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45-557: The International Fund for Agricultural Development ( IFAD ; French: Fonds international de développement agricole (FIDA)) is an international financial institution and a specialised agency of the United Nations that works to address poverty and hunger in rural areas of developing countries . It is the only multilateral development organization that focuses solely on rural economies and food security . Headquartered in Rome , IFAD

90-413: A central bank able to engage in substantial open market operations . A variety of different players are active in the secondary markets. Individual investors account for a small proportion of trading, though their share has slightly increased; in the 20th century it was mostly only a few wealthy individuals who could afford an account with a broker, but accounts are now much cheaper and accessible over

135-468: A developing country and its emerging market , hence the term bilateral , as opposed to multilateral . Examples include: Financial institutions of neighboring countries established themselves internationally to pursue and finance activities in areas of mutual interest; most of them are central banks , followed by development and investment banks. The table below lists some of them in chronological order of when they were founded or listed as functioning as

180-519: A multilateral development bank would sometimes provide an additional layer of underwriting , resulting in risk being shared between the investment bank(s), the multilateral organization, and the end investors. However, since 1997 it has been increasingly common for governments of the larger nations to bypass investment banks by making their bonds directly available for purchase online. Many governments now sell most of their bonds by computerized auction. Typically, large volumes are put up for sale in one go;

225-451: A primary market or a secondary market . In a primary market, new stock or bond issues are sold to investors, often via a mechanism known as underwriting . The main entities seeking to raise long-term funds on the primary capital markets are governments (which may be municipal, local or national) and business enterprises (companies). Governments issue only bonds, whereas companies often issue both equity and bonds. The main entities purchasing

270-487: A dealer needs to manually intervene, this will often mean a larger fee. Traders in investment banks will often make deals on their bank's behalf, as well as executing trades for their clients. Investment banks will often have a division (or department) called "capital markets": staff in this division try to keep aware of the various opportunities in both the primary and secondary markets, and will advise major clients accordingly. Pension and sovereign wealth funds tend to have

315-478: A geographic concentration area for their development objectives. With this geographic and thematic focus, funding for a variety of ventures – often resource-intense infrastructure projects – is provided. Since MDBs have a shareholding structure and are backed by member countries, they tend to profit from favorable loan conditions compared to other banks and can therefore take more risks in their investment strategy. This aids their development-driven cause. Since

360-448: A government may only hold a small number of auctions each year. Some governments will also sell a continuous stream of bonds through other channels. The biggest single seller of debt is the U.S. government; there are usually several transactions for such sales every second, which corresponds to the continuous updating of the U.S. real-time debt clock. When a company wants to raise money for long-term investment, one of its first decisions

405-526: A legal entity. Some institutions were conceived and started working informally 2 decades before their legal inception (e.g. the South East Asian Central Banks Centre) Capital Markets A capital market is a financial market in which long-term debt (over a year) or equity -backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Capital markets channel

450-476: A negative effect on the primary borrowers: for example, if a large proportion of investors try to sell their bonds, this can push up the yields for future issues from the same entity. An extreme example occurred shortly after Bill Clinton began his first term as President of the United States; Clinton was forced to abandon some of the spending increases he had promised in his election campaign due to pressure from

495-662: A source of finance. Two additional differences, this time favoring lending by banks, are that banks are more accessible for small and medium-sized companies, and that they have the ability to create money as they lend . In the 20th century, most company finance apart from share issues was raised by bank loans. But since about 1980 there has been an ongoing trend for disintermediation , where large and creditworthy companies have found they effectively have to pay out less interest if they borrow directly from capital markets rather than from banks. The tendency for companies to borrow from capital markets instead of banks has been especially strong in

