Capital Structure Decisions: Evaluating Risk and Uncertainty

Chapter Eight

Global Markets and Efficiencies in Capital Structure Decisions

THE EXISTENCE OF GLOBAL financial markets gives firms more choices of capital instruments. Integrated, globalised capital markets open a vast range of new sources and forms of capital for firms worldwide. Corporates can gain access to foreign capital markets easily at home with a click of a button. Online banks, lenders, aggregators, brokers, financial portals, enablers, and e-payment systems all aid the financial intermediation process in global markets. Financing in global capital markets reduces a firm’s cost of capital by improving its presence in international markets, increasing public confidence in the operations of the firm, increasing the liquidity of its shares, and overcoming market segmentation.

The enormity of the international financial markets and their instruments can be estimated by the size and volume traded in the foreign exchange market, which is more than US $1 trillion. The market is known for its general acceptability of low-rated issues, yet one can also find large investors who are desirous of high-yielding returns and substantial capital strength. These investors range from governments, central banks, commercial banks, and financial institutions to nonbank companies, such as insurance companies, pension fund companies, and others. Because of the nature of the participants, global markets offer great depth and breadth of the instruments. Financial transactions are secured and conducted ...