International Capital Markets

International Capital Markets

International Capital Markets

A capital market is a market in which corporations trade long-term security bonds. “Companies search the international markets for opportunities to raise debt capital at the lowest cost. Many corporations list their common stock the world over to increase liquidity for their stockholders.” (Block-Hirt, 2004) One of the most important developments since the 1970s has been the internationalization and globalization of capital markets. (University of Iowa) With the advent of globalization, capital markets are more diverse and corporations worldwide have taken advantage of the opportunity to raise capital internationally.

Block-Hirt notes that international capital markets have increased in importance during the last decade, and continue to become larger, more efficient, and more competitive in the new millennium. (2004) “A major benefit of the internationalization of capital markets is the diversification of risk. Individual investors, major corporations, and individual countries try to diversify the risks of their financial portfolios.” (UOI) There are many advantages to investing on the international market, but not all countries are reaping the benefits.

Developing countries do not always have the capital needed to take full advantage of the international investment market. The capital sources on international markets offer developing countries opportunities for financing, but these opportunities do not come without risks. “Recent crises in Asia and Latin America have shown that developing countries remain vulnerable to sudden changes in the international financial system. Discussions on how to reduce risks in dealing with international capital markets and on how to improve access to capital for developing countries focus on the reform of the international financial architecture.” (EU-LDC Network)

Supply of Capital Funds

Capital funds are any money invested in businesses to keep those businesses operational. “In a three-sector economy consisting of business, government, and households, the major supplier of funds for investment is the household sector.” (Block-Hirt, 2004) More specifically, individual wager earners who save money from their paychecks are the largest contributors to the supply of capital funds. Their savings are generally “funneled to financial intermediaries”