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540-810: Is a member of the United Nations Development Group . The current president of the IFAD is Alvaro Lario from Spain , who took over from Gilbert Houngbo in late 2022. International financial institutions A Multilateral Development Bank ( MDB ) is a development bank , created by a group of countries, that provides financing , technical assistance and professional advice to enhance development . An MDB has many members, including developed donor countries and developing borrower countries. MDBs finance projects through long-term loans at market rates, very-long-term loans below market rates (also known as credits), and grants. Additionally, MDBs often have

585-434: Is a win-win situation for all involved: investors are free to seek maximum returns, and countries can benefit from investments that will develop their industry and infrastructure. However, sometimes capital market transactions can have a net negative effect: for example, in a financial crisis , there can be a mass withdrawal of capital, leaving a nation without sufficient foreign-exchange reserves to pay for needed imports. On

630-526: Is concerned with long-term finance. In the widest sense, it consists of a series of channels through which the savings of individuals and institutions are made available for industrial and commercial enterprises and public authorities. This process of channeling savings into productive investments is crucial for economic growth and development. Moreover, capital markets provide opportunities for both individuals and institutions to diversify their investments, thereby managing risk and potentially enhancing returns over

675-445: Is effectively shared responsibility for repayment, the banks can often borrow more cheaply than could any one member nation. These banks include: There are also several multilateral financial institutions (MFIs). MFIs are similar to MDBs but they are sometimes separated since they have more limited memberships and often focus on financing certain types of projects. The best-known IFIs were established after World War II to assist in

720-572: Is involved in over 200 projects across nearly 100 countries. It funds and sponsors initiatives that improve land and water management, develop rural infrastructure, train and educate farmers in more efficient technologies, build up resilience against climate change, enhancing market accessibility, and more. IFAD has 177 member states and works in partnership with the Organization of the Petroleum Exporting Countries (OPEC) and members of

765-544: Is often lengthy due to regulatory requirements. On the secondary markets, there is no limit to the number of times a security can be traded, and the process is usually very quick. Transactions on the secondary market do not directly raise finance, but they do make it easier for companies and governments to raise finance on the primary market, as investors know that if they want to get their money back quickly, they will usually be easily able to re-sell their securities. Sometimes, however, secondary capital market transactions can have

810-460: Is whether to do so by issuing bonds or shares. If it chooses shares, it avoids increasing its debt, and in some cases the new shareholders may also provide non-monetary help, such as expertise or useful contacts. On the other hand, a new issue of shares will dilute the ownership rights of the existing shareholders, and if they gain a controlling interest, the new shareholders may even replace senior managers. From an investor's point of view, shares offer

855-621: The European Bank for Reconstruction and Development . The Islamic Development Bank is among the leading multilateral development banks. IsDB is the only multilateral development bank after the World Bank that is global in terms of its membership. 56 member countries of IsDB are spread over Asia, Africa, Europe and Latin America. A bilateral development bank is a financial institution set up by one individual country to finance development projects in

900-480: The IMF . There is no universally recognized standard for measuring all of these figures, so other estimates may vary. A GDP column is included for comparison. A great deal of work goes into analysing capital markets and predicting their future movements. This includes academic study; work within the financial industry for the purposes of making money and reducing risk; and work by governments and multilateral institutions for

945-557: The Organisation for Economic Co-operation and Development (OECD). As of 2021, since its foundation, IFAD has provided US$ 23.2 billion in loans and grants and coordinated an addition US$ 31 billion in international and domestic co-financing . In the early 1970s, global food shortages led to widespread famine , malnutrition , and mortality, particularly affecting the Sahel region of Africa. The world required long-term, coordinated approaches to

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990-599: The 2020s, in the context of the G20 , the World Bank - IMF Annual Meetings and other International Summits, MDBs have committed to multiple shared reform objectives. This MDBs Reform process aims to integrate MDBs in terms of operational practices, objectives, financial metrics and governance structures, enabling them to work as a system in development projects, to mobilize additional capital and achieve credit rating stability. The Capital Adequacy Framework (CAF) reform has been one of

