The following sections provide descriptions of some of the main participants referred to financial services industry. ....
International Banking
International banking refers to banking activities that involve cross-border transactions. The world’s largest banks are evenly distributed across the US, the EU and Japan in terms of their country of incorporation.
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Within the top 25 banks there were two Chinese banks and one Swiss bank in 2004, with the remaining 22 being headquartered in the US, the EU or Japan. The most ‘international’ bank, judging by the distribution of its offices, is HSBC. Although being incorporated in the UK and having its headquarters in London, it has 58% of its offices in the Americas - mostly in the US and Brazil.
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Citigroup, the world’s largest bank, has a strong presence across the time zones, with over 30,000 employees in each of the European and Asia-Pacific regions. 3.2.2 Equity MarketsEquity markets are the best known of financial markets and facilitate the trading of shares in quoted companies.
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According to the 2005 Annual Report from the World Federation of Exchanges, the total value of shares quoted on the world’s stock exchanges reached US$41 trillion at the end of 2005. The New York Stock Exchange is the largest exchange in the world with a domestic market capitalisation of US$13 trillion - domestic market capitalisation is the value of shares listed on an exchange.
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The second largest is NASDAQ at US$3.6 trillion meaning that the two New York exchanges account for 40% of all exchanges. By comparison, Europe’s three largest exchanges - the London Stock Exchange (LSE), Euronext (which includes the Amsterdam, Brussels, Lisbon and Paris exchanges) and Deutsche Börse - had a domestic stock market capitalisation of US$6.9 trillion at the end of 2005.
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The same report shows that Asian exchanges also have an important share of world trading. The Tokyo Stock Exchange had a domestic market capitalisation of US$4.5 trillion, whilst other Asian and Pacific exchanges add a further US$4.8 trillion. Indian and Chinese exchanges, though still in their infancy, together had a domestic market capitalisation of US$1.5 trillion according to the 2005 Annual Report from the World Federation of Exchanges.
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India’s stock exchange is the fastest growing in Asia in percentage terms, and amongst the fastest growing in the world.
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Bond Markets
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Although less well known than equity markets, bond markets are larger both in size and value of trading. The stocks traded range from domestic bonds issued by companies and governments to international bonds issued by companies, governments and supra-national agencies such as the World Bank.
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According to the Bank for International Settlements, the total value of the global bond market measured by the amount of bonds outstanding reached €46 trillion in 2005. The US has the largest bond market, but trading in international bonds is predominantly undertaken in European markets.
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Foreign Exchange Markets
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Foreign exchange markets are the largest of all financial markets with average daily turnover in the region of US$2,500 billion. Europe is the largest market for foreign exchange trading, accounting for over half of total trading worldwide.
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Most of that activity takes place in the UK which accounts for around a third of global trading.The US is in second position. Japan has consolidated its position as the third largest foreign exchange trading location, ahead of Singapore and Hong Kong.
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The rate at which one currency is exchanged for another is set by supply and demand. For example, if there is strong demand from Japanese investors for US assets, such as property or bonds and shares, the US dollar will rise in value.
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Foreign exchange (Forex) rates tend to reflect:
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• prospects for growth; and
• comparative interest rates.
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Forex rates will have a substantial impact on businesses that engage in international trade by importing and/or exporting. As a result, there is an active foreign exchange market that enables companies to deal with their cash inflows and outflows denominated in overseas currencies.
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The market is provided by the major banks, who each provide rates of exchange at which they are willing to buy or sell currencies. Historically, most foreign exchange deals were arranged over the telephone, however electronic trading is becoming increasingly prevalent.
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The spot rate is the rate quoted by a bank for the exchange of one currency for another immediately although, in many cases, spot deals do not ‘settle’ (that is, the two currencies do not change hands) until two business days have elapsed.
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The forward rate is the rate quoted by a bank for the exchange of one currency for another at some agreed future date. Companies entering into forward transactions will know how much an overseas currency will cost or generate in advance. This will enable the companies to plan and budget more accurately.
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