Question: What is meant by global finance system?

Global Financial System:

Discuss the role of investment in global financial system?

The global financial system (GFS) is the financial system consisting of institutions and regulators 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, private institutions acting on the global scale, e.g., banks and hedge funds, and regional institutions, e.g., the Euro zone.

Global Financial Stability Report

A Report by the Monetary and Capital Markets Department on Market Developments and Issues: April 2011: Despite ongoing economic recovery and improvements in
global financial stability, structural weaknesses and vulnerabilities remain in some important financial systems. The April 2011 Global Financial Stability Report highlights how risks have changed over the past six months, traces the sources and channels of financial distress with an emphasis on sovereign risk, notes the pressures arising from capital inflows in emerging economies, and discusses policy proposals under consideration to mend the global financial system.

October 2010: The global financial system is still in a period of

significant uncertainty and remains the Achilles' heel of the economic recovery. Although the ongoing recovery is expected to result in a gradual strengthening of balance sheets, progress toward financial stability has experienced a setback since the April 2010 GFSR. The current report highlights how risks have changed over the last six months, traces the sources and channels of financial distress with an emphasis on sovereign risk, and provides a discussion of policy proposals under consideration to mend the global financial system.

April 2010: Risks to global financial stability have eased as the economic
recovery has gained steam. But policies are needed to reduce sovereign vulnerabilities, ensure a smooth deleveraging process, and complete the regulatory agenda. The report examines systemic risk and the redesign of financial regulation; the role of central counterparties in making over-the-

counter derivatives safer; and the effects of the expansion of global liquidity on receiving economies.

October 2009: This GFSR chronicles the evolution of the path toward
reestablishing sound credit intermediation and the near-term risks that could interrupt its restoration, including the rising burden of sovereign financing. The report addresses how to restart securitization markets and the pitfalls if done improperly. The effectiveness of unconventional public sector interventions and the principles for disengagement are discussed. The report also discusses the design of medium-term policies that aim to reshape the financial system to make it more resilient and stable.

April 2009: The global financial system remains under severe stress as
the crisis broadens to include households, corporations, and the banking sectors in both advanced and emerging market countries. In normal times, the Global Financial Stability Report aims to prevent crises by highlighting policies that may mitigate systemic risks, thereby contributing to financial stability and sustained economic growth. In the current crisis, the report traces the sources and channels of financial distress and provides policy advice on mitigating its effects on economic activity, stemming contagion, and mending the global financial system.

October 2008: With financial markets worldwide facing growing turmoil,

internationally coherent and decisive policy measures will be required to restore confidence in the global financial system. The process of restoring an orderly system will be challenging, as a significant deleveraging is both necessary and inevitable. It is against this challenging and still evolving backdrop that the October 2008 Global Financial Stability Report frames recent events to suggest potential policy measures that could help address the current circumstances.

April 2008: The events of the past six months have demonstrated the
fragility of the global financial system and raised fundamental questions about the effectiveness of the response by private and public sector institutions. The report assesses the vulnerabilities that the system is facing and offers tentative conclusions and policy lessons. The report reflects information available up to March 21, 2008.

September 2007: Since the April 2007 Global Financial Stability Report
(GFSR), global financial stability has endured an important test. Credit and market risks have risen and markets have become more volatile. Markets are recognizing the extent to which credit discipline has deteriorated in recent years most notably in the U.S. nonprime mortgage and leveraged loan markets, but also in other related credit markets.

April 2007: This particular issue draws, in part, on a series of discussions

with commercial and investment banks, securities firms, asset management companies, hedge funds, insurance companies, pension funds, stock and futures exchanges, credit rating agencies, and academic researchers, as well as regulatory and other public authorities in major financial centers and countries. Contributions from Craig Martin and Kevin Roth (Association for Financial Professionals) in the conducting of a survey are gratefully acknowledged. The report reflects information available up to February 6, 2007.

September 2006: This particular issue draws, in part, on a series of

discussions with commercial and investment banks, securities firms, asset management companies, hedge funds, insurance companies, pension funds, stock and futures exchanges, credit rating agencies, and academic researchers, as well as regulatory and other public authorities in major financial centers and countries. The report reflects information available up to July 14, 2006.

April 2006: This particular issue draws, in part, on a series of informal

discussions with commercial and investment banks, securities firms, asset management companies, hedge funds, insurance companies, pension funds, stock and futures exchanges, and credit rating agencies, as well as regulatory authorities and academic researchers in many major financial centers and countries. The report reflects information available up to February 10, 2006.

September 2005: This particular issue draws, in part, on a series of

informal discussions with commercial and investment banks, securities firms, asset management companies, hedge funds, insurance companies, pension funds, stock and futures exchanges, and credit rating agencies, as well as regulatory authorities and academic researchers in many financial centers and countries. The report reflects information available up to July 22, 2005.

April 2005: This particular issue draws, in part, on a series of informal

discussions with commercial and investment banks, securities firms, asset management companies, hedge funds, insurance companies, pension funds, stock and futures exchanges, and credit rating agencies, as well as regulatory authorities and academic researchers in many financial centers and countries. The report reflects information available up to February 16, 2005.

September 2004:

This issue draws, in part, on a series of informal discussions with commercial and investment banks, securities firms, asset

management companies, hedge funds, insurance companies, pension funds, stock and futures exchanges, and credit rating agencies in Canada, Colombia, France, Germany, Hong Kong SAR, Italy, Japan, Mexico, the Netherlands, Poland, Singapore, Switzerland, the United Kingdom, and the United States. The report reflects information available up to July 30, 2004.

April 2004: This issue draws, in part, on a series of informal discussions

with commercial and investment banks, securities firms, asset management companies, insurance companies, pension funds, stock and futures exchanges, and credit rating agencies in Brazil, Chile, China, Colombia, France, Germany, Hong Kong SAR, Hungary, Japan, Korea, Mexico, Poland, Russia, Singapore, South Africa, Thailand, the United Kingdom, and the United States. The report reflects mostly information available up to March 8, 2004.

