International capital markets allow borrowers and investors from different countries to meet and exchange long-term funds. They help companies raise funds beyond their domestic market and help investors diversify globally. These markets also support economic development by channeling savings to productive investments.
In exams, this topic is commonly asked as:
International capital market is the market where long-term funds are borrowed and lent across national boundaries. It includes:
Purpose:
Companies raise equity capital from foreign investors through:
Borrowers raise funds through:
Eurocurrency is a currency deposited outside its home country.
Examples:
Features:
Why it exists:
Eurobond is an international bond issued in a currency different from the currency of the country where it is issued.
Example:
Features:
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International capital markets allow borrowers and investors from different countries to meet and exchange long-term funds. They help companies raise funds beyond their domestic market and help investors diversify globally. These markets also support economic development by channeling savings to productive investments.
In exams, this topic is commonly asked as:
International capital market is the market where long-term funds are borrowed and lent across national boundaries. It includes:
Purpose:
Companies raise equity capital from foreign investors through:
Borrowers raise funds through:
Eurocurrency is a currency deposited outside its home country.
Examples:
Features:
Why it exists:
Eurobond is an international bond issued in a currency different from the currency of the country where it is issued.
Example:
Features:
Types (basic):
An ADR is a negotiable certificate issued by a US depository bank representing shares of a foreign company. ADRs are traded in US markets and priced in USD.
A GDR is similar but issued for trading in multiple international markets (often Europe) and is not limited to the USA.
How they work (simplified):
Benefits:
Limitations:
FDI means investment with control/management influence (long-term). Example: foreign company sets up plant or buys controlling stake.
FPI means investment in stocks/bonds without control (often short/medium-term and more liquid).
Cross-border listing means listing a company’s securities on a foreign stock exchange.
Motives:
Major risks:
Company shares → custodian/depository → issues ADR/GDR → investors buy/sell receipts abroad
From this topic
Components of international capital markets (any three):
Thus, international capital markets include both equity and debt channels for raising long-term funds globally.
Eurocurrency market is the market for deposits and loans in a currency held outside its home country.
Features (any three):
Example:
Thus, eurocurrency markets expand global credit availability and support international trade and finance.
FDI is direct investment with control and long-term involvement. FPI is portfolio investment without control and is more liquid.
Table:
Conclusion: FDI is generally more stable and development-oriented, while FPI can be volatile and sensitive to global risk sentiment.