International Financial Market

INTERNATIONAL FINANCIAL MARKET
CHAPTER NO 1.
Introduction
1.1 Objectives
The project was basically taken in accordance to my interest attached to the topic. the
following objective below show the reasons for choosing the topic:
Covering different aspects of international financial market.

Identifying keys for effective international financial market.
To understand the research of international financial market.
1.2 Scope of data

The scope of making this project is to know more about the research of international
financial market.
1.3 Research methodology

Research methodology which has been used in making this project is secondary data.
Secondary data are those which has been collected by someone else and which already have Been
passed through statistical process.
Secondary data has been taken from internet, newspaper, business magazines and companies
websites.
CHAPTER NO 2.
2.1 introduction

A financial market is a market in which people trade financial securities, commodities, and
other fungible items of value at low transaction costs and at prices that reflect supply and
demand. Securities include stocks and bonds, and commodities include precious metals or
agricultural products.
In economics, typically, the term market means the aggregate of possible buyers and sellers of a
certain good or service and the transactions between them.
The term "market" is sometimes used for what are more strictly exchanges, organizations that
facilitate the trade in financial securities, e.g., a stock exchange or commodity exchange. This
may be a physical location (like the NYSE, BSE, NSE) or an electronic system (like NASDAQ).
Much trading of stocks takes place on an exchange; still, corporate actions (merger, spinoff) are
outside an exchange, while any two companies or people, for whatever reason, may agree to sell
stock from the one to the other without using an exchange.
Trading of currencies and bonds is largely on a bilateral basis, although some bonds trade on a
stock exchange, and people are building electronic systems for these as well, similar to stock
exchanges.
2.2 meaning
The international financial market is the worldwide marketplace in which buyers and sellers
trade financial assets, such as stocks, bonds, currencies, commodities and derivatives, across
national borders.
CHAPTER NO 3.
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3.1 Types
Within the financial sector, the term "financial markets" is often used to refer just to the
markets that are used to raise finance: for long term finance, the Capital markets; for short term
finance, the Money markets. Another common use of the term is as a catchall for all the markets
in the financial sector, as per examples in the breakdown below.
Capital markets which consist of:

Capital markets are markets for buying and selling equity and debt instruments. Capital
markets channel savings and investment between suppliers of capital such as retail
investors and institutional investors, and users of capital like businesses, government and
individuals. Capital markets are vital to the functioning of an economy, since capital is a
critical component for generating economic output. Capital markets include primary markets,
where new stock and bond issues are sold to investors, and secondary markets, which trade
existing securities.
Stock markets, which provide financing through the issuance of shares or common stock,
and enable the subsequent trading thereof.
Bond markets, which provide financing through the issuance of bonds, and enable the
subsequent trading thereof.
Commodity markets, A physical or virtual marketplace for buying, selling and trading
raw or primary products. For investors' purposes there are currently about 50 major
commodity markets worldwide that facilitate investment trade in nearly 100 primary
commodities.
Commodities are split into two types: hard and soft commodities. Hard commodities are
typically natural resources that must be mined or extracted (gold, rubber, oil, etc.),
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whereas soft commodities are agricultural products or livestock (corn, wheat, coffee,
sugar, soybeans, pork, etc.)
Money markets, A money market is a segment of the financial market in which financial
instruments with high liquidity and very short maturities are traded. The money market is
used by participants as a means for borrowing and lending in the short term, from several
days to just under a year. Money market securities consist of negotiable certificates of
deposit (CDs), bankers acceptances, U.S. Treasury bills, commercial paper, municipal
notes, federal funds and repurchase agreements (repos).
Derivatives markets, A derivative is a security with a price that is dependent upon or

derived from one or more underlying assets. The derivative itself is a contract between
two or more parties based upon the asset or assets. Its value is determined by fluctuations
in
the
underlying
asset.
The
most
common
underlying
assets
include stocks, bonds, commodities, currencies, interest rates and market indexes.
Derivatives either be traded over-the-counter (OTC) or on an exchange. OTC derivatives
constitute the greater proportion of derivatives in existence and are unregulated, whereas
derivatives traded on exchanges are standardized. OTC derivatives generally have
greater risk for the counterparty than do standardized derivatives.
Futures markets, A futures market is an auction market in which participants buy and
sell commodity and futures contracts for delivery on a specified future date. Examples of
futures markets are the New York Mercantile Exchange, the Kansas City Board of
Trade, the Chicago Mercantile Exchange, the Chicago Board of Options Exchange and
the Minneapolis Grain Exchange. Originally, trading was carried on through open yelling
and hand signals in a trading pit, though in the 21st century, like most other markets,
futures exchanges are mostly electronic.
Insurance markets, Insurance is a means of protection from financial loss. It is a form

