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Type of Financial Markets
Financial markets are broadly categorised into different type based on the nature of assets traded. We can break down a country’s financial market into an internal market and an external market.
The internal market, which we also refer to as the national market, is made up of two parts:
- Domestic
- Foreign market
Domestic Market
The domestic market is where issuers domiciled in the country issue securities and where investors then trade those securities. For example, from the perspective of the United States, securities issued by Microsoft, a U.S. corporation, trade in the domestic market.
Foreign Market
The foreign market is where securities of issuers not domiciled in the country are sold and traded. For example, from a U.S. perspective, the securities issued by Toyota Motor Corporation trade in the foreign market. We refer to the foreign market in the United States as the “Yankee market.”
In Japan the foreign market is nicknamed the “Samurai market,” in the United Kingdom the “Bulldog market,” in the Netherlands the “Rembrandt market,” and in Spain the “Matador market.”
The regulatory authorities where the security is issued impose the rules governing the issuance of foreign securities. For example, non–U.S. corporations that seek to issue securities in the United States must comply with U.S. securities law. A non-Japanese corporation that wants to sell its securities in Japan must comply with Japanese securities law and regulations imposed by the Japanese Ministry of Finance.
The other sector of a country’s financial market is the external market. This is the market where securities with the following two distinguishing features are trading:
- At issuance the securities are offered simultaneously to investors in a number of countries. The securities are issued outside the jurisdiction of any single country.
- We also refer to the external market as the international market, the offshore market, and the Euromarket (despite the fact that this market is not limited to Europe).
