The Financial System, International Finance, International Capital Market & Global Bank Loan
The Financial System, International Finance, International Capital Market & Global Bank Loan
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Finance refers to the management & creation of money and investments. In order to have a global picture of finance, four terms are essential to understand: the financial system, international finance, international capital market & an international bank loan.
What does the financial system, international finance & international capital market refer to? the financial system [global level] is the set of financial institutions that exist across countries, international finance on the other hand refers to monetary transactions between countries finally the international capital market refers to borrowing & investment across countries, finally, global bank loan which is used by firm to finance overseas expansive.
In this paper, the first part will be dedicated to the (I) financial system & in the second part, (II) international finance will be discussed & finally, in the third part the (III) international capital market will be explored. & finally in the fourth part, (IV) international bank loan is briefly discussed.
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I- Financial System
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The global financial system refers to a broader regional system and Is made of all financial institutions across countries, the financial system includes the private sector: fintech firms (digital banks, insurtech, etc), banks, stock exchange, factoring companies, insurance; inter-governmental organizations & government institutions such as central banks, ministry of finance & agencies. The financial system is made of several components depending on 3 levels. The 1st level [Firm]: Within a enterprise, the financial system encompasses all aspects of finances, including accounting measures, revenue and expense schedules & balance sheet verification among others. The 2nd level [regional]: the financial system enables the exchange of funds between lenders & borrowers. It is made of financial institutions such as banks & financial clearinghouses. The 3rd level [global]: the global financial system will include, all financial institutions, central banks, international institutions globally.
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II- International Finance
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International finance (international macroeconomics) refers to monetary interactions across countries, FDI - foreign direct investment & currency exchange rate are all part of international finance. The value of Foreign Direct Investment (FDI) inflows was in 2021, $1.58 trillion. FDI - foreign direct investment refers to the purchase of an interest in a company by a firm or an investor located outside its borders. There are 3 types of FDIs, conglomerate type of foreign direct investments refers to investment made by a foreign business that are unrelated to its core business sometimes done through a joint-venture, horizontal direct investment this is when a firm establishes the same type of business operation in a foreign country & finally vertical investment where a firm acquires a complementary business in another country. FDIs are used by firms to grow and involve M&A - mergers & acquisitions, or partnerships. It is important to note, ease of doing business enables inward FDI.
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III- International Capital Market
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Capital markets (stock market/ bond market) are composed of primary and secondary markets. International Capital markets are the same mechanism but in the global sphere; firms, individuals & governments borrow and invest across national boundaries. Components of the international capital markets include:
​- International Equity Markets: which consists of all the stock traded in a foreign country.
​- International Bond Markets: consists of all the bonds sold in a foreign country.
- Foreign Bond: A bond sold by an entity in another country and issued in the currency of the country in which it is being sold.
- Eurobond: A Eurobond (external bonds) is a debt instrument that's denominated in a currency other than the home currency of the country or region in which it is issued.
- Eurocurrency Markets: The eurocurrency market is utilized by banks, multinational corporations, mutual funds & hedge funds.
- Global Bond: A global bond is a bond that is sold in several global financial centers at the same time. It is denominated in one currency, usually US dollars or Euros. Global bond enable a firm to reduce its issuing cost.
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IV- Global Bank Loan
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A loan can be provided to firms by a bank in order to finance their investments done overseas. There are various types of global bank loan, a global bank loan can be the following:
- a credit is obtained by internal firms that requires export/import financing, or for international expansion.
- an international bank loan (global bank loan) provided by a bank to firms globally to finance their investments, this loan can be beneficial to export (manufacturing).
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The [global] financial system, international finance, international capital market & international bank loan are found in the Figure below. Figure 1: [Global] Financial System, International Finance, International Capital Market & International Bank Loan.
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Figure 1: [Global] Financial System, International Finance, International Capital Market & International Bank Loan
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To conclude, the global financial system includes all financial institutions; investors, lenders & borrowers who exchange current funds to finance projects; the international finance is concerned with monetary interactions between countries thereby including firms from all industries; the international capital markets enable firms to access capital in a foreign country to diversify their borrowing & investments and finally, global bank loan, is financing provided to firms to finance international expansion.