of risk management primarily used to hedge against the risk of a contingent, uncertain
loss.
An entity which provides insurance is known as an insurer, insurance company, or
insurance carrier. A person or entity who buys insurance is known as an insured or policyholder.
The insurance transaction involves the insured assuming a guaranteed and known relatively
small loss in the form of payment to the insurer in exchange for the insurer's promise to
compensate the insured in the event of a covered loss. The loss may or may not be financial, but
it must be reducible to financial terms, and must involve something in which the insured has
aninsurable interest established by ownership, possession, or preexisting relationship. The
insured receives a contract, called the insurance policy, which details the conditions and
circumstances under which the insured will be financially compensated. The amount of money
charged by the insurer to the insured for the coverage set forth in the insurance policy is called
the premium. If the insured experiences a loss which is potentially covered by the insurance
policy, the insured submits a claim to the insurer for processing by a claims adjuster.
The capital markets may also be divided into primary markets and secondary markets. Newly
formed (issued) securities are bought or sold in primary markets, such as duringinitial public
offerings. Secondary markets allow investors to buy and sell existing securities. The transactions
in primary markets exist between issuers and investors, while secondary market transactions
exist among investors.
Liquidity is a crucial aspect of securities that are traded in secondary markets. Liquidity refers to
the ease with which a security can be sold without a loss of value. Securities with an active
secondary market mean that there are many buyers and sellers at a given point in time. Investors
benefit from liquid securities because they can sell their assets whenever they want; an illiquid
security may force the seller to get rid of their asset at a large discount.
3.2 Role
A financial market is a broad term describing any marketplace where buyers and sellers
participate in the trade of assets such as equities, bonds, currencies and derivatives. Financial
markets are typically defined by having transparent pricing, basic regulations on trading, costs
and fees, and market forces determining the prices of securities that trade.
Financial markets can be found in nearly every nation in the world. Some are very small, with
only a few participants, while others - like the New York Stock Exchange (NYSE) and the forex
markets - trade trillions of dollars daily.
Investors have access to a large number of financial markets and exchanges representing a vast
array of financial products. Some of these markets have always been open to private investors;
others remained the exclusive domain of major international banks and financial professionals
until the very end of the twentieth century.
Capital Markets:
A capital market is one in which individuals and institutions trade financial securities.
Organizations and institutions in the public and private sectors also often sell securities on the
capital markets in order to raise funds. Thus, this type of market is composed of both the primary
and secondary markets.
Any government or corporation requires capital (funds) to finance its operations and to engage in
its own long-term investments. To do this, a company raises money through the sale of securities
- stocks and bonds in the company's name. These are bought and sold in the capital markets.
Stock Markets
Stock markets allow investors to buy and sell shares in publicly traded companies. They
are one of the most vital areas of a market economy as they provide companies with access to
capital and investors with a slice of ownership in the company and the potential of gains based
on the company's future performance.
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This market can be split into two main sections: the primary market and the secondary market.
The primary market is where new issues are first offered, with any subsequent trading going on
in the secondary market.
Bond Markets
A bond is a debt investment in which an investor loans money to an entity (corporate or
governmental), which borrows the funds for a defined period of time at a fixed interest rate.
Bonds are used by companies, municipalities, states and U.S. and foreign governments to finance
a variety of projects and activities. Bonds can be bought and sold by investors on credit markets
around the world. This market is alternatively referred to as the debt, credit or fixed-income
market. It is much larger in nominal terms that the world's stock markets. The main categories of
bonds are corporate bonds, municipal bonds, and U.S. Treasury bonds, notes and bills, which are
collectively referred to as simply "Treasuries."
Money Market:
The money market is a segment of the financial market in which financial instruments with high
liquidity and very short maturities are traded. The money market is used by participants as a
means for borrowing and lending in the short term, from several days to just under a year. Money
market securities consist of negotiable certificates of deposit(CDs), banker's acceptances, U.S.
Treasury bills, commercial paper, municipal notes, eurodollars, federal funds and repurchase
agreements (repos). Money market investments are also called cash investments because of their
short maturities.
The money market is used by a wide array of participants, from a company raising money by
selling commercial paper into the market to an investor purchasing CDs as a safe place to park
money in the short term. The money market is typically seen as a safe place to put money due the
highly liquid nature of the securities and short maturities.Because they are extremely
conservative, money market securities offer significantly lower returns than most other
securities. However, there are risks in the money market that any investor needs to be aware of,
including the risk of default on securities such as commercial paper.

Cash or Spot Market:
Investing in the cash or "spot" market is highly sophisticated, with opportunities for both big
losses and big gains. In the cash market, goods are sold for cash and are delivered immediately.
By the same token, contracts bought and sold on the spot market are immediately effective.
Prices are settled in cash "on the spot" at current market prices. This is notably different from
other markets, in which trades are determined at forward prices.
The cash market is complex and delicate, and generally not suitable for inexperienced traders.
The cash markets tend to be dominated by so-called institutional market players such as hedge
funds, limited partnerships and corporate investors. The very nature of the products traded
requires access to far-reaching, detailed information and a high level of macroeconomic analysis
and trading skills.
Derivatives Markets
The derivative is named so for a reason: its value is derived from its underlying asset or assets. A
derivative is a contract, but in this case the contract price is determined by the market price of the
core asset. If that sounds complicated, it's because it is. The derivatives market adds yet another
layer of complexity and is therefore not ideal for inexperienced traders looking to speculate.
However, it can be used quite effectively as part of a risk management program.
Examples
of
common
derivatives
are forwards, futures, options, swaps and contracts-for-
difference (CFDs). Not only are these instruments complex but so too are the strategies deployed
by this market's participants. There are also many derivatives, structured products and
collateralized obligations available, mainly in the over-the-counter (non-exchange) market, that
professional investors, institutions and hedge fund managers use to varying degrees but that play
an insignificant role in private investing.
Forex and the Interbank Market
The interbank market is the financial system and trading of currencies among banks and financial
institutions, excluding retail investors and smaller trading parties. While some interbank trading
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is performed by banks on behalf of large customers, most interbank trading takes place from the
banks' own accounts.
The forex market is where currencies are traded. The forex market is the largest, most liquid
market in the world with an average traded value that exceeds $1.9 trillion per day and includes
all of the currencies in the world. The forex is the largest market in the world in terms of the total
cash value traded, and any person, firm or country may participate in this market.
There is no central marketplace for currency exchange; trade is conducted over the counter. The
forex market is open 24 hours a day, five days a week and currencies are traded worldwide
among the major financial centers of London, New York, Tokyo, Zrich, Frankfurt, Hong Kong,
Singapore, Paris and Sydney.
Until recently, forex trading in the currency market had largely been the domain of large
financial institutions, corporations, central banks, hedge funds and extremely wealthy
individuals. The emergence of the internet has changed all of this, and now it is possible for
average investors to buy and sell currencies easily with the click of a mouse through online
brokerage accounts.
The OTC Market
The over-the-counter (OTC) market is a type of secondary market also referred to as a dealer
market. The term "over-the-counter" refers to stocks that are not trading on a stock exchange
such as the Nasdaq, NYSE or American Stock Exchange (AMEX). This generally means that the
stock trades either on the over-the-counter bulletin board (OTCBB) or the pink sheets. Neither of
these networks is an exchange; in fact, they describe themselves as providers of pricing
information for securities. OTCBB and pink sheet companies have far fewer regulations to
comply with than those that trade shares on a stock exchange. Most securities that trade this way
are penny stocks or are from very small companies.

