Definition of Funding Avenues in Global Capital Markets

Global financial markets are a relatively recent phenomenon. Prior to 1980, national markets were largely isolated from each other and financial intermediaries in each country operated principally in that country. The foreign exchange market and the Eurocurrency and Eurobond markets based in London were the only markets that were truly global in their operations.

Financial markets everywhere serve to facilitate transfer of resources from surplus units (savers) to deficit units (borrowers), the former attempting to maximise the return on their savings and the latter looking to minimize their borrowing costs. An efficient financial market thus achieves an optimal allocation of surplus funds between alternative uses. Healthy financial markets also offer the savers a wide range of instruments enabling them to diversify their portfolios.

Globalization of financial markets during the, 80’s has been driven by two underlying forces. Growing (and continually shifting) imbalance between savings and investment within individual countries, reflected in their current account balances, has necessitated massive cross-border financial flows.

The other motive force is the increasing preference on the part of investors for international diversification of their asset portfolios. This would result in gross cross- border financial flows even in the absence of current account imbalances though the net flows would be zero. Several investigators have established that significant risk reduction is possible via global diversification of portfolios.

Capital markets of the newly industrializing South East Asian economies e.g. Korea and Taiwan permit only limited access to foreign investors. Even in an advanced economy like that of Germany, the structure of corporate financing is such that most of the companies rely on loans from domestic banks for investment and investors do not appear to show much interest in foreign issues. All these reservations, it can be asserted that the dominant trend is towards globalization of financial markets.

There are two broad groups of borrowers, of the total debt raised on the international markets in recent years. There are fluctuations in the relative importance of different types of instruments as markets respond to changing investor / borrower needs and changes in the financial environment. It is clear that for developing countries, as far as debt finance is concerned, external bonds and syndicated credits are the two main sources of funds.

Syndicated Credit 2) Debt securities

An overview of finding avenues in the global capital markets is the procedural aspects of actually tapping a market – acquiring the necessary clearances and approvals, preparing various documents, investor contact and so forth-are usually quite elaborate. Issues related to accounting, reporting and taxation are quite complex and require specialist expertise. We will keep clear of these matters and concentrate on the basic features and cost-risk characteristics of the various instruments.