Financial Systems

Internationalization has extended from the financial

market place to industry, commerce, governments &
the general public.
Internationalization revolves around four main
issues:
 Deregulation of financial market
 Rapid financial innovations
 Space age technology for linking different market
participants
 Transferring money & capital across national
frontiers and progress towards integrated world
financial markets
 Elements of a financial system
 Financial markets
 Market participants  borrowers, lenders, participants.
 Financial claims or instruments exchanged in the market
 Market facilitators as regulators i.e. private & public institution

Financial Markets:
- Channels through which funds flow
Market Participants
Borrowers
Lenders
Financial Claims (instruments)
- Two basic assets characteristics
1. Investment maturity
2. Expectation of risk and return

Market Facilitators: to ensure smooth functioning of financial market.

International financial system: unique elements
 International dealings
 Market participants of different countries
 Conversion of currencies
 Foreign exchange markets
Difference between international and domestic financial systems:
6) Transactions in foreign currencies
7) Financial dealing outside of national boundaries
Unique markets
1). Foreign exchange markets
2). Forward markets
3). Futures markets
4). Options markets
5). Euro market
6). Inter-Bank market.
Domestic Financial Domestic Fin’
International
System system
Financial System
Country A Country B
Unique Elements

Markets- Foreign exchange market

Euro-currency market Money market
Money market
Euro bond market Bond market
Bond market Forward & futures Equity market
Equity market Market for foreign exchange

Participants
Domestic participants -Individual
-individuals From country A -corporations
-Corporations - Domestic participants
From country B -Govt.
-Govt.
-int’l public -Financial Intermediaries
-Fin’ intermediaries -fin’ or welfare organizations - Brokers
-Brokers
 Off shore markets
 Euro markets
 External markets
Major Instruments
2. Floating rate notes

3. Multiple currency notes

4. Zero coupon bonds

5. Bonds with warrants

6. Convertible bonds

7. Swaps
Benefits of Internationalization
To meet specific needs of market
participants
Facilitate increasing world trade
i.e. in different currencies
Increased liquidity and mobility of
funds.