Third and Fourth Markets
You might also hear the terms "third" and "fourth markets." These don't concern individual
investors because they involve significant volumes of shares to be transacted per trade. These
markets deal with transactions between broker-dealers and large institutions through over-thecounter electronic networks. The third market comprises OTC transactions between brokerdealers and large institutions. The fourth market is made up of transactions that take place
between large institutions. The main reason these third and fourth market transactions occur is to
avoid placing these orders through the main exchange, which could greatly affect the price of the
security. Because access to the third and fourth markets is limited, their activities have little
effect on the average investor.
Financial institutions and financial markets help firms raise money. They can do this by taking
out a loan from a bank and repaying it with interest, issuing bonds to borrow money from
investors that will be repaid at a fixed interest rate, or offering investors partial ownership in the
company and a claim on its residual cash flows in the form of stock.
3.3 Factors
The euro is an attractive currency for the international financial markets because of the size
of the euro-area economy, its openness to trade with the world, its commitment to prudent
economic management, and the clear mission of the European Central Bank to run a monetary
policy that ensures price stability.
These factors give international financial markets the confidence to use the euro widely,
alongside the US dollar, in a range of financial instruments:
1. Reserves and anchors:

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As a major currency, the euro is used as an "anchor currency" by some third countries to
manage their own exchange-rate regimes. In addition, the euro is increasingly held as a reserve
currency by third countries because they have confidence it will maintain its value. In 2015, the
share of the euro in global foreign exchange reserves was over 20%. In comparison, the US
dollar accounts for around 64% and the pound sterling for around 5% of global currency
reserves.
2. Foreign exchange markets:

Foreign exchange (forex) markets are those where currencies are traded for others. The
euro is the second most actively traded currency in foreign exchange markets. It is a counterpart
in around 33% of all daily transactions, globally, compared to a share of 87% for the US dollar,
23% for the Japanese yen and 13% for the pound sterling (both sides of transactions are counted
so that shares add up to 200%).
3. International debt markets:

Third countries wishing to raise large amounts of money can do this by issuing bonds that
are repaid with interest at a fixed future date. Large institutional investors, such as pension funds,
usually buy such bonds because they are seen as low-risk investments. When a country issues
bonds in a foreign currency, they are known as sovereign bonds. Large private corporations can
also issue "corporate bonds" in a foreign currency to fund their operations and investments. Such
bonds are traded on "international debt markets". In 2015, the share of euro denominated debt in
the global markets was around 40%, on par with the role of the US dollar in the international
debt market.
4. International trade:
The euro is gaining momentum as currency used for invoicing and paying in international
trade, not only between the euro area and third countries but also between third countries. It is
used as trade invoicing currency for more than 50% of all euro area imports, and for more than
65% of all euro area exports. To a much smaller extent, the euro is beginning to be used as a
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'vehicle currency' for trade between third countries, although the US dollar is still dominant in
this. As the euro area constitutes the largest trading block and one of the most open economies in
the world, the use of the euro in international trade can be expected to grow in the future.
5. The euro as a parallel currency:

