International financial market refers to instruments and institutions that make it possible for international buyers and sellers/ borrowers and lenders to interact and transact. The nature of international financial transactions involves trade of financial assets such as currencies, bonds, derivatives and commodities. It is important to note that money passes through different channels such as government agencies, international banks and securities market before reaching the buyer or seller. Bankpedia stipulates that international financial market is a place in which trading of financial wealth takes place among individuals.
Motives of international financial markets
Different barriers in the international financial markets such as tax, tariffs, trade quotas, communication barrier and distance make it hard for complete integration of financial markets. However, such barriers could present opportunities for some investors. The main motive of international financial investors is wealth maximization that may arise as a result of; higher foreign interest rates, favorable economic environment, to benefit from international diversification, expectation of foreign currency appreciation among many other reasons.
Segments of international financial markets
International credit market
Multi-national corporations can source for short term or medium term credit from international money markets. Long term credit facilities are obtainable through issue of international bonds in the international markets.
International money market
International money markets involve transactions that are of short term fund in nature involving different currency denominations. Financial institutions and international banks are key players in facilitating international money market.
International equity market
Just like domestic companies, multinational corporations can raise equity capital through issue of shares in the international markets. The listing of shares in stock exchanges in different countries takes place.
International bond market
This is a segment of international financial market that allows companies to raise long term finance across international through issue of bonds. Two most common of international bonds are Euro bond and Foreign bonds
Foreign exchange market
A simple explanation of foreign exchange market is the trade of international currencies. Foreign exchange market is a vital part of international financial markets since traders have to convert their international currencies gained from trade activities to domestic equivalents.