Internationalization of Financial Markets

Internationalization of Financial Markets

Companies established in one country may raise their funds by selling their securities in the financial markets of another country. For example, a Japanese company may raise funds by selling its securities in American financial markets and an American company may raise funds by selling its securities in the European markets. Thus, the internationalization of financial markets is raising funds by selling securities outside the jurisdiction of a single country. The securities issued by the same company are traded in multiple markets located in different countries.

For example, shares of Samsung Electronics are traded on many stock exchanges. Internationalization of markets is increasing due to the financial liberalization and development of communication and information technology. We discuss the conceptual aspects of international bond markets, Eurobond markets, Eurocurrency markets, and international stock markets.

International bond markets

Bonds are the traditional instrument used to raise funds from domestic financial markets as well as international markets. We need to understand the concept of foreign bonds to understand the concept of international bond markets. Foreign bonds are those bonds issued in the financial markets of another country denominated in the currency where they are issued. For example, if Samsung Electronics (a Korean company) issues its bonds denominated in the British pound in London markets, then such bonds are foreign bonds. Foreign bonds are issued in foreign markets to raise the funds and they are denominated in the foreign currency where they are issued. We call foreign bond markets as the international bond markets where foreign bonds are traded.

Eurobond markets

Eurobond is a relatively new innovation in the international markets. We discussed in the foregoing paragraph that foreign bonds are denominated in the currency of the country where bonds are traded. But Euro bonds are denominated in a currency other than that of the country where they are sold. For example, Samsung Electronics may issue its bonds denominated in Korean currency Won (KRW) and sell them in London markets. We call these bonds a Eurobond. Thus, Eurobonds are bonds denominated in a currency other than the currency of the country where they are sold. Eurobond markets are the markets where Eurobonds are traded.

Eurocurrency markets

Eurocurrency is the variant of Eurobonds. It is the deposit in a bank outside the home country. For example, if you deposit Rs 100,000 in the Bank of Japan, then it is Eurocurrency. Eurocurrency is named by the currency name. We call the U.S. dollar deposited in a foreign bank outside the U.S. eurodollar. Similarly, we call Japanese yen deposited in a foreign bank outside Japan Euroyen. Eurocurrency is traded in the international markets and Eurocurrency markets are the markets for Eurocurrency. Major Eurocurrency markets are Eurodollar markets, Euroyen markets, and Europound markets.

World stock markets

The world stock markets are increasing and the U.S. stock market is losing its dominancy in the world stock markets. New York Stock Exchange, NASDAQ, Tokyo Stock Exchange, Shanghai Stock Exchange, Hong Kong Stock Exchange, London Stock Exchange, and Shenzhen Stock Exchange are among the top ten world stock exchanges. Among the top ten stock markets of the world, the Tokyo Stock Exchange, Shanghai Stock Exchange, Hong Kong Stock Exchange, and Shenzhen Stock Exchange are the Asian markets.