income) transfer those funds to people, companies, or governments who have a shortage of funds (because they spend more than their income). Stock and bond markets are two major capital markets. Capital markets promote economic efficiency by channeling money from those who do not have an immediate productive use for it to those who do.

Internationalization of Capital Markets in the Late 1990s.

One of the most important developments since the 1970s has been the internationalization, and now globalization, of capital markets.

Basically, the international capital market includes any transaction with an international dimension. It is not really a single market but a number of closely integrated markets that include some type of international component. The foreign exchange market was a very important part of the international capital market during the late 1990s. Internationally traded stocks and bonds have also been part of the international capital market. Since the late 1990s, sophisticated communications systems have allowed people all over the world to conduct business from wherever they are.

Commercial banks use the foreign exchange market to meet the needs of their corporate customers, multinational corporations use the market to hedge against risks, and central banks enter into the market to manage the value of currencies.

A major benefit of the internationalization of capital markets is the diversification of risk. Individual investors, major corporations, and individual countries all usually try to diversify the risks of their financial portfolios. The reason is that people are generally risk-averse. They would rather get returns on investments that are in a relatively narrow band than investments that have wild fluctuations year-to-year.

Global Capital Markets

Many observers say we entered an era of global capital markets in the 1990s. The process was attributable to the existence of offshore markets, which came into existence decades prior because corporations and investors wanted to escape domestic regulation. The existence of offshore markets in turn forced countries to liberalize their domestic markets (for competitive reasons). This dynamic created greater internationalization of the capital markets. Up until the 1990s, capital markets in the United States were larger and more developed than markets in the rest of the world. During the 1980s and 1990s, however, the relative strength of the U.S. market decreased considerably as the world markets began to grow at phenomenal rates. Three primary reasons account for this phenomenon.

First, citizens around the world (and especially the Japanese) began to increase their personal savings. Second, many governments further deregulated their capital markets since 1980. This allowed domestic companies more opportunities abroad, and foreign companies had the opportunity to invest in the deregulated countries. Finally, technological advances made it easier to access global markets. Information could be retrieved quicker, easier, and cheaper than ever before. This allowed investors in one country to obtain more detailed information about investments in other countries, and obtain it quite efficiently. So, in the late 1990s we witnessed the globalization of markets - i.e., the increased integration of domestic markets into a global economy. This differed from the process of internationalization, which connected less integrated domestic markets of the past with offshore markets.

The global capital markets became critical to development in an open economy. Developing countries, like all countries, must encourage productive investments to promote economic growth. Domestic savings could be used to make productive investments. Typically, developing countries have suffered from low domestic savings rates.Due to global capital, however, developing countries added to domestic savings by borrowing savings from abroad.

The major world financial centers include Hong Kong, Singapore, Tokyo, London, New York, and Paris, among others.

The London Stock Exchange is at the heart of global financial markets and is home to some of the best companies in the world.The London Stock Exchange is one of the world’s oldest stock exchanges and leading stock exchange.

The London stock exchange also came up with SEDOL Master File™ .SEDOL Master file™ is the comprehensive reference data solution that allows unique, market-level, identification on the instruments you trade – on a global basis. It helps minimize errors in post-trade processing – lowering costs and increasing your firm’s effectiveness. These are a few methods adopted by the national and international markets.