The Role of Global Financial Markets

Global financial markets are the economic conduits through which companies and individuals finance a variety of initiatives, such as funding startups as well as corporate mergers and acquisitions. Also known as a securities exchange or stock market, an international financial market allows diverse pools of investors to buy and sell shares of equity.

Corporate Financing

Corporate finance enables an organization to evaluate its funding needs and take a peak at corporate capital plans. A firm's capital structure provides insight into various sources of funds that it relies on to operate and thrive. Having access to cash is cardinal, especially for firms with moribund sales numbers. Specifically, global financial markets play a central role in allowing businesses to tap a vast pool of liquidity, a strategic tool that top leadership needs to ensure long-term economic success. Organizations raise funds through financial markets by issuing shares of equity, or stocks, and corporate bonds. Buyers of equity, also called stockholders, receive periodic dividends and make profits when share prices rise. Bondholders receive periodic interest payments during the bond term and recover the principal loan amount when the bond matures.

Investment Conduits

Global financial markets help individuals and companies engage in investment activities, enabling exchange participants to fulfill their short-term and long-term financial objectives. Individual investors buy and sell securities, such as stocks and bonds, for many reasons, including retirement and short-term speculation. Companies also engage in security transactions to generate additional revenue. This complementary revenue can be handy to reduce a company's red ink, especially if the firm's primary operations show a sluggish performance.

Types

International securities exchanges provide suitable tools for various investors, depending on market participants' investment strategies. The most prominent U.S.-based physical exchanges include the New York Stock Exchange and Chicago Mercantile Exchange. On the international stage, the Tokyo Stock Exchange and London Stock Exchange are among the largest financial markets. Physical stock exchanges allow many players to engage in trading activities, including individuals and firms that do not have investment as their primary business. Electronic markets, also known as over-the-counter -- or OTC -- exchanges enable market participants to buy and sell financial products that may not available on traditional exchanges. These non-traditional, or exotic, products include derivatives and collateral debt obligations. An example of OTC market is the National Association of Securities Dealers Automated Quotation, or NASDAQ.

Regulatory Oversight

In the global marketplace, government agencies regulate investors' activities, making sure that market players do not succumb to the lure of illegal trading. Regulators also monitor the annual reports of publicly listed companies, ensuring that top leadership does not report inaccurate data or hide mediocre operating results. Regulatory agencies include the U.S. Securities Exchange Commission and the U.K. Financial Services Authority.

References

• New York University --- Stern School of Business: Global Financial Markets
• International Monetary Fund: Global Financial Stability Report
• "The Emergence of Electronic Trading in Global Financial Markets: Envisioning the Role of Future Exchanges in the Next Millennium"; Michael Barrett and Susan V. Scott