Banks make loans and accept deposits across the world in various currencies which form
the international loan and deposit markets. This lending and borrowing involves countries and
corporations worldwide, for example a corporation borrowing to fund new investments in a
developing country, or a government placing oil revenues on deposit with a bank until needed.
The euro is playing an important role in these markets in several non-euro area EU Member
States from central and Eastern Europe, as well as in most EU candidate and potential candidate
countries in south-eastern Europe. The share of euro-denominated loans in total loans varies
across countries but in general remains high, in particular in countries with exchange rate
regimes, in which the euro is the reference currency, notably countries having currency board
arrangements, or pegged or tightly managed exchange rates.
The establishment of the euro area also created the second largest currency area in the
world. On international markets, the euro is the second most important international currency
after the US dollar. The size and stability of the euro-area economy and the liquidity of its
financial markets make holding and using the euro attractive to third countries as an alternative
to US dollars - helping reduce the risks of currency fluctuations and contributing to global
economic stability. The euro-area Member States also benefit, as trading in euro becomes more
widespread. Further, the importance of the euro gives the euro area a stronger voice on the
international stage.
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CHAPTER NO 4.
4.1 Trade Between International Trade And Financial market
1. Policymaking:
In most countries, policies on international trade and finance are developed in separate
silos. Countries have trade ministers and finance ministers. The trade ministers interact via the
World Trade Organization (WTO) and in a plethora of regional arrangements. The finance
ministers interact via the International Monetary Fund (IMF) and fewer regional arrangements,
most prominently in the euro area. Policies and institutions generally are not integrated. At the
international level, institutional rivalries are unresolved such as jurisdiction over investment and
capital flows. At the domestic level, similar rivalries are settled by the leaders of the respective
governments. As a generalization, either the trade minister or the finance minister wins all the
battles though, in some countries, outcomes are more difficult to predict.
For example, in China today there is a debate between the trade ministry, which is focused on
maintaining employment and the growth of employment in export industries, and the finance
ministry and central bank, which are focused on the health of the overall economy and financial
system and the economic, financial, and political consequences of continuing to add to Chinas
hoard of foreign exchange.
Occasionally, trade concerns and financial concerns come together. They were both present when
the United States closed the official gold window in 1971, in part because of the use of a tariff
surcharge in that context to exert leverage over other countries to raise the values of their
currencies. However, trade concerns dropped out of the subsequent negotiations over reform of
the international monetary and financial system though arguably the Tokyo Round of trade
negotiations was a collective policy response to pressures on the trading system exerted by the
collapse of the Bretton Woods regime of exchange rates.
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Trade concerns reemerged in the mid-1980s in the context of the super-strong US dollar, various
measures aimed at limiting exports, and a palpable sense of rising protectionism. One response
was the Plaza Agreement in September 1985 designed to appreciate other major currencies
against the dollar. Again, it can be argued that the Plaza helped to usher in the Uruguay Round of
trade negotiations that resulted in the transformation of the General Agreement on Tariffs and
Trade (GATT) into the WTO. Neither of these examples should be viewed as the finance agenda
driving the trade agenda though there may have been a bit of yin yang.
More recently one finds in the communiqus of the G-20 leaders ritualistic commitments to
complete the Doha Round of trade negotiations. Paragraph 28 of the Leaders Statement at the
Pittsburgh Summit reads, We will fight protectionism. We are committed to bringing the Doha
Round to a successful conclusion in 2010. But the result has been inaction on Doha. On
protectionism, it could have been worse, but by one count,2 the G-20 countries through February
2010 had put in place more than 250 final protectionist actions. The expected extended period of
high unemployment is likely to expand that list.
Thus, trade and finance coexist in the policy arena, and one area may be dominant over time, for
some countries, or from time to time for the system as a whole, but the two areas are not
integrated in our thinking.
2. Investment and Government Policies:
Mirroring policymaking patterns, an ambiguous separation exists between the WTO and
the IMF with respect to investment and government policies with respect to capital flows. The
GATT (now WTO) and IMF are siblings separated at birth, each with its own terms of reference.
When it comes to investment issues, and the roles of the public and private sectors in those
activities, the WTO encompasses agreements on Trade-Related Investment Measures (TRIMs)
and the General Agreement on Trade in Services (GATS). These elements focus primarily on
establishment or stock issues, not on financial transactions or flow issues. These distinctions are
often lost in the rhetoric. The WTOs involvement in this area, known as the Singapore issues, is
controversial, and they have been dropped from the Doha Round agenda.
The IMF, for its part, focuses on issues of capital flows, but its mandate in this area is also
controversial. In the late 1990s recognition of the IMFs outdated mandate, along with concerns
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about the WTO getting into the IMFs turf, led to consideration of an amendment to the IMF
Articles of Agreement to update and clarify the IMFs role in this area. That effort foundered on
the Asian financial crises and perceptions, mistaken in my view, that the crises had been
precipitated by a rush to capital account liberalization promoted by IMF policy.
In the context of the global economic and financial crisis of 200709, the issue of volatile capital
flows is once again on the agenda, including the agenda for reforming the international monetary
system. In my view, the possibility of amending the IMF Articles of Agreement as they apply to
capital flows and capital controls should be reconsidered. The process should start with a
fullfledged examination to see if there is enough common agreement. The principal rationale for
collective action is that both flows and controls generate externalities.
If there is sufficient agreement, I envisage an amendment with three components. First, the
amendment should state the long-term goal of complete freedom of capital movements among
countries, along with appropriate prudential regulations internally and globally, analogous to the
situation within countries. There should be no timetable, explicit or implicit, to achieve this goal.
In terms of the ultimate objective, I have never been convinced by the view espoused by Jagdish
Bhagwati, perhaps writing for a majority of trade economists, that (in contrast with free trade)
freed capital movements have no redeeming social value.3 Second, the amendment should guide
national policies in terms of both the rights and the responsibilities of IMF members. For
example, controls should be permitted but as much as possible they should be applied on a
nondiscriminatory, national treatment basis. Third, the amendment should describe and prescribe
the role of the IMF management, staff, and members in conducting surveillance over capital
flows and controls.
In my view, trade, investment, and financial flows are part of an integrated whole. Moreover,
governments and governance are also part of the mix. An important illustration of these
interactions is sovereign wealth funds (SWFs). These government-controlled pools of assets
normally include international assets. The SWFs raise issues of the role of governments and also
reveal tensions about the shift in economic and political influence in the global economic and
financial system from the North Atlantic to the rest of the world. I have urged the adoption of a
set of best practices for SWFs. To this end I devised an SWF scoreboard to provide a benchmark
for such a standard. The Santiago Principles (or Generally Accepted Principles and Practices of
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SWFs) are an important and impressive first step toward establishing a strong standard, but my
emphasis is on the word first.
I am far from an expert in the area of international investment policies, but I am attracted by an
international investment treaty as the ultimate goal. It should be accompanied by enforcement
mechanisms presumably lodged in the WTO. Getting to that point will not be easy. It will require
that policies and policymaking on trade and finance come together to a substantially greater
degree than we have seen in recent decades.
3. Currencies and Trade:
With respect to the interaction of currency policies with trade policies, the global
economic and financial system faces twin tensions. One tension is between those who view
exchange rates and exchange rate policies exclusively as mechanisms to control the current
account, trade positions, and impacts on real economies and those who view exchange rates and
trade and current account positions as joint outcomes of multiple policies and influences. A
second tension derives from an exclusive focus on the financial account, the financial sector, and
financial markets with respect to issues such as the composition of capital flows and the
international role of the US dollar or euro; the consequences for and the behavior of the current
account are ignored.
The trade regime and its outcomes focus largely at the microeconomic level, and the currency
regime and its outcomes focus largely at the macroeconomic level. The regimes are in separated
silos, but they overlap. For example, some have argued recently that Chinese exchange rate
policy should be brought to the WTO under Article XV (4) of the GATT, which states
Contracting parties shall not, by exchange action, frustrate the intent of the provisions of the
Agreement or as a WTO-prohibited export subsidy. I am inclined to agree with my colleague
Gary Hufbauer and his coauthors who have argued that such a case would bring the WTO onto
the IMFs turf, would be vigorously resisted by the finance ministers, and would likely fail with,
in my view, adverse consequences for the reputation and standing of both institutions.4 I disagree
with another colleague Arvind Subramanian and his coauthor who argue that trade ministers can
and should be trusted vigorously to use the authority and powers of the WTO in this area and to
take the threat from currency undervaluation more seriously.
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Who is right in this debate is not particularly relevant to our discussions here. The point is that
trade and finance (in the form of currency policies) too frequently are treated as distinct and
separated policies, for better or for worse. I would submit that the separation is for worse, but the
situation is not going to be resolved by transferring jurisdiction between international
organizations. The answer is cooperative integration, not warring separation.
The current European drama illustrates an additional dimension in the nexus of currencies and
trade. Oversimplifying somewhat, in the ongoing aftershocks from the 200709 global economic
and financial crisis, the policies of Greece and potentially several other members of the European
Union and the euro area have contributed to an abrupt and substantial weakening of the euro. If
the euros weakness on real effective terms is sustained, to say nothing of being intensified, the
likely result will be the emergence of a significant current account surplus in the euro area,
perhaps on the order of $200 billion to $300 billion, around 2 percent of euro area GDP. The
surplus is likely to be even larger if, within the euro area, other member countries do not
compensate for the shortfall in domestic demand over the next several years coming from Greece
and other members that necessarily have to tighten dramatically their fiscal policies. The result
will be to open another front in the debate about global imbalances and another challenge to
achieving the G-20 leaders September 2009 commitment in Pittsburgh to act together to
generate strong, sustainable, and balanced global growth. . . [and] a durable recovery that creates
the good jobs our people need. Moreover, euro weakness will do nothing to correct the trade
and competitiveness imbalances within the euro area.
4. Linkages:
My basic argument is that the linkages between trade and finance in the global economy
and policymaking are stronger than present academic thinking and institutional arrangements
appreciate.
One important reason for the under appreciation is the increased globalization over the past six
decades. First, the number of relevant international players has increased at the governmental
and private levels. In effect, the economic and financial systems of the North Atlantic victors in
World War II have spread around the world even as the influence of those victors has waned.
Second, barriers to trade and, even more so, capital flows have been substantially eliminated.
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The global economic and financial crisis of the past several years has demonstrated that no
country or part of the world is immune from the effects of economic and financial developments
in another country of significant size in another part of the world. Real economies and financial
systems have proved to be more integrated globally than anyone thought would be the case.
For the academic, and I would hope the policymaker, the crisis is producing a wealth of
information that can be exploited to learn lessons for practical policymaking. A recent example is
the relative influence on the collapse of global trade in late 2008 and early 2009 of real economic
factors (economic downturns) and financial factors (lack of trade finance). At first, financial
factors were thought to have been dominant, but more recent research suggests that real factors
played a more significant role. However, the point is that both were and are relevant.
My concerns are that, first, the wrong lessons will be learned from the recent crisis and the
globalization that fostered its spread and, second, individual countries and regions will turn
inward and erect new barriers. In this context, and relevant to Europe, I would submit that, unless
carefully monitored, regionalism and bilateral arrangements are a fundamental threat to
globalization because they imply that different rules and standards apply to different countries.
However, that is an additional topic for another discussion.
Attitudes and perceptions are important to sustaining the institutions of the global system with
respect to trade and finance. Those institutions are being pulled in many directions. We have the
WTO and the near-dormant Doha Round of trade negotiations. We have the IMF, which has been
resuscitated by the crisis but faces important issues in terms of financial support, governance,
and substantive relevance once the crisis has passed. We also have the Financial Stability Board
with its expanded membership and mandate under the auspices of the Group of 20. Each
institution has a role to play in limiting the fragmentation of the global system in the period
immediately ahead. Moreover, if the leaderships, including by the systemically important
members, of these institutions are unable to work together effectively in our globalized world,
we will all be worse off. The analytical and policy challenges are huge and the academic
community can make an important contribution toward integrating international trade and
financial markets in their studies and policy recommendations.
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4.2 Primary Markets vs. Secondary Markets

