Capital from International Market

           International Capital market and Fund  

Modern organizations including multinationals are largely dependent upon sizable borrowings in rupees as well as in foreign currencies to finance their project involving huge outlays. The taxation benefit available on borrowings as against their capital has also influenced this course of finance as interest payment on the borrowed fund is an allowable expenditure for tax purposes.

In order to cater to the financial needs of such organizations, international capital markets or financial centers have sprung up wherever international trade centers have developed. Leading and borrowing in foreign currencies to finance international trade and industry has lead to the development of the international capital market.

International capital transactions have also taken place in the domestic capital markets of various countries. USA, Japan, UK, Switzerland, and West Germany have active such domestic capital market. Foreign borrowers raise money in these markets through the issue of foreign bonds. In the international market, international bonds are known as “Euro bonds”. The issue of Euro bonds is managed by a syndicate of international banks and placed with investors and lenders worldwide. The issue may be denominated in any of the countries for which liquid markets exist.

In the international capital market, the availability of foreign currency is assured under the four main systems viz.

i.                    Euro currency market.

ii.                  Export credit facilities.

iii.                Bond issues   and

iv.               Financial institutions.

                  

              The eurocurrency market was organized with dollar-dominated bank deposits and provide loans in Europe particularly, in London. These are also available at foreign branches of US Banks and at some foreign banks. Those deposits are acquired by these banks from foreign Governments and various firms and individuals who want to hold dollars outside the USA. Banks based in Europe accept dollar-dominated deposits and make dollar-dominated loans to the customers. This form of Euro currency market spread over the various parts of the world.

The creditors however insist on a bank guarantee. Several multinational banks of Japanese, American, British, German, and French origin operate all over the world, extending financial assistance for trade and projects. Several multinational banks like Citi Bank, ANZ Grindlays Bank, standard chartered bank, American Express, Bank of America, etc. are aggressive players in India and they issue specific Bank guarantees to facilitate business transactions between various parties, including government agencies, commercial borrowings as well as Exim bank finance.

I think one should understand the above things clearly.