International Corporate Finance: Value Creation with Currency Derivatives in Global Capital Markets, + Website

CHAPTER 8

The International Financial Sector and the Dynamics of Global Capital Markets

The creditors are a superstitious sect, great observers of set days and times.

Benjamin Franklin

The growing internationalization of the financial services industry means that firms are confronted with a plethora of funding sources. International financing thus becomes a truly global exercise in procurement whereby firms in need of capital will search widely and exhaustively for competing domestic and foreign funding sources before comparing and ranking them according to their true costs. This chapter starts with a review of the functions performed by the international financial sector before shedding light on the key forces fueling the dynamics of emerging capital markets. Companion chapters will focus on international equity financing (Chapter 9), international debt financing (Chapter 10), international trade financing (Chapter 11), and the special circumstances of Asian finance (Chapter 12) and Islamic finance (Chapter 13).

This chapter argues that the dynamics of emerging markets are largely fueled by disintermediation, securitization, and, more broadly, deregulation of the financial sector. Indeed, the world economy is in the midst of a far-ranging restructuring in which national financial systems and capital markets are the handmaidens of enhanced resource allocation and operational efficiency that translates into a lowering of the cost of capital for all economic agents, be they firms, ...