A primary market issues new securities on an exchange. Companies, governments and other
groups obtain financing through debt or equity based securities. Primary markets, also known as
"new issue markets," are facilitated by underwriting groups, which consist of investment banks
that will set a beginning price range for a given security and then oversee its sale directly to
investors.
The primary markets are where investors have their first chance to participate in a new security
issuance. The issuing company or group receives cash proceeds from the sale, which is then used
to fund operations or expand the business.
The secondary market is where investors purchase securities or assets from other investors,
rather than from issuing companies themselves. The Securities and Exchange Commission (SEC)
registers securities prior to their primary issuance, then they start trading in the secondary
market on the New York Stock Exchange, Nasdaq or other venue where the securities have been
accepted for listing and trading.
The secondary market is where the bulk of exchange trading occurs each day. Primary markets
can see increased volatility over secondary markets because it is difficult to accurately gauge
investor demand for a new security until several days of trading have occurred. In the primary
market, prices are often set beforehand, whereas in the secondary market only basic forces like
supply and demand determine the price of the security.
Secondary markets exist for other securities as well, such as when funds, investment banks or
entities such as Fannie Mae purchase mortgages from issuing lenders. In any secondary market
trade, the cash proceeds go to an investor rather than to the underlying company/entity directly.
19
CHAPTER NO 5.
Main Motives Of Internatoinal financial markets:
A. Foreign Exchange Market:
The foreign
or currency
exchange
market (forex, FX,
market)
is
global decentralized market for the trading

of currencies. This includes all aspects of
buying, selling and exchanging currencies at
current or determined prices.
In terms of volume of trading, it is by far the largest market in the world.The main
participants in this market are the larger international banks. Financial centres around the world
function as anchors of trading between a wide range of multiple types of buyers and sellers
around the clock, with the exception of weekends. The foreign exchange market does not
determine the relative values of different currencies, but sets the current market price of the value
of one currency as demanded against another.
The foreign exchange market works through financial institutions, and it operates on several
levels. Behind the scenes banks turn to a smaller number of financial firms known as dealers,
who are actively involved in large quantities of foreign exchange trading. Most foreign exchange
dealers are banks, so this behind-the-scenes market is sometimes called the interbank market,
although a few insurance companies and other kinds of financial firms are involved. Trades
between foreign exchange dealers can be very large, involving hundreds of millions of dollars.
Because of the sovereignty issue when involving two currencies, forex has little (if any)
supervisory entity regulating its actions.
20

The foreign exchange market assists international trade and investments by enabling currency
conversion. For example, it permits a business in the United States to import goods
from European Union member states, especially Eurozone members, and pay Euros, even though
its income is in United States dollars. It also supports direct speculation and evaluation relative to
the value of currencies, and the carry trade, speculation based on the interest rate differential
between two currencies.
In a typical foreign exchange transaction, a party purchases some quantity of one currency by
paying with some quantity of another currency. The modern foreign exchange market began
forming during the 1970s after three decades of government restrictions on foreign exchange
transactions (the Bretton Woods system of monetary management established the rules for
commercial and financial relations among the world's major industrial states after World War II),
when countries gradually switched to floating exchange rates from the previous exchange rate
regime, which remained fixed as per the Bretton Woods system.
Characteristics of a Foreign Exchange Market
The foreign exchange market is a global phenomenon with two main functions: to convert the
currency of one country into the currency of another, and to minimize the risk of changes in
foreign exchange rates. These functions create three defining characteristics: the foreign
exchange market is decentralized, never ceases, and is constantly changing wealth. Involving
many billions of US dollars, the foreign exchange market involves agents as large as
multinational corporations to the very small, such as an international tourist trying to change one
currency into another.
1. No Centralized Market
The foreign exchange market does not possess a centralized market or organizational
structure. According to the Forex Guide, a guide to foreign trading, "Foreign exchange
transactions take place without any unification of the operation market and business network."
The operation market controls the channels through which trades occur, while the business
network provides the capital for the trades. In the foreign exchange network, these two systems
21