1035-542: The EU's Capital Markets Union initiative. When a government wants to raise long-term finance it will often sell bonds in the capital markets. In the 20th and early 21st centuries, many governments would use investment banks to organize the sale of their bonds. The leading bank would underwrite the bonds, and would often head up a syndicate of brokers, some of whom might be based in other investment banks. The syndicate would then sell to various investors. For developing countries,

1080-577: The United States. According to the Financial Times , capital markets overtook bank lending as the leading source of long-term finance in 2009, which reflects the risk aversion and bank regulation due to the 2007–2008 financial crisis . Compared to the United States, companies in the European Union have a greater reliance on bank lending for funding. Efforts to enable companies to raise more funding through capital markets are being coordinated through

1125-722: The World Bank group's activities, but with particular focus on a specific region. Shareholders usually consist of the regional countries plus the major donor countries. The best-known of these regional banks cover regions that roughly correspond to United Nations regional groupings, including the Inter-American Development Bank , the Asian Development Bank ; the African Development Bank ; the Central American Bank for Economic Integration ; and

1170-405: The bond markets . In the 21st century, several governments have tried to lock in as much as possible of their borrowing into long-dated bonds, so they are less vulnerable to pressure from the markets. Following the 2007–2008 financial crisis , the introduction of quantitative easing further reduced the ability of private actors to push up the yields of government bonds, at least for countries with

1215-519: The bonds or stock on primary markets include pension funds , hedge funds , sovereign wealth funds , and less commonly wealthy individuals and investment banks trading on their own behalf. In the secondary market, existing securities are sold and bought among investors or traders, usually on an exchange , over-the-counter , or elsewhere. The existence of secondary markets increases the willingness of investors in primary markets, as they know they are likely to be able to swiftly cash out their investments if

1260-476: The counter-parties involved is in a foreign country. Whereas domestic regulatory authorities try to ensure that capital market participants trade fairly with each other, and sometimes to ensure institutions like banks do not take excessive risks, capital controls aim to ensure that the macroeconomic effects of the capital markets do not have a negative impact. Most advanced nations like to use capital controls sparingly if at all, as in theory allowing markets freedom

1305-522: The financial sector or the treasury departments of governments and corporations, but some can be accessed directly by the public. As an example, in the United States, any American citizen with an internet connection can create an account with TreasuryDirect and use it to buy bonds in the primary market. However, sales to individuals form only a small fraction of the total volume of bonds sold. Various private companies provide browser-based platforms that allow individuals to buy shares and sometimes even bonds in

1350-404: The form of shares/equities, and loans that are not expected to be fully paid back for at least a year. Funds borrowed from money markets are typically used for general operating expenses, to provide liquid assets for brief periods. For example, a company may have inbound payments from customers that have not yet cleared, but need immediate cash to pay its employees. But when a company borrows from

1395-443: The internet. There are now numerous small traders who can buy and sell on the secondary markets using platforms provided by brokers which are accessible via web browsers. When such an individual trades on the capital markets, it will often involve a two-stage transaction. First they place an order with their broker, then the broker executes the trade. If the trade can be done on an exchange, the process will often be fully automated. If

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1440-626: The largest holdings, though they tend to buy only the highest grade (safest) types of bonds and shares, and some of them do not trade all that frequently. According to a 2012 Financial Times article, hedge funds are increasingly making most of the short-term trades in large sections of the capital market (like the UK and US stock exchanges), which is making it harder for them to maintain their historically high returns, as they are increasingly finding themselves trading with each other rather than with less sophisticated investors. There are several ways to invest in

1485-543: The long term. Normal bank lending is not usually classed as a capital market transaction, even when loans are extended for a period longer than a year. First, these bank loans are not securitized (i.e. they are not packaged into a resaleable security like a share or bond that can be traded on the markets). Second, lending by banks is more heavily regulated than capital market lending. Third, bank depositors tend to be more risk-averse than capital market investors. These three differences all act to limit institutional lending as

