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Management of Financial Institutions

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Management of Financial Institutions - MGT 604
VU
Lecture # 11
MAJOR DRIVERS OF FINANCIAL INDUSTRY
MACRO ECONOMIC PERFORMANCE OF A COUNTRY
National Income
People of any country produce a specific quantity of different goods and services from the
natural resources by the help of capital goods with in a specific period, usually one year and
this is called income of a country
Concepts of National Income
1. Gross National Product "GDP" or Gross National Income "GNI" GDP or GNI is
defined as "the total market value of all the final goods and services produced in a year."
2. Net National Product "NNP" or Net National Income "NNP"
"It means net value of all the goods and services produced in a country during a year is
called Net National Income."
Difference b/w GDP & GNP
1.
GDP is the value of goods and services in the country during a year minus the value
of inputs.
2.
GNP represents GDP plus net factor income payments from abroad.
MAJOR DRIVERS OF FINANCIAL INDUSTRY
Regulating risk and the importance of risk management
Key challenge for regulators is to find ways to manage risks adequately. They have to
ensure the prudential soundness of financial institutions and the stability of the system at
large. But they also have to avoid stifling innovation and limiting the growth potential of the
institutions concerned.
Basel 2 Type Rules for Insurers
Challenge in regulating institutions is to reflect market structures. There are now increasing
calls to apply the principles of the Basel 2 bank capital accord to insurance regulation.
There is an important angle to this call. Systemic risk in a financial stability sense is not any
longer confined to banks. The process of securitization has changed all that. And more
recently, growing inter linkages with the insurance sector emphasize the need for a further
rethink.
GLOBAL FINANCIAL SYSTEM
The global financial system (GFS) is a financial system consisting of institutions and
regulations that act on the international level, as opposed to those that act on a national or
regional level. The main players are the global institutions, such as International Monetary
Fund and Bank for International Settlements, national agencies and government
departments, e.g., central banks and finance ministries, and private institutions acting on the
global scale, banks and hedge funds.
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Management of Financial Institutions - MGT 604
VU
HISTORY OF INTERNATIONAL FINANCIAL INSTITUTIONS
In Europe, it may have started with the first commodity exchange, the Bruges Bourse in
1309 and the first financiers and banks in the 1400­1600s in central and Western Europe
The first global financiers the Fuggers (1487) in Germany; the first stock company in
England (Russia Company 1553); the first foreign exchange market (The Royal Exchange
1566, England); the first stock exchange (the Amsterdam Stock Exchange 1602).
Milestones in the history of financial institutions are the Gold Standard (1871­1932), the
founding of IMF, World Bank at Bretton Woods, and the abolishment of fixed exchange
rates in 1973.
INTERNATIONAL FINANCIAL INSTITUTIONS
International Monetary Fund
The International Monetary Fund keeps account of international balance of payments
accounts of member states. The IMF acts as a lender of last resort for members in financial
distress, e.g. currency crisis, problems meeting balance of payment when in deficit and debt
default. Membership is based on quotas, or the amount of money a country provides to the
fund relative to the size of its role in the international trading system. The IMF describes
itself as "an organization of 185 countries (Montenegro being the 185th, as of January 18,
2007), working to foster global monetary cooperation, secure financial stability, facilitate
international trade, promote high employment and sustainable economic growth, and reduce
poverty". With the exception of North Korea, Cuba, Andorra, Monaco, Tuvalu, and Nauru,
all UN member states participate directly in the IMF. Some are represented by other
member states on a 24-member Executive Board but all member countries are members of
the IMF's Board of Governors.
Membership Qualifications
Any country may apply for membership to the IMF. The application will be considered first
by the IMF's Executive Board. After its consideration, the Executive Board will submit a
report to the Board of Governors of the IMF with recommendations in the form of a
"Membership Resolution.
The World Bank
The World Bank (the Bank), a part of the World Bank Group (WBG), was formally
established on December 27, 1945, following the ratification of the Bretton Woods
agreement. The concept was originally conceived in July 1944 at the United Nations
Monetary and Financial Conference. Two years later the Bank issued its first, & smallest,
loan; $250 million to France for post-war reconstruction; an issue which has remained a
primary focus, alongside reconstruction after natural disasters, humanitarian emergencies &
post-conflict rehabilitation needs affecting developing & transition economies.
The World Bank, as it is commonly referred to, consists of two agencies of the five that
comprise the World Bank Group:
1. The International Bank for Reconstruction & Development (IBRD)
2. The International Development Association (IDA)
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Management of Financial Institutions - MGT 604
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Activities of World Bank
The World Bank's activities are focused on the reduction of global poverty, focusing on the
achievement of the Millennium Development Goals (MDGs), goals calling for the
elimination of poverty and the implementation of sustainable development. The constituent
parts of the Bank, the IBRD and the IDA, achieve their aims through the provision of low or
no interest loans and grants to countries with little or no access to international credit
markets. The Bank is a market based non-profit organization, using its high credit rating to
make up for the low interest rate of loans. The Bank not only provides financial support to
its member states, but also analytical and advisory services to facilitate the implementation
of the lasting economic and social improvements that are needed in many
Under-developed countries, as well as educating members with the knowledge necessary to
resolve their development problems while promoting economic growth.