September 2003: This issue draws, in part, on a series of informal

discussions with commercial and investment banks, securities firms, asset management companies, insurance companies, pension funds, stock and futures exchanges, and credit rating agencies in Brazil, Chile, China, Hong Kong SAR, Hungary, Poland, Russia, Singapore, South Africa, and Thailand, as well as the major financial centers. The report reflects mostly information available up to August 4.

March 2003: This issue of the Global Financial Stability Report marks
the beginning of a new semiannual frequency for the publication. This issue draws, in part, on a series of informal discussions with commercial and investment banks, securities firms, asset management companies, insurance companies, pension funds, stock and futures exchanges, and credit rating agencies in Brazil, Chile, China, Hong Kong SAR, Hungary, Japan, Poland, Russia, Singapore, Thailand, the United Kingdom, and the United States. The report reflects mostly information available up to February 28, 2003.

December 2002: This is the fourth issue of the Global Financial Stability
Report, a quarterly publication launched in March 2002 to provide a regular assessment of global financial markets and to identify potential systemic weaknesses that could lead to crises. This report reflects mostly information available up to November 4, 2002.

June 2002: This is the second issue of the Global Financial Stability
Report. This particular issue draws, in part, on a series of informal discussions with commercial investment banks, securities firms, asset management companies, insurance companies, pension funds, stock and futures exchanges, and credit rating agencies in China, Germany, Hong

Kong SAR, Hungary, Italy, Japan, Poland, Singapore, Switzerland, Thailand, the United Kingdom, and the United States. The report reflects mostly information available up to May 10, 2002.

September 2002: This is the third issue of the Global Financial Stability
Report, a quarterly publication launched in March 2002 to provide a regular assessment of global financial markets and to identify potential systemic weaknesses that could lead to crises. By calling attention to potential fault lines in the global financial system, the report seeks to play a role in preventing crises before they erupt, thereby contributing to global financial stability and to the prosperity of the IMF's member countries.

March 2002: Reviews recent developments in global financial markets

and explores the potential market impact of financial imbalances and continued credit quality deterioration. It also focuses on the expansion of credit risk transfer mechanisms -- such as credit derivatives and collateralized debt obligations -- as a means for distributing credit risks. The report concludes with two essays: one on Early Warning System models and another on alternative funding instruments for emerging market countries.

Role of System:

investment

in

Global

Financial

Over the last quarter century, foreign investment has accelerated at a breathtaking pace and shifts in the flow of this investment are now reshaping the global economic landscape. We have seen inward foreign direct investment stock roughly triple worldwide over the past decade -- and that holds true for developing countries as well as developed economies. Today more than 80,000 multinational corporations (MNCs) are operating worldwide with more than 800,000 foreign affiliates compared to 37,000 multinational corporations and 170,000 foreign affiliates active in 1993. Foreign investors not only bring fresh capital, technology, competitive spirit and ideas to new markets; they also bring jobs. They employ nearly 80 million people worldwide, a figure that is roughly twice the size of Germanys labor pool and one that has quadrupled over the past three decades. These foreign affiliates also point to a deeper level of economic integration among nations. They show a purpose and commitment beyond one-time sales or market entry into well-established trade patterns. Investment not only drives jobs and innovation, but it also increasingly drives trade.

The global sales of the foreign affiliates of MNCs now equal roughly two times the dollar amount of world exports according to UNCTADs World Investment Report 2010. This makes foreign direct investment increasingly important in terms of the delivery of goods and services to international markets. Roughly one-third of world commerce takes place as intra-firm trade. And the bulk of technology that is transferred flows within the framework of the integrated international production system. FDI and the activities of MNCs have become central to the world economy at large, and particularly important to developing countries. FDI flows also are the vital currents that can help restore global economic growth. We have already seen trade flows come back after the recent global recession. And the WTO estimates that trade will be up by nearly 10 percent in 2010 over the prior year. FDI, however, may not rebound at the same pace: UNCTAD is predicting only a modest and uneven recovery in global FDI this year of $1.2 trillion, after registering a little over $1.0 trillion in 2009, from $1.7 trillion in 2008. Global FDI flows fell very sharply in large part because of a substantial drop in cross-border merger and acquisition activity, due largely to more difficult financing conditions arising from the financial crisis. However, FDI flows have historically been less volatile than portfolio investment. As a relatively stable form of international capital flows that spurs growth and diversifies risk around the world, FDI can help foster global economic recovery. Investment also drives development. In March 2002, more than 50 heads of state and 200 finance ministers took part in the International Conference on Financing for Development in Monterrey, Mexico. The Monterrey Consensus identified sound policies to attract international investment flows and adequate levels of productive investment as key factors in sustainable development. Since then, nations have broadly recognized that foreign investment is critical to economic growth in developing nations. While valuable and important, official development assistance cannot match the power, velocity and impact of private investment, which is an essential factor for countries to compete in the knowledge economy. As Secretary Clinton put it, "Aid chases need; investment chases opportunity." It is promising that last year alone, two-thirds of sub-Saharan African nations implemented reforms to improve their business climates, a factor that will be critical to the regions ability to continue attracting and retaining international investment. Rwanda was the top reformer globally in 2008-09 in the World Banks Doing Business Report. As Rwanda substantially improved its investment climate in recent years, its investment stock has climbed from $55 million in 2000 to $412 million in 2009.

We are well into an age when many of our most daunting challenges are global, and greater levels of foreign investment will be necessary to overcome many of them: achieving global food security; mitigating climate change; defeating violent extremism; and, improving conditions for the onethird of the worlds population that lives in circumstances that offer little opportunity to create a better tomorrow for themselves or future generations. Notwithstanding this consensus, in recent years, concerns have increasingly arisen about the potential for investment protectionism. Even before the financial crisis struck in 2008, researchers David Marchick and Matthew Slaughter had pointed out that a number of governments, representing countries who account for a significant share of total global investment flows, had already considered, or were considering, measures that would restrict certain types of FDI or expand government oversight of cross-border investment. Most of these measures were justified on the grounds of protecting national security interests and sectors deemed to be strategically important.

