Other Exchanges
Other Exchanges
In most developing countries, the financial system is bank-oriented and strongly controlled by the government. However, equity markets can make a significant contribution to corporate development and can be a source of funding for MNEs that want to locate in those countries and get access to local capital. Equity markets are an important tool for economic development, they can help mobilize investment funds, and they can lower the cost of capital for firms. However, there are also a number of problems in the development of equity markets in developing countries. The major costs are the inevitability of market cycles, causing difficulties in raising capital; interest-rate fluctuations; intermediation costs (the costs of establishing, maintaining, regulating, and using the markets); the need for additional regulation; the loss of some control by the government over the financial system; possibilities of speculation and dishonest activities; and inefficient allocation of resources from a national perspective.25
In spite of the problems identified above, there are a number of emerging markets in the developing countries. There are three levels of emerging markets:
? established markets, such as Greece, Spain, Mexico, and Brazil, that have been in existence for a long time, although their volume has not been tremendous;
emerging markets, such as Hong Kong and Singapore, that have arisen because of special situations; and
markets, such as South Korea, that were specifically organized more recently to foster or accelerate economic growth.
Even though these markets are growing and contributing to economic growth, they are not major players in the international equities market. Of the top 20 exchanges in the world that deal in foreign securities, only Kuala Lumpur, Malaysia, and Hong Kong are in developing countries. The stock markets in most emerging markets simply do not do enough volume in enough securities to attract the needed capital. The high rates of inflation and uncertain returns that are present in many of the emerging markets also cause problems in attracting capital.
In most developing countries, the financial system is bank-oriented and strongly controlled by the government. However, equity markets can make a significant contribution to corporate development and can be a source of funding for MNEs that want to locate in those countries and get access to local capital. Equity markets are an important tool for economic development, they can help mobilize investment funds, and they can lower the cost of capital for firms. However, there are also a number of problems in the development of equity markets in developing countries. The major costs are the inevitability of market cycles, causing difficulties in raising capital; interest-rate fluctuations; intermediation costs (the costs of establishing, maintaining, regulating, and using the markets); the need for additional regulation; the loss of some control by the government over the financial system; possibilities of speculation and dishonest activities; and inefficient allocation of resources from a national perspective.25
In spite of the problems identified above, there are a number of emerging markets in the developing countries. There are three levels of emerging markets:
? established markets, such as Greece, Spain, Mexico, and Brazil, that have been in existence for a long time, although their volume has not been tremendous;
emerging markets, such as Hong Kong and Singapore, that have arisen because of special situations; and
markets, such as South Korea, that were specifically organized more recently to foster or accelerate economic growth.
Even though these markets are growing and contributing to economic growth, they are not major players in the international equities market. Of the top 20 exchanges in the world that deal in foreign securities, only Kuala Lumpur, Malaysia, and Hong Kong are in developing countries. The stock markets in most emerging markets simply do not do enough volume in enough securities to attract the needed capital. The high rates of inflation and uncertain returns that are present in many of the emerging markets also cause problems in attracting capital.
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