...INTERNATIONAL FINANCIAL MARKETS Topic 1 THE STRUCTURE OF THE INTERNATIONAL FINANCIAL SYSTEM Agenda Recent developments in international financial markets The components of the international financial market The eurocurrency market The international equity market The international debt market The foreign exchange (currency) market Globalisation of financial markets The global economy has undergone through a number of structural changes in the past few decades: Real changes liberalization of product and factor markets, allied with technological developments increased output in many countries and particularly in the previously centrally planned economies Monetary changes a global commitment to maintain low rates of inflation after the boost in inflation in the ’70s Financial changes growing completeness and integration of world financial markets, fueled by deregulation and technology 3 Globalisation of financial markets Realities of global financial markets: Short-term nature of capital flows High turnover in financial markets Multiplicity of agents High number and complexity of instruments High speed with which market participants react to new information Global reach of financial institutions Implications: Growing integration of financial markets, including emerging markets Better financing of current account deficits Financial contagion risks 4 How developed are the world’s...
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...Summary: International Financial Markets (master blok 1) Book: Financial Markets and Institutions (a European perspective) – Haan et al. Author: Kim Cornelissen Chapter 1: Functions of the Financial System 1.1. Functions of a financial system The financial system Figure 1.1; page 5 – Working of the financial system Financial system: includes all financial intermediaries and financial markets, and their relations with respect to the flow of funds to and from households, governments, business firms, and foreigners, as well as the financial infrastructure. Main task is to channel funds from sectors that have a surplus to sectors that have a shortage of funds. Financial infrastructure: the set of institutions that enables effective operation of financial intermediaries and financial markets, including such elements as payment systems, credit information bureaus and collateral registries. * Direct finance: occurs if a sector in need of funds borrows from another sector via a financial market. Financial market: is a market where participants issue and trade securities. * Indirect finance: a financial intermediary obtains funds from savers and uses these savings to make loans to a sector in need of finance. financial intermediaries: coalitions of agents that combine to provide financial services, such as banks, insurance companies, finance companies, mutual funds, pension funds etc. Bank-based system: indirect finance is then the main route for moving funds...
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...Chapter 3 International Financial Markets Lecture Outline Foreign Exchange Market History of Foreign Exchange Foreign Exchange Transactions Foreign Exchange Quotations Interpreting Foreign Exchange Quotations Forward, Futures, and Options Markets International Money Market Origins and Development Money Market Interest Rates Among Countries Standardizing Global Bank Regulations International Credit Market Syndicated Loans Impact of the Credit Crisis on the Credit Market International Bond Market Eurobond Market Development of Other Bond Markets International Stock Markets Issuance of Stock in Foreign Markets Issuance of Foreign Stock in the U.S. Chapter Theme This chapter identifies and discusses the various international financial markets used by MNCs. These markets facilitate day-to-day operations of MNCs, including foreign exchange transactions, investing in foreign markets, and borrowing in foreign markets. Topics to Stimulate Class Discussion 1. Why do international financial markets exist? 2. How do banks serve international financial markets? 3. Which international financial markets are most important to a firm that consistently needs short-term funds? What about a firm that needs long-term funds? POINT/COUNTER-POINT: Should Firms That Go Public Engage in International Offerings? POINT: Yes. When a U.S. firm issues stock to the public for the first time in an initial public offering (IPO), it is naturally concerned about whether...
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...relying on derivatives for growth amid a dearth of merger and acquisition candidates in Asia. Exchanges worldwide have been building their futures and commodities businesses as the value of stock trading dropped 38 percent from June 2008, according to the World Federation of Exchanges. SGX has been searching for other growth avenues since its US$8.6 billion bid for ASX was rejected bu Australian regulators in April 2011. Located in Asia’s biggest oil-trading center, SGX also plans to introduce trading of gas and electricity futures in a few years, he said. Unit Asian Gateway Investments bought a 49 percent stake in Energy Market Co, operator of Singapore’s spot electricity market, for $17.6 million in August 2012. Key word: SGX derivative growth Analysis report This article appeared in The Straits Times at August 6 on page B12. Derivatives are financial contracts whose value derives from other related assets, such as foreign exchange, bonds, equities, commodities value. Because their values and those of the underlying assets because they have certain characteristics, derivatives are useful for hedging, speculation, arbitrage spreads, and adjusting the portfolio, at a lower cost. Derivatives have grown popular because they did not find the combination of the characteristics of other assets. [1] The most important derivatives are characterized by between their values and the value of their underlying assets close relationship. Here is the characteristics of derivatives: ...