are not formally organized. Brokers in the foreign exchange market aren't certified or approved
by a governing agency, as they are, for example, in the U.S. stock exchange market.
2. Unceasing
The foreign exchange market never closes down during the work week. It operates
twenty-four hours a day, across national boundaries. Because the time in Japan is different than
in New York, for example, tourists can be exchanging their currency in one city, while in another
city all the foreign exchange brokers are asleep. This situation allows traders to buy in one
currency in the morning, and sell it in the evening if the currency rate has improved in their
favor.
3. Changing Wealth
In 1998, the U.S. Federal Reserve estimated the U.S. segment of the foreign exchange
market at 351 billion dollars, more than 60 times what it was in 1977. The foreign exchange
market demonstrates changes in value among currencies. What a currency is worth now
compared to other currencies may change drastically in the years ahead. For example, the
exchange rate of U.S. dollars to Japanese Yen has gradually made the two more equal in wealth
from the 1990s to the 2000s. Where a dealer could get many Yen for few dollars in 1990, she
could now get less Yen for the same amount of dollars.
B. Eurocurrency
Eurocurrency is deposits in banks that are

located outside the borders of the country that
issue the currency the deposit is denominated in.
Eurocurrency does not have to involve either
the euro currency or the eurozone.
22

For example, a deposit denominated in Japanese Yen held in a Brazilian bank is a Eurocurrency
deposit. Likewise a deposit denominated in US dollars held in a Singapore bank is a
Eurocurrency deposit, or more specifically or more clearly a Eurodollar deposit.
Today the Eurocurrency and Eurobond markets are active because they avoid domestic interest
rate regulations, reserve requirements and other barriers to the free flow of capital.
Eurocurrency Market Characteristics

The Eurocurrency market has several interesting characteristics:
1. It is a wholesale rather than retail market, which means that transactions tend to be very
large. Public borrowers such as governments, central banks, and public-sector
corporations tend to borrow most of the funds. Also, nearly four fifths of the Eurodollar
market is interbank, which means that the transactions take place between banks.
2. The market is essentially unregulated.
3. Deposits are primarily short term. Most of the deposits are interbank, and they tend to be
very short term. This leads to concern about risk, since most Eurocurrency loans are for
longer periods of time. _
4. The Eurocurrency market exists for savings and time deposits rather than demand
deposits. That is, institutions that create Eurodollar deposits do not draw down those
deposits into a particular national currency in order to buy goods and services.
23

5. The
In
Eurocurrency
addition
to
market
ordinary
is
deposits
primarily
in
the
Eurodollar
Eurocurrency
market,
market
there
are
also certificates of deposit (CDs) available in dollars, sterling, and yen.

The Eurocurrency market has short- and medium-term characteristics. Short-term
Eurocurrency borrowing has a maturity of less than one year. However, it is also possible
to borrow at maturities exceeding one year. Anything over one year is considered a
Eurocredit. These Eurocredits may be loans, lines of credit, or other forfns of mediumand long-term credits, in-cluding syndication, in which several banks pool resources to
extend credit to a borrower.A major attraction of the Eurocurrency market is the
difference in interest rates as compared with domestic markets. Because of the large
transactions and the lack of controls and their attendant costs, Eurocurrency deposits tend
to yield more than domestic deposits, and loans tend to be relatively cheaper than in
domestic markets. Traditionally, loans are made at a certain percentage above the London
Inter-Bank Offered Rate (LIBOR), which is the interest rate banks charge one another on
loans of Eurocurrencies. The interest rate above LIBOR, which is characterized in the
Eurocurrency borrowing rate, depends on the credit-worthiness of the customer and must
be large enough to cover expenses and build reserves against possible losses. The unique
characteristics of the Eurocurrency market allow the borrowing rate usually to be less
than it would be in the domestic market. Most loans are made on variable-rate terms, and
the rate-fixing period is generally six months, although it could also be one or three
months. Because of the variable nature of the interest rates, the maturities can extend into
the future.
The LIBID is the bid rate that corresponds to the LIBOR, and the difference between the LIBOR
and the LIBID is usually about one eighth of a per-centage point. The rate one earns on deposits
in the Eurocurrency is usually less than the LIBID, but it is often more than can be earned in the
domestic market.
C. Eurocredit market
Comprises banks that accept deposits and provide loan
s in large denominations and in a variety of currencies.
Thebanks that constitute this market are the same bank
s that constitute the Eurocurrency market; the differenc
24
e is thatEurocredit loans are longer-term than so-called
Eurocurrency loans.
Characteristics of Euro credit

A major part (more than 80 %) of the Euro debts is made in US dollars.
The second (but far behind) is Pound Sterling followed by Deutsch mark, Japanese yen, Swiss
franc and others.
Most of the syndicated debts are of the order of $50 million. As far as the upper limits are
concerned, amounts involved are of as high magnitude as $5 billion and more. In 1990, Euro
tunnel borrowed $6.8 billion.
On an average, maturity periods are of about five years (in some cases it is about 20 years). The
reimbursement of the loan may take place in one go (bullet) or in several installments.
The interest rate on Euro debt is calculated with respect to a rate of reference, increased by a
margin (or spread).
The rates are available and generally renewable (roll over credit) every six months, fixed with
reference to LIBOR.
The LIBOR is the rate of money market applicable to short-term credits among the banks of
London. The reference rate can equally be PIBOR at Paris and FIBOR at Frankfurt, etc. It is
revised regularly.
The margin depends on the supply and demand of the capital as also on the degree of the risk of
these credits and the rating of borrowers. Financial institutions are in vigorous competition.
25

