International Financial Markets Structure And Innovation

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International Financial Markets Structure and Innovation Submitted by Table of Contents No.TopicPage No.1Introduction032Benefits of tapping international markets043Foreign equity market064Medium versus long-term financing075Pros and Cons of Eurobond market086JPY financing107Cash flow consequences of floating rate note118Conclusion129References 13 Introduction Financial globalization occurs when cross-border flow of money takes place to facilitate foreign direct investment (FDI) by multinational corporations. MNCs usually participate in acquisition of real assets (e.g. manufacturing plant) for the purpose of global trade and investments in global financial assets (e.g. bonds). MNCs are vital participants in foreign exchange markets as they conduct various transactions with foreign entities like foreign subsidiaries, affiliates, customers and suppliers. Their transactions require dealing with foreign currencies. Currencies are traded in foreign exchange markets which are dominated by large global banks. In addition to MNCs there are other beneficiaries of foreign exchange markets are banks and other financial institutions, such as mutual funds, pension funds and insurance firms, governments and individuals (Robin, 2011). MNCs facilitated by the foreign exchange markets and other factors like, relaxed trade regulations, less restricted flow of trade, flexible movement of human, physical and financial capital, supportive global political environment, technological advancements and IT advancements are able to operate in numerous international markets to reap several benefits of globalization (discussed later). However, it is most important to acknowledge the role of information in globalization. All markets function on information. Information that facilitates the access to various markets and the participants of those markets (individuals and entities that trade in those markets) is important. Improvements in telecommunication and continuous developments in Information Technologies that support global digital communications have had the effect of bringing global markets and their participants closer together, making those markets more efficient, and increasing the opportunities for trade to occur. Hence, increases in trade translates into increases in globalization. What are the overall benefits of tapping international markets Does it make sense for Clover given its success in using domestic capital markets Trade is the most significant aspect of globalization. Trade takes place when there is market and demand for goods and service and market for financing. Due to the large size of global financial markets compared to domestic financial market, if Clover decides to invest in global financial markets on lower cost but larger financing issue size. Large firms like Clover and MNCs are more able to invest in global markets and globalize, courtesy to their given success, expertise and large scale operational size. Clover is already a well-established and successful capital issuer in the domestic market and is followed by 16 Wall street analysts. Hence, to enter global markets seems to be the right move for the company. A corporation like Clover can benefit from tapping in international markets in various ways. Competitive advantage can be achieved through technology, cheaper easily available human and/or capital resources and better infrastructure. Hence, they can involve in international movement of physical capital in search of higher returns (Mundell, 1956). As highlighted in the OLI theory proposed by Dunning (1977), a firm like Clover can decide to go global and tap international markets for the three potential sources of advantages, i.e. Ownership, Location and Internalization. The OLI model is sometimes referred as the knowledge capital approach to FDI, as it explains why a firm expands to overseas locations and becomes a multination corporation, the reason being that they have specific and unique advantages
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