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...1. One point of concern for you is that there is a trade-off between the higher interest rates in Thailand and the delayed conversion of baht into dollars. Explain what this means. ANSWER: If the net baht-denominated cash flows are converted into dollars today, Blades will not be obligated to depreciation in the future; in the end, there would be a decrease in the dollar cash flows and a depreciation of the baht. 2. If the net baht received from the Thailand operation are invested in Thailand, how will U.S. operations be affected? ANSWER: Essentially, Blades, Inc. will need to borrow additional funds in the United States due to the fact that in Thailand, the cash flow is used to support the U.S. operations. In order to do so, the funds will need to be at a 10 percent interest rate. Therefore, if the baht depreciates 10 percent over the next year, investments in Thai will yield 5 percent. This would then mean that the company would need to pay 10 percent interest on the funds that would be borrowed in the U.S. The baht, though, should be converted into dollars in order to be used in the United States. This will ultimately ensure that the people in Thailand will have a better-expected idea of the interest expenses. 3. Under the first plan, net baht-dominated cash flows (received today) will be invested in Thailand at 15 percent for a 1-year period, after which the bath will be converted to dollars… Does Holt’s plan seem superior in terms of dollar cash flows available...
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...Critically analyse the current state of the European Monetary Union. The European Monetary Union or the European Economic and Monetary Union (EMU) is the successor to its predecessor: The European Monetary System, and attempts to deliver an economic system which is unified and cohesive for all the members of the European Union. Perhaps the most notable and drastic change implemented under this systematic collection of policies is the adoption of the Euro currency over the national currencies of the member states out of which only the United Kingdom and Denmark have chosen to not follow in the footsteps of their fellow member countries. The European Monetary Union is essentially a complex but involved coordination of a common monetary policy amongst all members of the European union, accommodating fiscal and economic policies and most notably the currency common to all members, the Euro. This decision to form an exclusive and unified front was undertaken in December, of 1991, in the city of Maastricht in Netherlands and was later more firmly integrated in the Maastricht Treaty on the European Union. It has been designed as a tool to implement the full economic integration of the European Union and to complete the integration as one system, which started in 1957. Through this integration, the European Union hopes to gain the benefits of having a larger sized failsafe net, internal and cohesive efficiency combined together with the European Monetary Union, it would provide...
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...Islamic financial institution (AAOIFI) The AAOIFI is a non-profit organization that focuses mainly on the area of accounting and auditing for Islamic financial institutions. While recognizing the need for standards, AAOIFI was established on February 1990 in Algeria and was registered on March 1991 in the kingdom of Bahrain. The organization is supported by 200 institution members from 45 countries across the global. The AAOIFI is one of prominent Islamic agency that attempts to install accounting and auditing standard for Islamic financial industry. The main object is to develop and disseminate accounting and auditing thought relevant to Islamic financial institutions and their applications. Its tasks include holding seminars, publishing periodicals, newsletters, commissioning research and prepare, promulgate, interpret and review, the accounting and auditing standards for Islamic financial institutions. Its notable efforts are to inform and encourage banking supervisors around the world to adopt its standard as the benchmark for Islamic financial institutions in their countries. These attempts to improve the transparency and comparability of the financial reporting of Islamic financial institutions are bearing fruit. The AAOIFI’s standard has been applied in various countries such as Bahrain and Sudan which require Islamic Banks in their countries to follow AAOIFI’s standards. In Qatar and Saudi Arabia AAOIFI’s standards are specified as guidelines.To achieve international recognition...