There is an active secondary market of Euro debts. Numerous techniques allow banks to sell
their titles in this market.
D. Eurobond
A Eurobond is
an
international bond that
is
denominated in a currency not native to the

country where it is issued. It can be categorised
according to the currency in which it is issued.
Also called external bond; "external bonds which, strictly, are neither Eurobonds nor foreign
bonds would also include: foreign currency denominated domestic bonds. . ." It can be
categorised according to the currency in which it is issued. London is one of the centers of the
Eurobond market, with Luxembourg being the primary listing center for these instruments.
Eurobonds may be traded throughout the world - for example in Singapore or Tokyo.
Eurobonds
are
named
after
the
currency
they
are
denominated
in.
For
example, Euroyen and Eurodollar bonds are denominated in Japanese yen and American dollars
respectively. Eurobonds were originally in bearer bond form, payable to the bearer and were also
free of withholding tax. The bank paid the holder of the coupon the interest payment due.
Usually, no official records were kept. The word Eurobond was originally created by Julius
Strauss
The first Eurobonds were issued in 1963 by Italian motorway network Autostrade, who issued
60,000 bearer bonds at a value of USD250 each for a fifteen-year loan of USD15m, paying an
annual coupon of 5.5%. The issue was arranged by London bankers S. G. Warburg. and listed on
the Luxembourg Stock Exchange. Their conception was largely a reaction against the imposition
of the Interest Equalization Tax in the United States. The goal of the tax was to reduce the US
balance-of-payment deficit by reducing American demand for foreign securities. If foreign
securities were denominated in dollars and not foreign currency, however, then they would not
26

affect the US balance-of-payment deficit because Americans would not need to exchange dollars
to acquire them. Clever financiers (initially based in London) realized this and the Eurobond was
born. Americans could bypass the costly tax and Europeans could keep open access to US
capital.
The majority of Eurobonds are now owned in 'electronic' rather than physical form. The bonds
are held and traded within one of the clearing systems (Euroclear and Clearstreambeing the most
common). Coupons are paid electronically via the clearing systems to the holder of the Eurobond
(or their nominee account).
Eurobonds can have diverse characteristics,
Straight fixed-rate bonds pay an annual coupon at a rate that is fixed for the term of
the bond.
Equity bonds have either attached warrants, which give the holder the right to buy
another asset, usually shares of the issuing corporation, at a specified price; or they
are convertibles that can be converted into shares of the issuer.

Floating-rate notes have a variable coupon that is reset regularly, usually every 3 or 6
months as a spread above a reference rate, usually the libor; terms range from 5 to 12
years.
Zero-coupon bonds pay no interest but are issued at a discount. The bondholder
receives interest as a difference between the par value, which is received at maturity
and the discount price paid.

Other types of bonds include reverse floaters with coupons that decline as interest rates
rise and capped bonds where interest rates are capped at a preset level.
E. Stock Market
A stock market, equity market or share market is
the aggregation of buyers and sellers (a loose
network of economic transactions, not a physical
facility or discrete entity) of stocks (also called
shares); these may include securities listed on
27
a stock exchange as well as those only traded
privately.
Stocks markets characterizes

Stocks are an important component of retirement plans and college education savings plans.
Information technology has brought the markets closer to investors. You can find detailed
financial information of listed companies online, usually at no cost. Online brokers have made
stock trading simple and inexpensive. However, you need to be aware of some of the market
characteristics to manage your investments effectively Risk/Return
Unlike U.S. Treasury bonds, stocks are not risk-free assets. Changes in a company's economic
and competitive environment affect sales and profits, which determine stock price performance.
Adverse economic changes could include rising unemployment, which result in lower consumer
spending, and inflation, which increases operating costs. Companies that have a strong
competitive position in their respective industries generate positive returns for their shareholders.
Some companies pay regular cash dividends to shareholders, which is attractive for pensioners
living on fixed income.
I.
Volatility
Stock markets are volatile. Price changes of several percentage points within a short period
are common. Markets usually react to news events, such as corporate earnings, government
economic reports and geopolitical events. Software algorithms and automated trading strategies,
along with the increased participation of investors, have increased the complexity and volatility
of stock markets. You can hedge against market volatility by diversifying your portfolio.
Successful investors ignore short-term fluctuations because stock prices reflect the underlying
fundamentals over time.
II.
Selection
Markets offer a wide selection of stocks to suit different risk tolerances and financial
objectives. Aggressive investors can buy the stocks of newly listed companies and growth
companies. Although these stocks are riskier than the stocks of established companies, you could
benefit from significant price appreciation. Conservative investors could buy dividend-paying
stocks, which generate regular income and some potential for price appreciation. You can find
28

stocks from major industry sectors and sub-sectors within each industry. For example, you could
invest in microprocessor and software companies within the technology industry and in
department stores and specialty retailers within the retail industry.
III.
Liquidity
Stock markets provide liquidity because they bring together investors and businesses from
all over the world. Liquidity results in narrow bid-ask spreads, which means small differences
between what buyers are offering and what sellers are asking for stocks. The result is order fills
at favorable prices. Information technology plays a role by increasing the speed at which the
markets execute trades and disseminate information to investors and other market participants.
IV.
Global
North American and other stock markets are interconnected and interdependent. For
example, Asian and European companies list on North American exchanges, while U.S. and
Canadian companies list on European and Asian exchanges. Individual and institutional investors
can trade stocks using 24-hour electronic communications networks. A stock market drop in
Tokyo overnight can spread to Frankfurt in the early morning hours and hit New York in time for
the opening bell. Similarly, news events in Europe can ripple through global stock markets in
minutes.
V.
Regulated
Regulations are necessary for fair and efficient markets. The U.S. Securities and Exchange
Commission regulates the U.S. securities industry, along with the New York Stock Exchange and
other markets. Securities laws ensure that investors and other market participants have access to
the necessary information in a timely manner.
29
CHAPTER NO 6.
Top 10 Stock Markets In Asia
1) Tokyo Stock Exchange (TSE) Market Cap: $4,485 Billion
The Tokyo Stock Exchange is the largest stock
exchange in Asia and the third largest stock
exchange in the world by market capitalization.
Nikkei 225 and TOPIX are its main indices. The
TSE was founded in 1878.
2) Shanghai Stock Exchange (SSE) Market Cap: $3,986 Billion
The SSE is one of the two independently operating

stock exchanges in China. It is the third largest
stock
exchange
in
the
world
by
market
capitalization. This exchange is not entirely open to

foreign investors.
30

3) Hong Kong Stock Exchange (HKEx) Market Cap: 3,325 Billion
Owned by Hong Kong Exchanges and Clearing,

the Hong Kong Stock Exchange is the sixth
largest stock exchange in the world. It had 1,615
listed
companies
in
2013.
AMS/3
was
implemented on the exchange in 2000.
4) Shenzhen Stock Exchange (SZSE) Market Cap: $2,285 Billion
The SZSE is one of three stock exchanges in China. It

is based in Shenzhen, Guangdong. The exchange
opened
the
ChiNext
board,
NASDAQ-type
exchange for high-growth, high-tech start-ups in