1530-455: The main fields of MDB reform, aiming the enhance financing capacity and harmonize financial metrics among MDBs. The following are usually classified as the main MDBs: There are also several "sub-regional" multilateral development banks. Their membership typically includes only borrowing nations. The banks lend to their members, borrowing from the international capital markets . Because there

1575-443: The need arises. A second important division falls between the stock markets (for equity securities, also known as shares, where investors acquire ownership of companies) and the bond markets (where investors become creditors). The money markets are used to raise short-term finance; including loans that are expected to be paid back as early as overnight. In contrast, the "capital markets" are used to raise long-term finance, in

1620-408: The opportunity. Companies can avoid paying fees to investment banks by using a direct public offering , though this is not a common practice as it incurs other legal costs and can take up considerable management time. Most capital market transactions take place on the secondary market. On the primary market, each security can be sold only once, and the process to create batches of new shares or bonds

1665-525: The potential for higher returns and capital gains if the company does well. Conversely, bonds are safer if the company does poorly, as they are less prone to severe falls in price, and in the event of bankruptcy, bond owners may be paid something, while shareholders will receive nothing. When a company raises finance from the primary market, the process is more likely to involve face-to-face meetings than other capital market transactions. Whether they choose to issue bonds or shares, companies will typically enlist

1710-421: The primary capital markets, often the purpose is to invest in additional physical capital goods , which will be used to help increase its income. It can take many months or years before the investment generates sufficient return to pay back its cost, and hence the finance is long term. Together, money markets and capital markets form the financial markets , as the term is narrowly understood. The capital market

1755-444: The purposes of regulation and understanding the impact of capital markets on the wider economy. Methods range from the gut instincts of experienced traders, to various forms of stochastic calculus and algorithms such as Stratonovich-Kalman-Bucy filtering algorithm. Capital controls are measures imposed by a state's government aimed at managing capital account transactions – in other words, capital market transactions where one of

1800-581: The reconstruction of Europe and provide mechanisms for international cooperation in managing the global financial system . They include the World Bank , the IMF , and the International Finance Corporation . Today the largest IFI in the world is the European Investment Bank which lent 61 billion euros to global projects in 2011. The regional development banks consist of several regional institutions that have functions similar to

1845-468: The secondary market without directly buying shares or bonds. A common method is to invest in mutual funds or exchange-traded funds . It is also possible to buy and sell derivatives that are based on the secondary market; one of the most common type of these is contracts for difference – these can provide rapid profits, but can also cause buyers to lose more money than they originally invested. All figures given are in billions of US$ and are sourced to

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1890-410: The secondary markets. There are many thousands of such systems, most serving only small parts of the overall capital markets. Entities hosting the systems include investment banks, stock exchanges and government departments. Physically, the systems are hosted all over the world, though they tend to be concentrated in financial centres like London, New York, and Hong Kong. A capital market can be either

1935-464: The services of an investment bank to mediate between themselves and the market. A team from the investment bank often meets with the company's senior managers to ensure their plans are sound. The bank then acts as an underwriter , and will arrange for a network of brokers to sell the bonds or shares to investors. This second stage is usually done mostly through computerized systems, though brokers will often phone up their favored clients to advise them of

1980-550: The structural issues that were causing destitution and food shortages. IFAD was established as an international financial institution in 1977 through United Nations General Assembly Resolution 32/107 (15 December, 1977) as one of the major outcomes of the 1974 World Food Conference . The conference highlighted the vital importance of addressing food insecurity and poverty in emerging countries' rural communities. IFAD officially opened its headquarters in Rome , Italy and convened its first governing council with 120 member states and it

2025-449: The wealth of savers to those who can put it to long-term productive use, such as companies or governments making long-term investments. Financial regulators like Securities and Exchange Board of India (SEBI), Bank of England (BoE) and the U.S. Securities and Exchange Commission (SEC) oversee capital markets to protect investors against fraud, among other duties. Transactions on capital markets are generally managed by entities within

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