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...the rapidly evolving area of international financial markets. It focuses on various aspects of international portfolio management and open-economy macroeconomics, and is a natural extension to the theories and practical issues explored in Investments and/or Finance. This course is aimed at students wishing to acquire a sound understanding of the main opportunities in international investments. For example, the relevance of hedging in the management of currency risk will be studied in light of theoretical results and empirical evidence. We will also briefly cover foreign direct investment (FDI), since in general, the revenue generated from FDI by U.S. firms is about three times as large as the revenue generated from the exporting of U.S. goods by U.S. firms. Due to the ever increasing importance of international corporate governance, there is a corresponding need to decipher and use information in financial reports. At least one class meeting and one case study will touch on some key issues in international financial reporting and analysis, such as financial disclosure/transparency, incentives for off-balance sheet liabilities, hedge accounting, lease accounting, footnote disclosures, and intercorporate equity investments, and international financial reporting differences. We will also use many real-life examples from market practices to emphasize the engineering dimensions of financial contract design (financial engineering), that market practitioners professionalize...
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...Week 2: Introduction to the Financial System 1.1 Functions of a financial market * Markets are the process that facilitates the exchange of things of values. These things of value are often categorised as real assets, such as a house or a car, and financial assets, such as a loan to buy a house or car. These could take place in a non-formal market place, non-market exchanges can be very time consuming. * It brings opposite parties together. If not, those with needs must go everywhere to find the items themselves e.g. milk at farms. This enables double coincidence of wants that is necessary before an exchange can take place * Money acts as a medium of exchange and solves the divisibility problem. (e.g. bag of potatoes might be worth half of the left rump, but a person would not just take off a rump from a living cow and directly exchange). Other roles include store of value (saving of individuals’ surplus earning). The funds saved by surplus units- those savers with current excess funds- can be put to use by those whose current demand for goods and services is greater than their current available funds. (Deficit units) * Financial institutions and markets facilitate financial transactions between the providers of funds and the users of funds. * Financial assets are represented by financial instrument that states how much has been borrowed, and when and how much is to be repaid by the borrower. E.g. money invested in a term deposit with a bank, the...
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...I. History of Islamic Banking in Malaysia Malaysia started Islamic banking in early 1980’s. Islamic Banking is especially true for Muslim world where currently Islamic banking strides at two separate fronts. At one side, efforts are also underway to convert the entire financial systems in accordance to Islamic laws (Shariah). At the other side, separate Islamic banks are allowed to operate in parallel to conventional interest based banks. Malaysia opted for the alternative gradual way of developing and implementing Islamic banking system. 1.1 Origin of Islamic Banking in Malaysia The roots of Islamic Banking in Malaysia should go back to 1963 when the government established Tabung Haji or Pilgrims Management and Fund Board. The organisatio was established to invest the savings of the local Muslims in interest free places, who want to carry out pilgrim (Haji). Tabung Haji utilizes Mudarabah (profit and loss sharing), Musharikah (joint venture) and Ijara (leasing) modes of financing for investment under the guidance of National Fatawah Committee of Malaysia. The first call for separate Islamic bank was made in 1980, in a seminar held in the National University of Malaysia. The members who attend had passed a decision requesting the government to create a special law to setup an Islamic bank in the country. Thereafter, the government had set up a National Steering Committee in 1981 to study legal, religious and operational aspects of organized an Islamic bank. The committee...
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...Financial Institutions, Instruments and Markets—7th edition Instructor’s Resource Manual Christopher Viney and Peter Phillips Chapter 1 A modern financial system Learning objective 1.1: explain the functions of a modern financial system • The introduction of money and the development of local markets to trade goods were the genesis of the financial system of today. • Money is a medium of exchange that facilitates transactions for goods and services. • With wealth being accumulated in the form of money, specialised markets developed to enable the efficient transfer of funds from savers (surplus entities) to users of funds (deficit entities). • A modern financial system comprises financial institutions, instruments and markets that provide a wide range of financial products and services. • A financial system encourages accumulated savings which are then available for investment within an economy. • Financial instruments incorporate attributes of risk, return (yield), liquidity and time–pattern of cash flows. Savers are able to satisfy their own personal preferences by choosing various combinations of these attributes. • By encouraging savings, and allocating savings to the most efficient users, the financial system has an important role to play in the economic development and growth of a country. Learning objective 1.2: categorise the main types of financial institutions, being depository financial institutions, investment banks and merchant banks,...
