Internationalization of financial markets

 

The growing internationalization of financial markets has become an important trend. Before the 1980s, US financial markets were much larger than financial markets outside the United States, but in recent years the dominance of US markets has been disappearing. The extraordinary growth of foreign financial markets has been the result of large increases in the pool of savings in foreign countries such as Japan and of the deregulation of foreign financial markets which has enabled them to expand their activities. American corporations and banks are now more likely to tap international capital markets to raise needed funds, while American investors often seek investment opportunities abroad. Similarly, foreign corporations and banks raise funds from Americans, while foreigners are becoming important investors in the United States.

World Stock Markets and Euroequities. Until quite recently, the US stock market was by far the largest in the world, but foreign stock markets have been growing in importance. Now, the United States is not always number one. Starting in the mid 1980s, the value of stocks traded in Japan has at times exceeded the value of stocks traded in the United States. American investors now not only pay attention to the Dow Jones Industrial Average, but also to stock price indices for foreign stock markets such as The Nikkei Average (Tokyo) and the Financial Times-Stock Exchange 100-share Index (London).

The globalization of stock markets in the mid-1980s has prompted an innovative development in stock offerings. Euroequities are new stock issues that are sold primarily to institutional traders abroad. The increasing willingness to purchase foreign securities has stimulated spec­tacular growth in this market. By 1987, new issues in the Euroequities market, which was just three years old, exceeded $20 billion, and many experts predict that Euroequities will soon have a larger volume than new stock offerings in the United States. The internationalization of financial markets is having profound effects on the United States. Foreigners, particularly the Japanese, are not only providing funds to corporations in the United States, but they are also helping to finance a significant fraction of the federal government’s huge budget deficit in the 1980s. Without these foreign funds, the US economy would have grown far less rapidly. The internationalization of financial markets is also leading the way to a more integrated world economy in which flows of goods and technology between countries are more com­monplace.

 

1. Answer the questions:

 

1. How do inter­national factors influence the economy?

2. In what ways is information about companies available to public?

3. Which information about the companies’ activity is to be disclosed?

4. What are the requirements to a private person or an institution who are willing to be a financial intermediary?

5. How do you understand globalization of financial markets?

6. Why does the economy need the internationalization of financial markets?

 

2. Match each of the words on the left with the correct explanation on the right:

 

1. security	a. stock exchange for newer and smaller companies, and those that do not wish to meet all the major stock exchanges’ rules
2. capital market	b. a merchant such as a shopkeeper who sells to the final customer
3. secondary market	c. remained to be paid
4. over-the- counter market	d. the banks and financial institutions from which companies and governments can raise long term finance
5. negotiable instrument	e. a market on which second-hand bearer shares and bonds can freely be traded by their first and subsequent owners
6. dealer	f. salable papers, traded on stock exchanges, that yield an income
7. bond	g. an instrument the right to receive payment of which may be transferred by one person to another
8. retailer	h. an interest-bearing security, redeemed after a fixed period
9. outstanding	i. a person who buys and resells merchandise or services to make a profit
10. fluctuations	j. large organizations such as insurance companies, unit trusts, pension funds that have large sums of money to invest
11. institutional investor	k. upward and downward movements in the economic system
12. voucher	l. a receipt that supports or proves an item in an account

 

3. Speak on:

1. The function of a financial market.

2. Financial markets in Russia.

3. Exchanges and OTC markets.

4. Exchanges, money and capital markets in Russia.

5. Globalization of financial markets.

6. Protecting customers of financial intermediaries.

4. Make written translation of the text into Russian:

All financial intermediaries have the ability to create credit and, therefore, augment the total supply of loanable funds. Ordinarily, when commercial banks create credit (acquire loans and invest­ments), they expand their liabilities in the form of demand deposits. NFIs (nonbank financial institutions) such as savings and loans and mutual savings banks (MSBs) also add to the supply of loanable funds when they create credit. The ability of financial intermediaries to create credit and expand the supply of loanable funds contributes greatly to the smooth func­tioning of the economy. Stated differently, they help to bridge the gap between production and consumption. The excess demand by credit­worthy borrowers is translated into effective demand for goods and services by intermediaries who expand the supply of loanable funds to augment current income available for purchases.

One of the reasons that financial intermediaries have been suc­cessful in attracting funds is that they reduce the exposure to risk that savers ordinarily would have to face. Without intermediaries, savers would have to evaluate the credit risk (the chance of nonpayment at maturity) for each borrower to whom they have entrusted funds. This, of course, would take time and specialized knowledge.

By employ­ment of experts in credit analysis, through diversification, and through economies of scale, financial intermediaries reduce the risk exposure to the individual saver.

 

5. Translate the text into English:

Поскольку большинство сбережений совершается семейными xозяйствами, а большинство инвестиций осуществляется фирмами, то необходим некий набор механизмов, осуществляющий перемещение потоков денежных фондов от первых ко вторым. Именно эти механизмы создаются благодаря функционированию финансовых рынков.

Финансовые рынки состоят из множества разнообразных «каналов», по которым денежные средства «перетекают» от собственников сбережений к заемщикам. Эти каналы можно подразделить на две основные группы.

К первой группе относятся так называемые каналы прямого финансирования, то есть такие каналы, по которым средства перемещаются непосредственно от собственников сбережений к заемщикам. Можно выделить две подгруппы способов прямого финансирования. Капитальным финансированием называется любое соглашение, по которому фирма получает денежные средства для осуществления инвестиций в обмен на предоставление права долевого участия в собственности на эту фирму. Наиболее известный пример — продажа корпорациями обыкновенных (простых) акций.

Еще одна подгруппа способов прямого финансирования - это финансирование путем получения займов (debt finance). К этой категории относится любое соглашение, согласно которому фирма получает денежные средства для осуществления инвестиций в обмен на обязательство выплатить эти средства в будущем с оговоренным процентом, причем права на долю собственности на фирму кредитор не получает. В этом случае широко известным примером является продажа облигаций, то есть, сертификатов, представляющих собой обязательства выплатить долг в течение определенного количества лет с процентом, причем сделать это в соответствии с заранее оговоренным графиком.

Вторая группа каналов финансового рынка — каналы так называемого косвенного финансирования. При косвенном финансировании средства, перемещающиеся от семейных хозяйств по направлению к фирмам, проходят через особые институты, к числу которых относятся, например, банки, взаимные фонды, а также страховые компании. Эти организации называются финансовыми посредниками.

 

UNIT 4