Key Investment Principles:

As foreign investment is contributing more substantially to our economic prosperity, policies designed to foster, protect and fully benefit from it require greater focus. These include improvements to the investment climate that will attract greater flows, stronger intellectual property rights protection, and better investor aftercare and dispute prevention. A rapidly changing global investment landscape brings many new opportunities as well as challenges. Some of these changes require further examination and may prompt new policy approaches. At the same time many basic principles remain valid. Those that have proven so successful in the effective functioning of open markets will continue to be vital to success in fostering greater economic growth and development. Both UNCTAD and OECD, the two key international organizations focused on investment policy, strongly advocate the benefits of opening economic sectors to foreign investment, fair and equitable treatment for foreign investors, reforms that result in predictable regulatory and legal environments for investors, and the value of Investor-State arbitration to resolve disputes between governments and foreign investors. It is easier to attract foreign investment when foreign and domestic firms can compete on an equal basis and when there are full intellectual property rights protections.

A recent World Bank study of patenting as it relates to economic growth in 92 countries over the period of 1960-2000 found that a 20 percent increase in the annual number of patents granted, wherever the technologies originated, was associated with an increase of 3.8 percent in output. This is an unusually powerful finding: the issuance of patents, which in turn is likely fostered by stronger IPR regimes, stimulates economic output. Another study, conducted in 2004 by researchers at the University of Nottingham, found that strong IPR protections stimulated growth in countries with high per capita incomes, and yielded even greater gains in countries with low per capita incomes, by encouraging imports and FDI from advanced countries. Policies that discriminate against foreign investors, or mandate technology transfer, or impose other performance requirements, on the other hand, make capital skittish and hamper development. Theodore Morans research showed that affiliates of foreign multinational firms tend to be more technology- and capital-intensive as well as faster growing in terms of output and employment when host countries do not constrain affiliate operations through requirements such as local-input sourcing and mandatory technology transfer. Likewise, countries that seek to evade their international obligations by ignoring arbitral investment tribunals or by backing away from commitments to international investment arbitration not only undermine their own investment climates but harm the prospects for foreign investment into developing nations more broadly. All countries whether capital exporters, recipient nations, or both have a strong interest in preventing such serious backsliding, which research has shown to be detrimental over time. To return to sustainable global economic growth, we must keep our countries open for business and sustain a commitment to principles of fair competition in our own markets and global markets. We in the U.S. are strong believers in the importance of foreign investment to our own country. Since the early stages of our Republic, under the leadership of Alexander Hamilton, we have believed in the importance of foreign investment into our own economy and in the importance of a legal and regulatory environment that provides confidence to foreign investors. We continue to believe in that. Through its network in nearly 80 countries worldwide, the U.S. Governments Invest in America program promotes and supports inbound FDI to the U.S. This program facilitates investment inquiries, acts as ombudsman for the international investor community, advises on policy related to U.S. competitiveness in the attraction of FDI and provides foreign investor education.

Individual U.S. states, cities, towns, and regions also actively promote themselves to foreign businesses as a destination for FDI. Our governors and mayors are especially eager to attract foreign investment to their localities and many of them travel widely to describe the virtues and attractions of their states and cities. We in the State Department, as well as our colleagues at the Department of Commerce, fully support them and welcome the opportunity to facilitate contacts and cooperation to attract investment to our shores. The knowledgeable and talented American work force, our laws that provide for a stable and predictable business environment and the highly competitive nature of our economic culture are all positive factors for investors. We note that many other countries also are eager to attract foreign investment. Amid the financial crisis, the G-20 took on a leadership role for the world community by calling for a commitment by the worlds largest markets not to erect new barriers to investment and trade. All countries need to resist protectionism and economic nationalism. We need to pursue policies that enhance confidence among investors. The path to recovery is not yet assured, and we need to remain vigilant against protectionist temptations. But nations have largely met the G-20 call. That the global economy is growing again this year is in large part due to the G20s leadership and the partnerships to strengthen the system that include large emerging and industrialized nations.

Changing Investment Patterns:

Yet there are many other challenges resulting from the changing investment landscape. There is little doubt, for instance, that the growing importance of emerging economies in the global economy has a major impact on the contours of international investment. Since World War II, the largest flows have occurred between developed economies, with the single largest bilateral investment relationship existing between the U.S. and Europe. Investment relationships between developed and developing economies had largely been characterized by outflows from developed economies to developing countries. This pattern has changed and will continue to change. A number of the large emerging economies particularly Brazil, Russia, India, China and South Africa but others as well are now increasingly important overseas investors. In 2009, FDI flows from emerging and developing economies into other markets approached one-quarter of a trillion dollars. These countries held overseas investment stock of nearly $2.7 trillion more than three times their total a decade earlier.

This means that these countries now have a greater stake in the global system of rules and practices that govern investment. It also means that there is likely to be a growing convergence around similar sets of principles and practices. It is fitting that we come to Xiamen to discuss these changes given the important and growing role that China and other advanced emerging economies are playing in the global investment picture. Since I traveled with Henry Kissinger to China as a young White House economic adviser in the early 1970s, the investment relationship between China and the United States has burgeoned. U.S. investment stock in China has grown from $49 million in 1982 to more than $49 billion in 2009. OECD studies show Chinas outward investment increasing significantly; in the United States alone, Chinese investment stock roughly doubled from $385 million in 2002 to nearly $800 million in 2009. The Peterson Institute of International Economics recently noted that Chinas OFDI has reached commercially and geo-economically significant levels and begun to challenge international investment norms and affect international relations. China is not alone in bringing new dynamism to investment patterns. As many of the large emerging economies, notably Brazil, Russia, India, China and South Africa, become more significant outward investors, they share strong interests in protecting their own foreign investment. Many are reconsidering some of their own long-standing restrictions on investment and changing policies that have left important sectors closed to foreign investment. Developing countries, emerging economies and countries in transition have come increasingly to see FDI as a source of economic development and modernization, income growth and employment. They recognize that FDI triggers technology spillovers, assists human capital formation, contributes to international trade integration, helps create a more competitive business environment and enhances enterprise development. All of these contribute to higher economic growth -- which is a potent tool for alleviating poverty and fostering political stability in developing countries. As world leaders gather to discuss progress on the Millennium Development Goals (MDGs) in New York later this month, let us not forget the important contributions that FDI can make to helping the world achieve the MDGs and other important development goals. Moreover, FDI may help improve environmental and social conditions in the host country by transferring cleaner/greener technologies and leading to more socially responsible corporate policies.