2009.
5) Bombay Stock Exchange (BSE) Market Cap: $1,682 Billion
The Bombay Stock Exchange is an Indian stock
exchange located in Mumbai, the financial capital of
India. It was established in 1875. With a speed of
200 microseconds, BSE is considered to be one of
Asias fastest stock exchanges.
31

6) National Stock Exchange of India (NSE) Market Cap: $1,642 Billion
Popularly known as NSE, this stock exchange is

located in Mumbai. It is the twelfth largest stock
exchange in the world. Its flagship index, the CNX
Nifty, is used by investors worldwide as a barometer
of the Indian capital markets. It has played a major
role in bringing transparency to the Indian capital
market.
7) Korea Exchange (KRX) Market Cap: $1,251 Billion
The Korea Exchange is the only securities exchange
operator in South Korea. Headquartered in Busan, the
KRX has an office for cash markets and market
oversight in Seoul. As of January 2015, it had 1,814
listedCap:
companies.
It joined the UN Sustainable Stock
8) Taiwan Stock Exchange (TWSE) Market
$861 Billion
Exchanges
May 2015.
Located in initiative
the iconicinTaipei
101, Taipei, Taiwan, the
Taiwan Stock Exchange had 809 listed companies as
of December 2013. It was established in 1961 and is
owned by Taiwan Stock Exchange Corporation. It is
regulated by the Financial Supervisory Commission.
9) Indonesia Stock Exchange (IDX) Market Cap: $426.78 Billion

Based in Jakarta, the Indonesia Stock Exchange, had
462 listed companies in 2012. As of June 2011, there
were 344,279 local investors registered at the IDX
Custodian (KSEI). Foreigners owned 60 percent of
publicly traded stock.
32

10) Borsa Istanbul (BIST) Market Cap: $220.620 Billion
Abbreviated as BIST, the Borsa Istanbul is the sole
exchange entity of Turkey. It was established as an
incorporated company with a founding capital of
around $240 million on April 3 2013. It started its
operations on April 5 2013. The volume of this
stock market is more than $1.20 trillion.
Chapter No 7.
Case Study
Bombay Stock Exchange Improves Efficiency with TNS
Transaction Network Services (TNS) is one of the leading providers of connectivity solutions to
the financial markets
Background
The Bombay Stock Exchange (BSE) is one of the oldest stock exchanges in Asia, with over 4800
companies listed. Established in 1875 and fully electronic since 1995, the BSE considers the
improvement of electronic trading an essential part of its growth strategy.
Business Challenge
33

Access to BSE for trading and market data has been limited to participants who have set up their
offices within India. Typically these offices were connected over leased lines. The BSE required
managed connectivity for both major financial organisations in India and outside the country.
Solution
BSE appointed TNS to provide access to trading functionality and market data information via
its fully managed Secure Trading Extranet. TNS Secure Trading Extranet connects over 1,500
financial community end-points, representing buy and sell-side institutions, market data and
software vendors, exchanges and alternative trading venues. It boasts over 120 points of presence
and provides services to customers across America, Europe and the Asia Pacific region, with its
reach extending to many more. Financial institutions using TNS network can access a variety of
mission critical trade related messages, data and applications, which support order routing, trade
executions, direct market access and algorithmic trading.
Outcome
Kalyan S. Bose, Head of Corporate Affairs at the Bombay Stock Exchange, said:
The Asia Pacific regions trading capability is expanding rapidly and were committed to
establishing an efficient environment for trading. Electronic trading is playing a key part in
shaping the way organisations transact, so by boosting our services with TNS Secure Trading
Extranet, were not only improving practices for our existing members, but also laying the
foundations for further growth.
Why Choose TNS Secure Trading Extranet?

The Transaction Network Services (TNS) Financial Services Division (FSD) is focused on
providing buy- and sell-side companies with flexible, robust and secure electronic trading
34

solutions. Our Secure Trading Extranet is the first choice for many of the worlds financial
institutions. Commercial banks, hedge funds, mutual funds, pension funds, broker dealers, and
securities and commodities exchanges use us because:
We offer a high quality service as well as priding ourselves on our state-of-the-art

technology, we also bring customer service and client relationships to the forefront of
what we offer. With TNS our clients are not just another connection, we work with them
to ensure they get everything they need from electronic trading to meet the heavy
demands of the financial market

The reliability of our service all points of presence are fully redundant and there is no
single point of failure across the network. Client connections are maintained with back-
up capabilities, leaving our customers with complete peace of mind.

Our service is secure - billions of transactions are transported over the TNS network
every year. Millions of records are exchanged daily about payments, customer details,
stock figures and pricing information, all carried securely on our privately managed
network.
Connection speed financial institutions are all looking for agility and responsiveness
from their vendor. Our independence and flexibility enables us to have trading
connections up and running in three days or less.

Extranet community our IP network services allow customers to access multiple
financial services through a single network connection, thereby eliminating the need for
multiple, costly, institution-to-institution leased line connections. This gives quick and
easy access to a variety of different Exchanges, Market Data Vendors and Trading
Applications, Multi Asset Classes including FIX.

Low latency network traders need mission critical data. The Secure Trading Extranet
has been designed and is managed to ensure the highest levels of throughput to support
Direct Market Access, Algorithmic Trading and Market Data Distribution.
35
36

International Financial Market

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INTERNATIONAL FINANCIAL MARKET

Covering different aspects of international financial market.

1.2 Scope of data

1.3 Research methodology