The purpose of this section is to provide a perspective on the major segments of the global financial market. We will discuss only the broad characteristics of the principal segments in terms of institutions, regulatory and supervisory features, and commonly available borrowing instruments.
For each major currency, we will look at the domestic segment and, where relevant, its offshore or euro counterpart.
The U.S.Dollar Market
The US financial market is the largest and the most versatile financial system in the world. It has the broadest range of funding options to offer and some of the most sophisticated and innovative financial institutions. The importance of this market is further enhanced by the dominant role played by the US dollar as the vehicle currency in’ international transactions though over the years this has declined somewhat. At the same time, it is not a market, which is readily accessible by borrowers from developing countries like India except perhaps those with the highest ratings and sovereign guarantees.
In some ways the US financial system is perhaps the freest system. Institutions enjoy complete operational freedom in terms of products and instruments offered, pricing etc. In other
ways, it is subject to a host of supervisory regulations both from the Federal and State authorities. The core of this regularity apparatus is protection of depositors and investors.
The financial system consists of a network of commercial banks, domestic and foreign, investment banks and a variety of non-bank financial institutions – insurance companies, pension
funds, mutual funds, savings and loan associations.
American banks are subject to perhaps the world’s most stringent regulatory framework both at the Federal and state levels. The three regulatory I supervisory authorities are the Comptroller of Currency, the Federal Reserve Board (the Central Bank of US) and Federal Deposit Insurance Corporation. The strict demarcation between commercial and investment banking is still in force but likely to be removed in the near future.
Deposit insurance designed to provide protection to small depositors is also a unique feature of the American banking system. Geographical expansion of branches of commercial banks is also strictly regulated.
Capital markets are subject to regulation by the Securities Exchange Commission (SEe); the emphasis is on full disclosure for investor protection. All public issues have to be registered with the SEC and the required information must be fully disclosed at the time of issue and periodically update thereafter. “Shelf registration” is possible under which the issuer prepares all the necessary documentation in advance of the issue. (Supplemental documentation must b_ provided at the time of issue) In terms of funding options, the dollar sector, both domestic
and Eurodollar offers a wide choice and considerable depth.
However, due to strict regulation and disclosure requirements, the domestic dollar market is not easily accessible while the Eurodollar segment is more freely accessible. .