Here in China, for example, the question arises about whether Chinas environment is being sacrificed as a result of the countrys boom in inward investment. Researchers Judith Dean and Mary Lovely analyzed the latest data on air and water pollution from Chinas State Environmental Protection Agency and found that the pollution intensity of Chinese exports actually fell dramatically between 1995 and 2004, both because foreign investors introduced cleaner production techniques and because these investors have induced a shift to cleaner products. So deeper global engagement is reducing the environmental cost of Chinese income growth. Rather than facilitating the migration of dirty industries to the developing world, FDI flows to China are making the production of Chinese exports cleaner over time. There is a growing understanding that corporate social responsibility is increasingly insisted on by consumers in industrialized and developing countries alike. They demand transparency, accountability and quality products to meet their health, safety and environmental expectations. Consumers, using the Internet, are increasingly focused not just on the actual products they buy, but also on the conditions under which these products are made. In order to compete, and win the allegiance of consumers, companies have to adhere to global standards of corporate social responsibility, such as the OECD Guidelines on Multinational Enterprises.

Challenges to Global Investment Flows:

The emergence of new players also highlights the prominent role of stateowned enterprises and sovereign wealth funds, their public financing, and its impact on the competitive landscape. The principle increasingly known as competitive neutrality suggests one way that governments can address these challenges. Governments can create frameworks to ensure competitive neutrality between large state-owned enterprises and private firms to preserve competition and avoid crowding out of, or discrimination against, private initiative. To ensure competitive neutrality, several techniques or policy measures can be employed: reshaping management incentives within state-owned enterprises; effectively applying competition law to avoid creating an uneven playing field; intensive evaluation of the taxation, financing and regulatory provisions that exist for state-owned enterprises; and implementing corporate governance reforms within these enterprises. As nations attract foreign investment from a more diverse array of sources, investor credibility is growing in importance. Longstanding guidelines for

model corporate conduct are being updated to reflect the current challenges. For example, the OECD Guidelines on Multinational Enterprises are being updated this year. Discussions are currently underway with respect to possible guidelines regarding conflict minerals. The OECDs Anti-Bribery Convention and the recently adopted Recommendation for Further Combating Bribery of Foreign Public Officials in International Business Transactions are particularly significant tools for promoting responsible investor conduct, propriety, integrity and transparency worldwide. We seek partnerships with many nations to implement them. Non-OECD member countries are free to accede to this Convention; several have done so and we encourage other major trading nations to join them. The changing patterns of FDI flows also pose other challenges where the solutions may be less clear. With the importance of innovation to the success of firms competing in national and global markets, questions are arising about national policies to promote innovation by domestically based firms using discriminatory or exclusionary methods and government procurement tests that adversely impact foreign-owned firms. For the United States, protection of our intellectual property is a core national economic interest. Methods to promote innovation around the world that are based on proven practices of tax credits and similar techniques can be and have been quite successful. But discrimination or exclusion against the products of foreign companies on the basis of where technology was developed or who holds the patent, or similar measures, are harmful to many foreign firms and in the final analysis makes them less inclined to engage in real collaboration on cutting edge innovation. Moreover, as emerging countries develop their own innovative technologies, they should be insistent on fair treatment of their companies that have produced those technologies and of the products they sell. Another challenging issue relates to competition for natural resources. Firms owned by governments, or acting on the basis of government policies, are playing a greater role in global natural resources investment and trade. When they invest in new and alternative supplies, they often expand global resource supplies for all nations. Where they concentrate on securing existing sources of supplies, they are perceived to potentially limit access of other nations and therefore raise concerns. Theodore Morans recent analysis of resource-oriented investments suggests a differentiated picture: that foreign investment in small, independent resource producers will likely lead to expansion of

supplies and increasing competitiveness of industries while investments in major producers which put foreign governments in a position to control or constrain production are more concerning. Then there are security-related issues. Technological innovation, new sources of capital and other factors affecting the nature of security threats are evolving rapidly. We all share the need to protect legitimate security interests. In the U.S. we have very clear laws and procedures to do that. These are fully consistent with our open investment policy for the vast majority of investment that does not adversely affect our security and our eagerness to attract such overseas investment. The OECDs Guidelines for Recipient Country Investment Policies Relating to National Security, adopted in May 2009, provide excellent guidance for how governments can approach some of these national security concerns. The Committee on Foreign Investment in the United States (CFIUS), which reviews notified foreign investment transactions for national security concerns alone, demonstrates a very strong alignment with these guidelines. Thomson Financial estimates that there are an average of 2,000 merger and acquisitions involving foreign acquirers in the United States annually. According to the 2009 CFIUS Report to Congress, an average of 135 transactions came before CFIUS annually from 2006 to 2008. Substantially fewer (65) were reviewed in 2009. Questions also are arising about the combined impact of thousands of bilateral investment treaties on countries capacity to understand fully the scope of their commitments and to manage their risks. A number of countries are reviewing their approaches to investment agreements altogether based on factors such as: their desire to balance protecting investors and preserving the appropriate level of flexibility to regulate in the public interest; and, the inclusion of specific provisions to advance other policy interests, such as the protection of labor and environmental interests. For example, the U.S., Canada, and Mexico have reviewed and modified their practices based on experiences gained since the advent of NAFTA. And the EU is reconsidering its approach to investment rules based on the Lisbon Treaty. Japan also has changed its approach in recent years. South Africa, Brazil, and other major emerging economies are also reflecting on the changing investment landscape, their evolving interests, and how it might affect their approach to such agreements.

