There are many factors that can influence International capital market. With the development of online trading, there is a close link of all the capital markets in the world. These markets have become highly sensitive to International changes. Political risks and commercial risks may also influence trading in International capital market.
Significance of Gold Price:
Gold price will also influence capital market transactions. Whenever the price of gold increases, there will be a downward trend in the international capital market.
Significance of Interest Rate:
Similarly, varying interest rates between countries will also influence capital movements and the stock prices may tumble or recover. As international capital markets are active throughout the day, there is a close monitoring of prices.
Derivative markets are an important component of capital market. Banks and other financial institutions invest their funds in derivative markets. In the year 1999, Nicklesson of Baring Bank resorted to derivative trading in Singapore Market. When the market crashed, it resulted in the collapse of the Baring Bank.
The Brokers in the international capital market, take advantage of the price differences between two markets and earn profits which are called arbitrage.
Any fluctuations in the value of currency will also influence the capital market. An increase in the domestic currency value will attract inflow of capital, while a decrease in the domestic currency value will lead to flight of capital. Hence, the fiscal policy of the government should be carefully monitored.