International financial markets provide links connecting the financial markets of each country and independent markets external to the authority of any one country. The heart of the international financial market is being governed by the currency market where the foreign currency is denominated by the international trade and investment. Hence the purchase of goods and services is preceded by the purchase of currency.
The following are the reasons given for the enormous growth in the trading of foreign currency:
- Deregulation of international capital flows - Without the major government restrictions, it is extremely simple to move the currencies and capital around the globe.
- Gain in technology and transaction cost efficiency – The advancements in technology is not only taking place in the distribution of information, in addition to the performance of exchange or trading. This has resulted greatly to the capacity of individuals on these markets to accomplish instantaneous arbitrage.
- Market upswings – The financial markets have become increasingly unstable over recent years. There are faster swings in the stock values and interest rates, adding to the enthusiasm for moving further capital at faster rates.
The purpose of the foreign currency markets, international money markets, international capital markets and international securities markets are as follows:
- The foreign currency markets - The foreign currency market is an international market that is familiar in structure. This means that there exists no central place where the trading can take place. The ’market’ is actually the telecommunications like among financial institutions around the globe and opens for business at any time. The greater part of the worlds that deal in foreign currencies is still taking position in the cities where international financial activity is centered.
- International money markets - A money market can be conventionally defined as a market for accounts, deposits or deposits that include maturities of one year or less. This is also termed as the Euro currency markets which constitute an enormous financial market that is beyond the influence and supervision of world financial and government authorities. The Euro currency market is a money market for depositing and borrowing money located outside the country where that money is officially permitted tender. Also, Euro currencies are bank deposits and loans existing outside any particular country.
- International capital markets - The international capital market provides links among the capital markets of individual countries. It also comprises a separate market of their own, the capital market that flows in to the Euro markets. The firms enjoy the freedom to raise capital, debit, fixed or floating interest rates and maturities varying from one month to thirty years in an international capital markets.
- International security markets - The banks have experienced the greatest growth in the past decade because of the continuity in providing large portion of the international financial needs of the government and business. The private placements, bonds and equities are included in the international security market.