Multilateral Response Opportunities:

to

Challenges

and

The growing importance of investment and these new opportunities and challenges suggest the need for greater analysis of the changing landscape, continuing reflection on our changing interests, greater engagement in our bilateral relations, and a revaluation of how to improve our multilateral engagement. The work of UNCTAD and OECD has played a unique and important role in combining a forum for intergovernmental dialogue on policy best practices, with analysis of emerging issues, and advice to governments seeking to undertake policy reforms to improve their ability to attract and reap the economic benefit from international investment, and we strongly support their work. We should constantly look for better ways of utilizing these institutions and strengthening cooperation between them and with other international groups. OECD and UNCTAD bring great strengths and complementary perspectives. The OECD, whose members account for 90 percent of global investment flows, has, since its creation, had an active agenda on international rules and best practices for investment, which is pursued through its Investment Committee. UNCTAD is a universal body and its Investment & Enterprise Division is sensitive to the development dimensions of international investment. Its Investment Commission and expert groups seek to build broad intergovernmental consensus on core challenges related to investment and development facing the international community. Together UNCTAD and OECD do the research and analysis that provides the backbone necessary for sound policymaking on investment. UNCTAD recently issued its World Investment Report 2010, the latest in a highly regarded series of annual reports that track global trends in investment flows and stocks as well as international investment agreements, and studies the impact of foreign investment on developing nations. Like UNCTAD, the OECD produces high quality reports, such as the International Direct Investment Statistics Yearbook. They conduct analytical work on bilateral investment treaties which will be critical to evaluating the impact of a diverse array of over 2,500 agreements. One of the most valuable contributions these two organizations make is their policy advice on investment to national governments.

The OECDs investment policy reviews and advice has helped those countries aspiring to membership, or to adherence to relevant OECD instruments, as well as other emerging economies and developing countries. It also has played an important role in assisting their efforts to improve their investment climates. The OECDs Policy Framework for Investment continues to provide a valuable diagnostic tool for governments in this regard. The Freedom of Investment Roundtables provide an important forum for member and non-member countries to discuss developments relevant to their pledges to avoid protectionism and expand international investment flows as we seek to recover from the economic crisis. It also discusses emerging issues with respect to international investment and the policies necessary to address them. UNCTAD also provides complementary advisory and technical assistance to support developing countries policy reforms, negotiation of international investment agreements, and investment promotion capabilities. UNCTAD has assisted developing countries in tackling the practical challenges related to investment. It also has helped to spearhead a promising effort among Latin American countries to establish an advisory center that could help them to avoid investment disputes and better manage them when they do occur, potentially benefiting both the recipient countries as well as the investors. The United States has high regard for and actively participates in UNCTADs Investment Policy Reviews of developing countries, which focus attention at the highest levels of developing nations governments on the steps needed to succeed in competing for investment. 2009 saw a new level of collaboration emerge between UNCTAD and OECD as the G20 called for them to jointly monitor and produce quarterly reports on measures relevant to their pledge to avoid protectionism. Identifying and evaluating investment-related measures is critical to governments efforts to hold one another accountable. Those countries that have been most successful in attracting investment have a special role to play in supporting and guiding these institutions efforts and in sharing their own national experiences with those nations who aspire to match their success. UNCTAD should be congratulated on its excellent work at this Forum to focus high-level attention on how much of our shared prosperity depends on foreign investment, by attracting senior officials from governments and a broad set of stakeholders.

The United States hopes that the serious issues identified by our discussion today will encourage both UNCTAD and OECD to deepen their collaboration, and also to organize a single international meeting of this caliber to continue our high-level discussions next year.

Investment:
In finance, the purchase of a financial product or other item of value with an expectation of favorable future returns. In general terms, investment means the use money in the hope of making more money. In business, the purchase by a producer of a physical good, such as durable equipment or inventory, in the hope of improving future business.

Role of investment:
Investment Banking Analyst roles are in demand. As we have seen in my last post about Equity Research Career, the career in Investment Banking and Equity Research is rewarding if you plan it well and have long term approach towards it. If you are a fresher or have 1 year experience in a bank, you can apply for such positions in Boutique brokerage and Investment Banking firms. You should have a graduate or post graduate qualification (MBA, CFA, CFP, and CPA) in business or management. You can apply for the posts in the area of M&A, Operations, Quant, and Business Analysis.

The job profile varies as per the areas, for instance, a New Jersey job in Investment Banking Business Analyst position comes with the responsibilities of identifying project scope, defining project plan and workload, following up and report regularly to projects sponsors, escalates issues related to this. Whereas, Investment Banking Analyst-Quant in New York will have the duties like: research, deal processing and strategic business development, researching and evaluating healthcare businesses under the supervision of senior bankers, contributing to the development of information memorandums, management presentations, pitch books and marketing materials and doing financial Projections. While an Investment Banking Analyst -M&A working in New York with a globally diversified financial services firm will have to work on: Analytical, due diligence and transactional support on workout, restructuring, acquisition and new business opportunities, developing financial models, pitch book materials and conducting company research, analyzing data to help advise our current or prospective corporate clients on actual or prospective transactions. The skill set required to complete the above duties are: Strong quantitative / analytical skills Superior attention to detail Solid work ethic Excellent verbal and written communication skills Ability to effectively manage multiple simultaneous project deadlines Solid understanding of capital markets and spreadsheet modeling Strong written and oral communication skills. Previous experience in M&A sector is highly desired Highly motivated with demonstrated ability to manage conflicting priorities and requests Excellent interpersonal skills with ability to maintain relationships at all level in organization A person with Certifications like Chartered Financial Analyst (CFA) and 1year experience can earn U.S. $50,000-$70,000 in New York. In Mumbai, the same person may earn in the range of INR 3,00,000-10,00,000. In London, the person with the same qualification and experience may earn in the range of GBP 20,000-50,000. These are entry level packages for the people with the above mentioned qualification, skill set and job responsibilities in 3 different geographic locations.

