Global financial markets refers to forums which exists on international level which facilitate the

exchange of financial securities and enable the flow of capital among the financial markets in
various parts of the world. Global financial markets comprise of debt and equity markets which
constitute the global capital markets and on the other hand money markets which is the market for
short term transactions. Examples of global financial markets include international bond markets,
the foreign exchange market, international equity markets and international mortgage markets and
all perform the primary function of transferring funds from the surplus units to the deficit units.
The main players are the global institutions such as International Monetary Fund. Bank for
International Settlements, central banks and other private institutions. The functions performed by
global financial markets include among, a myriad of functions as discussed below.

Savings function. The global system of financial markets and institutions provides a conduit for
the publics savings. This is explained by the fact that they mobilise savings from the surplus units
of the economy to the deficit sectors. The surplus units are the funds providers or lenders who can
be households, firm and governments with excess funds at disposal. The financial markets on
international level act as intermediaries mobilizing savings from the public thereby allowing
economic agents to maintain savings.

Wealth function. The financial instruments sold in the money and capital markets provides an
excellent way to store wealth. Economic agents with surplus funds can be able to store their wealth
by making savings with financial instruments traded in the global money and capital markets. In
some cases they can even earn a return through the investments in these markets, for example prior
to the global financial crisis, investors as far as in the Asian markets have invested to accumulate
wealth in the Subprime Mortgages in the United States mortgage markets. Global financial markets
therefore provides an enabling forum to investors to accumulate wealth as well as storing it.

Liquidity function. Financial markets provide liquidity for savers who hold financial instruments
but are in need of cash. Liquidity refers to how easily a financial asset can be converted into cash

without altering its price. Global financial markets especially of the developed countries have
depth which implies that, individual and institutional investors who are in need of cash can sell
their securities easily and access liquidity. However in the same vein for developing markets such
as Zimbabwe, the markets are less liquid worsened by the liquidity crunch dogging the economy
under this multi-currency environment.

Credit function. Global financial markets provide credit to finance consumption and investment
spending. They advance loans to households who want to finance their expenditures on goods and
services through offering personal loans. The credit advanced can be short term or long term
depending on the needs of the households. However this is carried out through a strict credit
advancement analysis which analyses the character, capital, creditworthiness of the clients to
minimize the risks of default. Similarly corporates which are investing in working capital
requirements, or are making expansion projects, can also access credit facilities in the global
financial markets.

Payments Function. The global financial markets provide a mechanism for making payments for
goods and services, in form of currency, checking accounts, debit cards, digital cash among others.
With the advancement of technology in the global financial markets, the payment systems have
become advanced especially with debit cards such as VISA, MasterCard. This has enabled the
facilitation of international transactions across the globe as these cards are compatible with many
financial institutions and points of service across the world. In Zimbabwe the Real Time Gross
Settlement (RTGS) is a method of payment which is under the stewardship of the Reserve Bank
of Zimbabwe which involves transfer of funds across the banking institutions accounts.

Risk protection function. The financial markets offer protection against life, health, property and
income risks, by permitting individuals and institutions to engage in both risk-sharing and risk
reduction. This is performed by insurance and life assurance companies. Insurance companies
insure property against loss through unforeseen events such outbreak of natural phenomena such
as floods, or can be man-made such as fire, accidental damage. This function is performed by

insurance companies who in return for a premium promise to compensate the policyholders in the
event of a loss occurred through an undesirable event. On the other hand life assurance companies
promise to give the sum assured in the event of the death of the policyholder. In Zimbabwe the
typical examples include Nyaradzo Funeral Assurance Company, Old Mutual and ZB Life
Assurance among others.

Policy Function. Financial markets are a channel through which governments may attempt to
stabilize the economy and avoid inflation. The government intervenes in the economy with various
policies at hand and the typical ones being the fiscal and monetary policy and these are effected
through the financial markets. For instance a government adopting a restrictive monetary policy
which involves increasing interest rates and reducing the level of money supply. The interest rate
policy that the government adopts through the central bank, is also adopted by the whole financial
system especially banking institutions. Similarly if the government wants to mop up excess
liquidity from the markets, the tools which include open market operations involve the financial
markets. This is particularly done by issuing treasury bills through banking institutions.
On the other hand a government adopting a fiscal policy by deliberating influence government
expenditure, can involve financial markets especially for the expenditures it incur. This is done
through banking institutions when making domestic or international transactions.

Information Function. Global financial markets disseminate information which is vital to

investors when they are making decisions regarding which markets to invest in. Through the
economic bulletins provided by news agencies in the financial markets such as Reuters,
information can be provided which helps savers to make decisions regarding investment.
Corporates also access information as to which markets they can invest their surplus funds and on
the other hand which debt markets to borrow from. Information dissemination has been aided by
the development of the computer technology which has led to real time digital information
systems. For example an investor in Zimbabwe can witness the live opening of the New York
stock exchange and through the automated quotations, the respective price changes online.

Risk diversification function. Global financial markets also act as catalysts for investors to
diversify the investment risks across countries. For example a European investor can reduce the
exposures associated with the Eurozone crisis by investing in the emerging markets such as South
Africa or in the United States. This gives assurance to the investor and offers a sense of protection
against risks particular to some regions.

However despite all the functions discussed above global financial markets can bring demise to
financial markets through exposures. The Subprime Mortgage Crisis in the United States at the
genesis of 2007 led to the collapse of many financial institutions across the world especially in
Europe and the Asian region. In Europe, the contagion effect led to the Euro Debt Crisis and many
institutions went under such as Lehman Brothers. The crisis was however, not felt in Africa where
there were little exposures to the US mortgage markets.

References
1. Shapiro A.C (2014) Multinational Financial Management 10th Edition. John Wiley and
Sons
2. Madura J. (2008) International Financial Management 9th Edition. Florida Atlantic
University
3. Chisholm A.M (2009). Introduction to International Capital Markets 2nd Edition London:
John Wiley and Sons.
4. Fabozzi F.J (2007) Fixed Income Analysis 2nd Edition John Wiley and Sons.
5. Madzirerusa K (2012) Money and Capital Markets. ZOU Module for Master of Business
Administration. ZOU Press, Harare Zimbabwe