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...proverb says: “may you live in interesting times.” These times are now- financial markets are in turmoil, China is rising as economic power, young people from Europe and America are protesting against, what they see as ineffective government and regulations. In next years the world will change even more- also thanks to changes, that will be made as an answer to the global economic crisis- in terms of values, necessary institutions and policies. The first step toward ending the crisis is to introduce new regulations, that would stabilize the market. Since 1980’s the American financial market has been experiencing a long period of deregulation. Although the obvious results of this move- the example can be the deregulation of savings and loans companies, that led to crisis in 1989, the process continued. Decade later, in 1990’s the new market instruments- derivatives, became increasingly popular. Although, their allies argued that they would stabilize the market, the opposite happened. Any attempt to regulate hedge funds was cut out by Commodity Futures Modernization Act. The new regulations should be introduced not only to order the rules for derivatives market but also to control large banks and financial conglomerates (Goldman Sachs or JPMorgan Chase), whose every errors would(and have) tremendous consequences. The next act to resist the consequences of the global crisis is to establish international organizations that would...
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... | FS3032 – Capital Markets MODULE HANDBOOK 2014/15 - Semester 1 Module Lecturer: Dr Phan Tran Trung Dzung Faculty of Banking and Finance / FTU fandzung@ftu.edu.vn This module is supported by Weblearn – students are advised to access the site on a regular basis, at least once a week FS3032 Capital Markets |Teaching Location |A1101 | |Teaching Semester |1 | |Module Level |H | |Home Academic Department |LMBS | |Module Leader |Dr Phan Tran Trung Dzung | |Module Web Site |FS3032C | |Teaching Mode |Day | |Module Title |Capital Markets | |Timeslot | | |Credit Rating For Module |15 | Module Summary CODE: FS3032C TITLE: Capital Markets: Investment & Portfolio Management BRIEF DESCRIPTION: The world of finance...
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...Chapter 3 Factors Driving Further Change Introduction 3.1 This chapter describes the major factors driving change in the financial system and identifies some of their implications. The key regulatory challenges posed by these developments are examined in more detail in later chapters. Material presented in this chapter represents preliminary observations of the Inquiry and will be refined and amended as necessary for the Final Report. 3.2 Four key factors driving change are: globalisation; ¾ technology; ¾ consumer needs and demands; and ¾ financial innovation. ¾ 3.3 While this chapter addresses these factors separately, they interact with and affect one another. For example, global competitors have emerged in Australian markets partly because technological developments have enabled them to access Australian consumers. Similarly, consumer demand for certain financial products, such as securitised home mortgages, has been stimulated by technological developments that have made those products both feasible and accessible to consumers. 3.4 This chapter also considers market implications of these driving change, including changes to wholesale markets, financial providers, products, and distribution channels. Some of these implications are evident as early trends now, and the real question factors service market is how . . . 45 Financial System Inquiry quickly such trends will be borne out. Others fall into the realm of the merely possible. In order to frame recommendations...
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...False 10. True Essay questions 1. A highly developed and efficient financial system is essential to ongoing economic growth and prosperity. Discuss the component parts that form a financial system and the relevance of the above statement. A financial system consists of financial institutions, financial instruments and financial markets. Financial institutions are classified into five categories according to where they source their funds from and who uses their funds. These include: depository financial institutions e.g. banks; investment and merchant banks; contractual savings institutions e.g. insurance companies; finance companies and general financiers; unit trusts e.g. property trusts. Financial instruments are documents that entitle holders to future cash flows. They are classified into three categories: equity e.g. ordinary share; debt e.g. loan; derivatives e.g. futures contract. Financial markets are the means by which funds are transferred in financial systems and are broadly divided into money markets and capital markets, which are further split into primary and secondary markets. Examples of financial markets include stock market and foreign exchange market. 1 The primary function of the financial system is to facilitate the flow of funds from those who have surplus funds to those who have a shortage of funds. By providing a range of investment and borrowing opportunities, the financial system supports transactions within economies thus providing the means...
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