Country Assistance Strategies
As a guideline to the World Bank's operations in any particular country, a Country
Assistance Strategy is produced, in cooperation with the local government and any
interested stakeholders and may rely on analytical work performed by the Bank or other
parties. In the case of low income countries, the Country Assistance Strategy is derived
from the country's Poverty Reduction Strategy Paper.
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Table of Contents:
  1. Financial Environment & Role of Financial Institutions:FINANCIAL MARKETS &INSTITUTIONS
  2. FINANCIAL INSTITUTIONS:Non Banking Financial Companies
  3. CENTRAL BANK:Activities and responsibilities, Interest Rate Interventions
  4. POLICY INSTRUMENTS:Open Market Operations, Capital Requirements
  5. BALANCE OF TRADE:Balance of Payments Equilibrium, Public Policy and Financial Stability
  6. STATE BANK OF PAKISTAN:History, Regulation of Liquidity, Departments
  7. STATE BANK OF PAKISTAN - VARIOUS DEPARTMENTS:Banking Inspection Department
  8. STATE BANK OF PAKISTAN - VARIOUS DEPARTMENTS (Contd.):Debt Management
  9. STATE BANK OF PAKISTAN - VARIOUS DEPARTMENTS (Contd.):Training Programs by SBP
  10. STATE BANK OF PAKISTAN - VARIOUS DEPARTMENTS (Contd.):Human Resources Department
  11. MAJOR DRIVERS OF FINANCIAL INDUSTRY:GLOBAL FINANCIAL SYSTEM, The World Bank
  12. INTERNATIONAL FINANCIAL INSTITUTIONS:ADB Projects in Pakistan, Paris Club
  13. PAKISTAN ECONOMIC AID & DEBT:Macroeconomic Stability, Strengthening Institutions
  14. INCREASING FOREIGN DIRECT INVESTMENT:Industrial Sector, Managing the Debt
  15. ROLE OF COMMERCIAL BANKS:Services Typically Offered by Banks, Types of banks
  16. ROLE OF COMMERCIAL BANKS:Types of investment banks, The Management of the Banks
  17. ROLE OF COMMERCIAL BANKS:Public perceptions of banks, Capital adequacy, Liquidity
  18. ROLE OF COMMERCIAL BANKS:Problem bank management, BANKING SECTOR REFORMS
  19. ROLE OF COMMERCIAL BANKING:Private Deposit Insurance,
  20. BRANCH BANKING IN PAKISTAN:Remittances, Online Fund Transfer
  21. ROLE OF COMMERCIAL BANKS IN MICRO FINANCE SECTOR
  22. Mutual funds:Types of international mutual funds, Mutual funds vs. other investments
  23. Mutual Funds:Criticism of managed mutual funds, Money Market Fund
  24. Mutual Funds:Balanced Funds, Growth Funds, Specialized Funds, Measuring Risks
  25. Mutual Funds:Cost of Ownership, Redemption Fee, Reports to Shareholders
  26. Mutual Funds:Internet Fraud, The Pyramid Scheme, How to Avoid Investment Fraud
  27. Mutual Funds:Investing In International Mutual Funds, How to Pre-Select a Mutual Fund
  28. Role of Investment Banks:Recent evolution of the business, Possible conflicts of interest
  29. Letter of Credit:Elements of a Letter of Credit, Commercial Invoice, Tips for Exporters
  30. Letter of Credit and International Trade:Terminology, Risks in International Trade
  31. Foreign Exchange & Financial Institutions:Investment management firms, Exchange Traded Fund
  32. Foreign Exchange:Factors affecting currency trading, Economic conditions include
  33. Leasing Companies:Basic Purpose of Leasing, Technological Benefits
  34. The Leasing Sector in Pakistan and its Role in Capital Investment
  35. Role of Insurance Companies:Indemnification, Insurer’s business model
  36. Role of Insurance Companies:Life insurance and saving
  37. Role of financial Institutions in Agriculture Sector:What is “Revolving Credit Scheme”?
  38. Agriculture Sector and Financial Institutions of Pakistan:What is SMEs
  39. Can Government of Pakistan Lay a Pivotal Role in this Sector?:Business Environment
  40. Financial Crimes:Process of Money Laundering, Terrorist Financing
  41. DFIs & Risk Management:Managing Credit Risk, Managing Operational Risk
  42. Banking Fraud & Misleading Activities:Rogue Traders, Uninsured Deposits
  43. The Collapse of ENRON:Auditing Issues, Corporate Governance Issues, Corrective Actions
  44. Classic Financial Scandals:Corruption, Discovery, Black Wednesday
  45. RECAP:FINANCIAL INSTITUTIONS, CENTRAL BANK,