Types of investment:
Investment refers to the concept of deferred consumption, which involves purchasing an asset, giving a loan or keeping funds in a bank account with the aim of generating future returns. Various investment options are available, offering differing risk-reward trade offs. An understanding of the core concepts and a thorough analysis of the options can help an investor create a portfolio that maximizes returns while minimizing risk exposure.

The various types of investment are:

These include savings bank accounts, certificates of deposit (CDs) and treasury bills. The investments pay a low rate of interest and are risky options in periods of inflation.

Debt securities:
This form of investment provides returns in the form of fixed periodic payments and possible capital appreciation at maturity. It is a safer and more 'risk-free' investment tool than equities. However, the returns are also generally lower than other securities.

Stocks:
Buying stocks (also called equities) makes you a part-owner of the business and entitles you to a share of the profits generated by the company. Stocks are more volatile and riskier than bonds. Take full advantage of options trading tools available online today.

Mutual funds:
This is a collection of stocks and bonds and involves paying a professional manager to select specific securities for you. The prime advantage of this investment is that you do not have to bother with tracking the investment. There may be bond, stock- or index-based mutual funds.

Derivatives:
These are financial contracts the values of which are derived from the value of the underlying assets, such as equities, commodities and bonds, on which they are based. Derivatives can be in the form of futures, options and swaps. Derivatives are used to minimize the risk of loss resulting from fluctuations in the value of the underlying assets (hedging).

Commodities:
The items that are traded on the commodities market are agricultural and industrial commodities. These items need to be standardized and must be in a basic, raw and unprocessed state. The trading of commodities is associated with high risk and high reward. Trading in commodity futures requires specialized knowledge and in-depth analysis.

Real estate:
This investment involves a long-term commitment of funds and gains that are generated through rental or lease income as well as capital appreciation. This includes investments into residential or commercial properties.

Parties of financial system: Lender:

A lender is any institution or individual who loans borrower money. There are a number of types of lending organizations, including educational lenders, commercial lenders, hard money lenders, lenders of last resort, and mutual organizations. The most traditional type of lender is a commercial lender. Often a commercial lender is a banking institution, though it may also be a private financial group. This type of lender makes an offer to the borrower of certain terms, including interest rate and length of loan, with the goal of maximizing their profit in relation to the borrower's risk of defaulting on the loan. Often a loan is brokered, meaning that the borrower is evaluated by a thirdparty who then proposes the loan request to a number of different lenders. These lenders are chosen based on their likelihood of accepting the particular borrower, and may negotiate small changes in the terms to attract the borrower if they find her desirable.

Investor:
An investor is a party that makes an investment into one or more categories of assets --- equity, debt securities, real estate, currency, commodity etc.

Financial Intermediary:
A financial intermediary is an institution, firm or individual who performs intermediation between two or more parties in a financial context. Typically the first party is a provider of a product or service and the second party is a consumer or customer. Financial Intermediaries are financial institutions that accept money from savers and use those funds to make loans and other financial investment in their own name. These intermediaries come between ultimate borrowers and lenders by transforming direct claims into indirect claims. Financial intermediaries purchase direct securities and in turn, issue their own indirect securities to the public.

Financial Intermediation:
Financial intermediation is the process of savers depositing funds with financial intermediaries and letting the intermediaries do the lending to the ultimate investors.

Types of Financial Intermediary:

Financial intermediaries include: Deposit Institutions Building societies Credit unions Financial advisers or brokers Insurance companies Collective investment schemes Pension funds Deposit Institutions

Among the various financial intermediaries, some institutions invest much more heavily in the securities of business firms than others. Deposit institution such as commercial banks are the most important source of funds for business firms in the aggregate.

Goals of investment:
One of the keys to successful investing is identifying your investment goals, and the time frame over which you will invest.

Investing for a specific goal:

When investing money, many people have a specific goal in mind. If this is the case for you, you need to decide what time frame is attached to that goal short term, medium term or long term?

Examples of investment goals are:

Short term (1-3 years) - overseas holiday car taking time off work to care for a baby Medium term (3-7 years) Deposit on a house boat A sabbatical or extended break from work. Long term (7+ years) - childrens' education Holiday house retirement/early retirement

Investing a specific amount:

Rather than having a particular investment goal, some people may just want to invest a certain sum of money e.g. an inheritance. If you are in this situation, you need to decide what you want from that money. Do you want to use the money in the next year or two? (in which case you are a short term investor). Or do you want a regular income? (you will need medium term income-producing investments). Or do you want it to achieve capital growth over a long period of time, and are willing to take a long term view?

Time Frame:
The time frame of your goals will determine how the money should be invested. A short term investor would be more likely to choose a more conservative investment like cash, to ensure that their capital is available in the next 1-3 years when they need to access it.

A long term investor would be more willing to invest in 'growth assets' such as shares, as they do not need to access their capital for at least 5 years, so are less concerned about short term ups and downs. They recognize that the potential returns are much higher in growth investments, and if they are held over the long term the risk is reduced. A financial adviser can assist you to understand the types of investment most suitable for your goals.

