This is the process of transferring funds from those who have and are not willing to spend (resource abundant sectors) to those who do not have and are willing to spend (resolve deficit sectors)

Financial mobilization is carried out by financial intermediaries because in less developed countries individuals tend to hoard money i.e. keeping money in unproductive ventures. Hence in such countries there is need to stimulate the process of financial mobilization.

Financial intermediation is the process which involves an individual or an institution and it revolves around the following;

  • To accept funds from other individuals or institutions
  • To lend out these funds to other individuals or institutions

Therefore a financial intermediary is an institution which acts as a middleman between those who have funds which they don’t intend to spend and those who have funds and wish to spend. Hence, financial intermediaries stimulate the process of financial mobilization.

Advantages / benefits of financial intermediaries

  • Financial intermediaries provided a ready source of finance to the borrowers.
  • It leads to risk reduction i.e. there is transfer of risk from the savers to the financial intermediary who assumes all the risk involved in lending the money to the borrowers.
  • They provide a ready market for all the savers to deposit their money.
  • It leads to maturity transformation. This is the aspect of borrowing for a short period of time and leading for a long period of time i.e. the financial intermediary borrows for a short period of time from savers and lends to investors for a long period of time. This is because normally there is a conflict of interest between the resource deficit and the resource abundant sectors of the economy as far as the maturity period of the loan is concerned.
  • Financial intermediaries re-package the amounts received from savers and lend them out to the borrowers in different amounts.
  • They offer advice to the borrowers on the available investment opportunities



This refers to the listing of securities of a foreign company in a domestic stock exchange or where the securities of a domestic company are listed in a foreign stock exchange.

Companies that practice cross border listing have their securities traded in various stock exchanges in different countries e.g. Kenya Airways and East African Breweries which are quoted in the NSE are also quoted in the Ugandan Stock Exchange. Also the shares of Barclays and Standard Chartered Bank which are quoted in the London Stock Exchange and NSE respectively.


Reasons for cross border listing

  1. To increase the trading volume of the company’s securities since the securities are traded in more than one stock exchange.
  2. Raising debt or equity capital i.e. the funds available in the domestic market may not be sufficient for the investment needs of the company and hence cross border listing will increase the borrowing capacity of the company.
  3. For risk diversification i.e. a company that is cross border listed will have a well diversified portfolio of shares thus spreading risks associated with the fluctuation of share prices hence creating stability in the share price.
  4. Mobilization of saving across regions. That is cross border listing will ensure mobilization of savings held by individuals and institutions in different capital markets.
  5. Acquisition of overseas investors and customers. Cross border listing will the boost the company’s status in the global market hence increasing the market share of the company and generating investments from foreign countries are able to invest in the local market.
  6. To improve the goodwill of the company i.e. there will be an improved public image and brand awareness as a result of cross border listing. This is because the company will attract media interest in different countries thus improving its corporate image and hence increase its sales volume.

Factors to consider when seeking cross border listing

  1. The political environment in the foreign country where cross border listing is to take place.
  2. The economic trends of the country where cross border listing is to take place e.g. the taxation policy, inflation rate, fiscal policy etc
  3. Availability of opportunities of adequate returns in the foreign country i.e. the performance of other companies in the foreign country.
  4. The infrastructural development in the foreign country where cross border listing is to take place
  5. Technological advancement in the foreign country where cross border listing is to take place.
  6. Monetary policies e.g. the level of interest rates and its impact on investment e.g. a high interest rate means a high cost of debt capital and vice versa

Difficulties or problems affecting cross border listing

  1. They are normally many disclosure requirements in the foreign markets which increases the cost of cross border listing.
  2. There’s normally the strict requirement that a particular percentage of the shares quoted in the foreign market should be in the public hands of the citizens of the foreign country.
  3. The minimum share prices and market capitalization also limits cross border listing i.e. the foreign government may require that the share should be issued at a given price which should be affordable to its citizens.
  4. The legal restrictions in the foreign market relating to the regulations of the capital markets.
  5. Restrictions on the rules restricting a listed company from making changes on the management before informing the capital market.
  6. In some instances the previous trading records of the company may be required and if the company does not have any experience in dealing with the foreign market then it may not be allowed to be listed in the foreign market


Miller, Silber and Van Home characterize and describe financial innovations as unanticipated improvements in the array of financial products and instruments that are stimulated by unexpected tax or regulatory impulses.

They cite the following examples;

  • The Eurobond market merged in response to a 30% withholding tax imposed by the US government on interest payment on bonds sold in the US to overseas investors
  • Zero coupon bonds were offered to exploit the mistake of the internal revenue service in the US which permitted deduction of the same amount each year for tax purposes (The tax authority employed simple interest and not compound interest)
  • Financial futures came into being when the Bretton woods system of fixed exchange rates was abandoned in the early 1970s.
  • Paper currency was invented when the British government prohibited the minting of coins by the colonial North America
  • The euro dollar market was developed in response to the regulation in the US that imposed a ceiling on the interest rate payable on time deposits with commercial banks.
  • Financial swaps emerged initially in response to a restriction imposed by the British government on dollar financing by British firms and sterling financing by non British firms


Financial innovations hence refer to the improvements of financial products that are stimulated by unexpected impulses. The common types of financial innovations are swaps, Eurobonds, Zero coupon bonds, portfolio insurance and options.

Factors responsible for financial innovations

  1. High level of transaction costs
  2. Need to reduce agency cost
  3. Existing opportunities to increase liquidity of assets for example factoring of debts.
  4. Regulatory and legislative changed which leads to volatility of interest and exchange rates.
  5. The move to floating exchange rates; the major fluctuations in exchange rates have added uncertainty to all international transactions
  6. Computers and information technology- computers can be used to design and develop new products and strategies since they can provide for a large data processing capacity.
  7. The world economic growth – evidence has it that the growth in the world economy can be attributed to improvement financial performance
  8. Regulations and de-regulations- some innovations are propelled by government regulations for example swaps.
  9. Cross listing of securities across stock exchanges
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