INTERNATIONAL

FINANCIAL MARKET
STRUCTURE OF IFM:-
o INTERNATIONAL MONEY
MARKET
o Concerned with short term
funds.
o Includes international banks
and short –term securities
under it.
o INTERNATIONAL CAPITAL
MARKET
o Medium and long term
securities come under it.

OTHER SOURCES OF
FUNDS IN IFM:-
o OFFICIAL SOURCES
 o Multilateral agencies( like
international development
banks, such as the world
bank, IFC etc).
o Bilateral agencies or different
governmental agencies.
o Multilateral funds or bilateral
funds can be concessional or
non-concessional.
o Funds having highly
concessional funds or funds
having a large grant element
are known as official
development assistance.

NON-OFFICIAL
RESOURCES:-
o Also known as non-
govermental agencies.
o Euro currency markets/
international banks.
 o International securities
market.
o Debt securities.
o Equities.
o Instruments like international
bonds, medium-term euro-
notes, short-term euro-
notes, euro commercial
papers are sold and
purchased under these
markets.

CHANGING STRUCTURE
OF IFM:-
o MULTILATERAL AGENCIES
o Due to the many structural
changes in international
markets , operation of
multilateral corporations
come into the limelight.
o Changing supply position of
and demand position for
 international funds in the
international markets.
o The growth of international
trade .

EMERGENCE OF
MULTILATERAL
AGENCIES:-
o Till 1940’s no agency was
there to provide the funds.
o In 1945 IBRD was established
to provide funds only for
reconstruction of the war
ravaged economies of
western Europe.
o From 1948 its also began
providing development loans.
o Its functions are limited to
lending, and provide loan
only after the guarantee by
the borrowing government.
 o No provision for equity
finance .

INTERNATIONAL
FINANCE
CORPORATION:-
o To overcome the limitations
of IBRD bank IFC was
established in 1956.
o But the problem of poor
countries remain unsolved,
because they were not in a
position to utilize those costly
resources due to higher
market rate of interest.
o To benefit those countries
another sister institution was
created in 1960 named
INTERNATIONAL
DEVELOPMENT BANK(IDA).
 o Two institution IBRD and IDA
together came to known as
WORLD BANK.

CONTINUED…
o To encourage international
investment in the year 1966
ICSID(international centre for
settlement of investment
disputes ).
o In 1988 multilateral
investment guarantee
agency(MIGA) was
established to overcome the
non-commercial risks of
foreign investors.
o All these five institutions
together are known as world
bank group.
o Establishment of regional
development banks in Latin
America, Africa and Asia
 ,because in some countries
due to political and economic
reasons IFC and WORLD
BANK were not fulfilling the
funds requirement of these
countires.

BILATERAL AGENCIES:-
o Bilateral assistance was first
time provided by U.S
president in the year 1951.
o reason behind that
announcement was primarily
political and economic.
o Then USSR due to the cold
war with U.S announced its
external assistance program
to counter the move of U.S.
o By the late 1950’s many
other governments of
organization of economic
development(OECD)
 announced external
assistance programmes.
o After that only bilateral
lending came onto full bloom
from 1960’s.
o In some cases government
joined hands with private
agencies and export credits
came to form a sizable part
of the bilateral assistance
programme.

INTERNATIONAL
BANKS:-
o Euro banks are international
banks , with minimum of the
host government
interference and dealing in
any convertible currency of
the host country.
o In the first half of the
20th century and till 1950’s
 international banks were
domestic banks performing
functions of international
banks.
o But in late 1950’s and
especially in the early of
1960’s banks with purely
international character
emerged in the global
market, they were called
EURO BANKS.
o EURO BANKS deals with both
residents and non-residents
but they deal essentially in
any currency rather than the
currency of host country.

OFF-SHORE BANKING:-
o Off –shore Banking centers
deal only with non-residents
and in any convertible
 currency other than the
currency of host country.
o Operate in those countries
only where the govermental
control and regulations are
least interfering, tax rates
are very low, necessary
infrastructure for their
operation etc existed.

EURO-CURRENCY
MARKET:-
o Involves euro banks and off-
shore banking centers
accepting deposits and loans
in a currency of a country
where they are located.
o Transaction do not involve
necessarily foreign exchange
but involve a transaction in
foreign currency.
 o Suppliers of funds are
commercial banks, central
banks, governments,
international monetary
institutions, non-financial
irms or individual investors.
o Borrowers on the other hand
are banks, exporters and
importers, security dealers,
company and goverment
agencies.
o This market runs parallel to
the domestic money market,
but compared to the
domestic money market it
enjoys absence of tight
monetary control and also
the economies of scale.

SYNDICATION OF
LENDING:-
 o It involves two or more banks
for lending.
o Another form of structural
change took in the year
1970’s,wasdent in the form
of syndicated lending.
o This reduces the individual
risk of lending, coming
together to provide huge
loans to the countries, firms
or investors is termed as
syndicated lending.
o Syndicated loans are
different from general loans.

MOVE TOWARDS
SECURITIZATION:-
o The risk of repayment in the
year 1960’s and in 1970’s
was found in huge amount in
the international market
 bank by borrowing trends of
the market.
o Borrowing through the use
of securities due to their
liquid nature and easy
purchase and sale of the
securities in the international
market made investors to
move towards the path of
securitization.

BANK-OFF BALANCE
SHEET ACTIVITIES:-
o Simply means undertaking
of non-traditional activities
such as participation in
foreign exchange market etc.
o Slump in bank’s lending
activities during 1980’s
results in to use of
international securities and
favoured off balance sheet
 activities of international
banks.
o These activities were
nothing but the participation
of the banks in foreign
exchange market.
o Banks involves themselves
greatly in swap deals, in
forward currency market, and
in the market of currency
options.
o Fierce competition with non-
banking financial companies
is another important reason
for the growth of bank-off
balance sheet activities.

IMPACT OF
STRUCTURAL
CHANGE:-
o PRODUCT INNOVATION.
o IMPROVEMENT IN FINANCIAL
TECHNOLOGY.
o CONSIDERABLE CUT IN
TRANSACTION COST.
o MORE EFFICIENCY IN
ALLOCATION OF CAPITAL.
o INTERNATIONAL
DIVERSIFICATION OF
INVESTMENT PORTFOLIO.
o RISK OF INVESTMENT LOSS
HAS BEEN REDUCED.
o GREATER LIQUITDITY IN
INTERNATIONAL FINANCIAL
MARKETS.