Currency effect on investment Portfolio:

As an example of how currency can affect the returns on an investment portfolio I have included this chart which shows various index percentage returns year to date (May 31st 2010) based in the local currency of the respective country, and then, the same index converted to Canadian currency. Index Dow Jones Ind. Avg. S&P 500 Index NASDAQ Comp. S&P /TSX Composite Mexico IPC Index Brazil Bovespa Hang Seng DAX Index FTSE MIB Index Swiss Market Local currency (%) percentage returns -2.79% -2.30% -0.53% -0.15% -1.78% -9.07% -9.63% 0.43% -15.87% -3.20% Canadian Dollar % return -3.05% -2.56% -0.80% -0.15% -0.55% -12.64% -10.32% -13.91% -27.88% -13.49%

Role of financial Market By maturity of claim:

According to the period of maturity of the financial assets with which the markets are dealing, the markets can be classified as: Money Market. Capital Market. These markets are again classified as primary markets and secondary markets. Money market deals with instruments having a period of maturity of one year or less like treasury bills, bills of exchange etc.

Capital market deals with all instruments having a period of maturity of above one year like corporate debentures, government bonds, equity and preference shares etc.

Money Market:
Money market deals in short-term debt, and channel the savings into shortterm productive investments like working capital, call money, treasury bills etc.

Capital Market:
Capital market is the market for financial assets having a period of maturity of more than one year or of an indefinite period. Thus, capital market provides longterm resources needed by medium and large scale industries.

Organizational, individual and country effect on global economy:

Global economy refers to the expansion of economies beyond national borders, in particular, the expansion of production by transnational corporations to many countries around the world. The global economy includes the globalization of production, markets, finance, communications, and the labor force. Global competition is effecting on the US economy in several ways. First many of American companies moved to China because of cheap labor and more profit. More and more American companies are investing in China and India. As consequences, people living in America like us looses job and makes harder to get the job. Prices are going up while there is no increase in paycheck. So, this leading us poverty as number of competition increases.

Global Issues: Social, Political, Economic and Environmental Issues That Affect All Trade, Economy, & Related Issues:

This section attempts to highlight some of the misconceptions and unfairness in the current model for global trading, economics and the current form of overly corporate-led globalization. It attempts to provide a look at how this all has an impact on people around the world, especially the developing nations.

Global Financial Crisis:

Following a period of economic boom, a financial bubbleglobal in scopehas now burst. The extent of this problem has been so severe that some of the worlds largest financial institutions have collapsed. Others have been bought out by their competition at low prices and in other cases, the governments of the wealthiest nations in the world have resorted to extensive bail-out and rescue packages for the remaining large banks and financial institutions. Some of the bail-outs have also led to charges of hypocrisy due to the apparent socializing of the costs while privatizing the profits. Furthermore, the institutions being rescued are typically the ones got the world into this trouble in the first place. For smaller businesses and poorer people, such options for bail out and rescue are rarely available when they find themselves in crisis. There is the argument that when the larger banks show signs of crisis, it is not just the wealthy that will suffer, but potentially everyone because of the ripple effect that problems at the top could have throughout the entire economy. Plummeting stock markets have wiped out 33% of the value of companies, $14.5 trillion. Taxpayers will be bailing out their banks and financial institutions with large amounts of money. US taxpayers alone will spend some $9.7 trillion in bailout packages and plans. The UK and other European countries have also spent some $2 trillion on rescues and bailout packages. More is expected. Much more. Such numbers, made quickly available, are enough to wipe many individuals mortgages, or clear out third world debt many times over. Even the high military spending figures are dwarfed by the bailout plans to date.

This problem could have been averted (in theory) as people had been pointing to these issues for decades. However, during boom, very few want to hear such pessimism. Does this crisis spell an end to the careless forms of banking and finance and will it herald a better economic age, or are we just doomed to keep forgetting history and repeat these mistakes in the future? Signs are not encouraging as rich nations are resisting meaningful reform.

Poverty Facts and States:

Most of humanity lives on just a few dollars a day. Whether you live in the wealthiest nations in the world or the poorest, you will see high levels of inequality.

The poorest people will also have less access to health, education and other services. Problems of hunger, malnutrition and disease afflict the poorest in society. The poorest are also typically marginalized from society and have little representation or voice in public and political debates, making it even harder to escape poverty. By contrast, the wealthier you are, the more likely you are to benefit from economic or political policies. The amount the world spends on military, financial bailouts and other areas that benefit the wealthy compared to the amount spent to address the daily crisis of poverty and related problems are often staggering. Cutbacks in health, education and other vital social services around world have resulted from structural adjustment policies prescribed by International Monetary Fund (IMF) and the World Bank as conditions loans and repayment. In addition, developing nation governments the the for are

required to open their economies to compete with each other and with more powerful and established industrialized nations. To attract investment, poor countries enter a spiraling race to the bottom to see who can provide lower standards, reduced wages and cheaper resources. This has increased poverty and inequality for most people. It also forms a backbone to what we today call globalization. As a result, it maintains the historic unequal rules of trade.

Poverty around the World:

Around the world, in rich or poor nations, poverty has always been present. In most nations today, inequalitythe gap between the rich and the pooris quite high and often widening. The causes are numerous, including a lack of individual responsibility, bad government policy, exploitation by people and businesses with power and influence, or some combination of these and other factors. Many feel that high levels of inequality will affect social cohesion and lead to problems such as increasing crime and violence. Inequality is often a measure of relative poverty. Absolute poverty, however, is also a concern. World Bank figures for world poverty reveals a higher number of people live in poverty than previously thought. For example, the new poverty line is defined as living on the equivalent of $1.25 a day. With that measure based on latest data available (2005), 1.4 billion people live on or below that line. Furthermore, almost half the world over three billion peoplelive on less than $2.50 a day and at least 80% of humanity lives on less than $10 a day:

IMF & World Bank Protests, Washington D.C.

To complement the public protests in Seattle, the week leading up to April 16th/17th 2000 saw the other two global institutions, the International Monetary Fund (IMF) and World Bank, as the focus of renewed protests and criticisms in Washington, D.C. The purpose of the mass demonstrations was to protest against the current form of globalization, which is seen as unaccountable, corporate-led, and non-democratic, and to show the link between poverty and the various policies of the IMF and the World Bank.

Causes of the Debt Crisis:

The causes of debt are a result of many factors, including:

The legacy of colonialism for example, the developing countries debt is partly the result of the unjust transfer to them of the debts of the colonizing states, in billions of dollars, at very high interest rates. Odious debt, whereby unjust debt is incurred as rich countries loaned dictators or other corrupt leaders when it was known that the money

would be wasted. South Africa, for example shortly after freedom from Apartheid had to pay debts incurred by the apartheid regime. In effect, South Africans are paying for their own oppression.

Mismanaged spending and lending by the West in the 1960s and 70s.

In effect, due to enormous debt repayments, the poor are subsidizing the rich. Total debt continues to rise, despite ever-increasing payments, while aid is falling. For example:

The developing world now spends $13 on debt repayment for every $1 it receives in grants. For the poorest countries (approximately 60), $550 billion has been paid in both principal and interest over the last three decades, on $540bn of loans, and yet there is still a $523 billion dollar debt burden.

Debt kills. Some 11 million children die each year around the world, due to conditions of poverty and debt.

Debt and the 1997/98/99:

Global

Economic

Crisis

of

The structural adjustment measures, global, unregulated free markets and lack of protection for emerging economies all contributed to the global economic and financial crisis in the late 1990s.The Progress of Nations, 1999 report by UNICEF, suggests that debt is killing children. It is pointed out that as countries are diverting resources away from social provisions to repay debt, those most affected are the poor, especially women and children. UNICEFs 2000 report says 30,000 children die each day due to poverty. That is just under 11 million children each year.

Debt and the Environment:

At first glance, it may seem like separate issues, but environment issues and poverty/debt are very much related. Basically, the more the developing countries stay in debt, the more they will feel that they need to milk the earths resources for the hard cash they can bring in, and also cut back on social, health, environmental conservation, employment and other important programs. Responding to environmental disasters is also made more difficult when the affected countries are in severe debt.

Examples include Honduras and Nicaragua, where Hurricane Mitch devastated large parts of those countries, as well as Mozambique and Madagascar where floods have made hundreds of thousands of people homeless. Tackling debt-related issues would also therefore indirectly help address environmental and other issues as well.

Free Trade and Globalization:

Global trading that allows all nations to prosper and develop fairly and equitably is probably what most people would like to see. Neoliberalism is touted as the mechanism for this. Margaret Thatcher's TINA acronym suggested that there is No Alternative. But what is neoliberalism, anyway?

Some Regional Free Trade Agreements:

There have been numerous regional free trade agreements. Some have been controversial, while others may be beneficial. Examples include the North American Free Trade Agreement (NAFTA), the Free Trade Area of the Americas (FTAA), US attempts at free trade agreements with African nations and so on. Critics argue that when these agreements include partners that have different levels of development, this will lead to unequal trade and favor the wealthier partners to the detriment of the poorer ones.

Multilateral Agreement on Investment:

We had a potential nightmare in the form of the Multilateral Agreement on Investment (MAI). An almost secret agreement about investment rights and opening up nations for freer trade. However many, many people feared that this would be accompanied by grave social and environmental consequences, due to the wording of the MAI text.

Influence at the World Trade Organization:

Transnational corporations are able to exert enormous influence in no less a powerful body as the World Trade Organization (WTO). These corporations are closely linked to the WTO decision-makers themselves.

Corporate Power Facts and Stats:

As transnational corporations grow in size and power, their influence and impacts affect more and more people. These stats provide an insight into the growing size and influence of corporations.

Wasted Wealth, Capital, Labor and Resources:

We are beginning to get just a hint of how wasteful our societies are. Sugar, beef, and bananas are just the tip of the iceberg in terms of examples of wasted industry and waste structured within the current system. Not only are certain wasteful job functions unnecessary as a result, but the capital that employs this labor is therefore a wasteful use of capital. As a result, we see waste and misuse of the environment, as well as social and environmental degradation increasing. Our industries may be efficient for accumulating capital and making profits, but that does not automatically mean that it is efficient for society. However, with such wasted labor what do we do? We cant have such an enormous idle labor force, right? Well, as J.W. Smith points out, we should share the remaining jobs. This would also reduce our workweek. Something technocrats have kept promising us in rhetoric only!

Non-governmental Organizations on Development Issues:

What do an ever-increasing number of non-governmental organizations (NGOs) mean? NGOs are non-profit organizations filling the gap where governments will not, or cannot function. In the past however, some NGOs from the wealthy nations have received a bad reputation in some developing nations because of things like arrogance, imposition of their views, being a foreign policy arm or tool of the original country and so on. Even in recent years some of these criticisms still hold. However, recently some new and old NGOs alike have started to become more participatory and grassroots-oriented to help empower the people they are trying to help, to help themselves. This is in general a positive turn. Yet, the fact that there are so many NGOs popping up everywhere perhaps points to failures of international systems of politics, economics, markets, and basic rights.

Foreign Aid for Development Assistance:

In 1970, the worlds rich countries agreed to give 0.7% of their gross national income as official international development aid, annually. Since that time, billions have certainly been given each year, but rarely have the rich nations actually met their promised target. For example, the US is often the largest donor in dollar terms, but ranks amongst the lowest in terms of meeting the stated 0.7% target.

Furthermore, aid has often come with a price of its own for the developing nations. Common criticisms, for many years, of foreign aid, have included the following: Aid is often wasted on conditions that the recipient must use overpriced goods and services from donor countries Most aid does not actually go to the poorest that would need it the most Aid amounts are dwarfed by rich country protectionism that denies market access for poor country products while rich nations use aid as a lever to open poor country markets to their products Large projects or massive grand strategies often fail to help the vulnerable; money can often be embezzled away.

United Nations on Development Issues:

The United Nations is the largest international body involved in development issues around the world. However, it has many political issues and problems to contend with. But, despite this, it is also performing some much needed tasks around the world, through its many satellite organizations and entities, providing a means to realize the Declaration of Human Rights. Unfortunately though, it is not perfect and is negatively affected by politics of powerful nations that wish to further their own interests.