Banking & Insurance

COURSE CODE: FINC307

1. The Global Financial Markets
 Imagine living in a world where:
 Financial institutions, financial markets and
financial assets do not exist.

 The ability to trade or exchange goods and services,

build infrastructure, invest in research, education
and science is absent.

 One is unable to borrow against future income - to

invest in residential property or a vehicle, to take a
student loan or even to fund an overseas holiday.
 One is faced by a lack of scope to save and invest earnings or
to accumulate wealth over time
 One cannot provide for the future expenses of a growing
family, education, health care - and even death
 Businesses cannot raise the means or resources needed to
produce goods and services
 Insurance against sickness and calamity is unheard of
 Even the simple act of buying food is a challenge, requiring
you to barter simply to survive
 The global financial system as we know it, evolved over several millennia
to fill these and other critical needs.
 The world’s first real ‘bank’ was Monte Dei Paschi di Siena founded in
1472 in Tuscany, Italy. It is still in operation today
 With the seeds sown in Renaissance Europe, particularly Italy and
Germany, the modern system took root in the 19th century when
communication modes improved vastly with the advent of the telegraph,
the telephone, rapidly expanding railway systems and better roads.
 Comprises a cohesive network of major regulatory and lending
institutions that function at national and international levels and
encompass the global economy.
 Where financial instruments such as bonds, stocks, currencies and other
securities are traded, interest rates are determined, and financial services
are produced and delivered around the world.
 A meeting place for savers and borrowers: where
financial resources are raised and put to use - capital
and labour- thereby facilitating the production of goods
and services and the sale, purchase and consumption of
those goods and services.

 Financial markets and institutions facilitate the smooth

functioning of modern economies, enabling use of
resources in the most efficient manner possible.

 A well integrated financial system enhances economic

efficiency and raises global standards of living.
 Provides efficient payments & settlement systems

 Lowers transaction costs

 Optimises risk bearing & risk reduction techniques and

processes

 Monitors corporate performance

 Disseminates price related information

 Financial inclusion: promotes deepening and broadening the

financial markets and bringing more users into its fold
 A strong legal & regulatory framework
 Robust, autonomous & independent central bank
 A mature banking system with sound risk management
principles
 Stable money and money supply viz. interest rates,
liquidity, exchange rates
 Efficient information flow and dissemination
 A vibrant, smoothly functioning, well regulated
securities market
 Sound public finances & public debt management
Amorphous, yet centred: mainly in cities that by virtue of
locational advantages, importance of hinterland, governance
and laws, evolved into major global financial centres:

 London, New York, Hong Kong, Singapore, Frankfurt,

Tokyo, Shanghai, Chicago

 Smaller centres such as Sydney, Toronto, Seoul, Taipei,

Mumbai, Mauritius, Johannesburg, Amsterdam to name
just a few.

 Dubai has filled a gap in the Middle East, as have Abu

Dhabi and Qatar.
Global institutions:

 The World Bank Group

 The International Monetary Fund
 Bank for International Settlements
 Asian Development Bank
 African Development Bank
 European Bank for Reconstruction & Development
 Central Banks and Regulatory Bodies
 Capital Market institutions viz. stock exchanges
 Private and public sector institutions acting on the global
scale, viz. universal banks, investment banks, export-import
banks, insurance companies, hedge funds and rating
agencies.
 National agencies and government departments such as
ministries of finance, commerce, shipping, agriculture etc.
 Facilitates cross border movement of loanable funds from
savers to borrowers
 Provides a channel for developmental finance and
international aid to flow freely from rich countries to poorer
nations
 Enables the movement of capital, job creation, expansion in
free enterprise and business
 Encourages, supports and pushes global trade
 Connects nations and institutions in need of financial support to
make trade possible and profitable
 Demand and supply are key determinants: there is no part of the
world that produces everything needed by its inhabitants
 Rice, cotton, copper, gold, edible oil, spices, wool, tea and
precious stones are some examples of commodities not available
uniformly everywhere and have to be acquired from the producing
areas
 Surplus goods and services from everywhere need to move freely
to deficit areas everywhere else
 With international and inland trade came the
incentive for wealth creation, savings and
investment
 The financial sector grew along the major trade
routes and they jointly prospered
 To maintain order and oversight of practices, the
financial sector required sound management
and regulation
 The rules of fair trade

SOME MAPS TO CONSIDER

 https://blueshift.io/international-trade.html
The above map is the work of Max Galka, who on his Metrocosm blog makes a few points:
Global trade in goods is concentrated in just three countries: the U.S., China and Germany. U.S.
trade with Mexico is more balanced than many may have thought (though the U.S. does run a
trade deficit with its southern neighbour).
World trade has been a contentious topic in global politics, with President Donald Trump coming
to power in part on his message that trade has largely hurt the U.S. Trade also is dominating the
debate in the U.K. on how to proceed with BREXIT i.e. exiting the European Union.
It’s also worth mentioning that services aren't plotted on this. Data from the World Trade
Organization shows that services trade is dominated by the European Union — with a majority of
that trade done within European borders — and the U.S.

 https://resourcetrade.earth/
 https://www.wto.org/english/res_e/statis_e/wts2018_e/wts2018_e
.pdf
 The World Bank (WB) www.worldbank.org

 The International Monetary Fund (IMF) www.imf.org

 Bank for International Settlements (BIS) www.bis.org

 World Trade Organisation (WTO) www.wto.org

 Asian Development Bank (ADB) www.adb.org

 African Development Bank (AfDB) www.afdb.org/en/

 European Bank for Reconstruction & Development (EBRD)

www.ebrd.com
Founded in 1944 in Washington, USA.
189 member countries, staff from more than 170 countries, and 130 offices

 Works in every major area of development.

 Provides a wide array of financial products and technical assistance
 Helps countries share and apply innovative knowledge and solutions to
the challenges they face.

To quote from their mission objectives:

“Three priorities guide our work with countries to end poverty and boost
prosperity for the poorest people. Helping create sustainable economic growth,
the surest path out of poverty. Investing in people, through access to health care,
education, water and sanitation, and energy. Building resilience to shocks and
threats that can roll back decades of progress.”
 The International Bank for Reconstruction and Development (IBRD)
 The International Development Association (IDA)
 The International Finance Corporation (IFC)
 The Multilateral Investment Guarantee Agency (MIGA)
 The International Centre for Settlement of Investment Disputes (ICSID)
 IBRD and IDA form the World Bank, which provides financing, policy advice,
and technical assistance to governments of developing countries. IDA
focuses on the world’s poorest countries, while IBRD assists middle-income
and creditworthy poorer countries.

 IFC, MIGA, and ICSID focus on strengthening the private sector in developing
countries. Through these institutions, the World Bank Group provides
financing, technical assistance, political risk insurance, and settlement of
disputes to private enterprises, including financial institutions.
 To foster global monetary cooperation, secure financial
stability, facilitate international trade, promote high
employment and sustainable economic growth and poverty
reduction.

 To ensure the stability of the international monetary system

- the system of exchange rates and international payments
that enables countries (and their citizens) to transact with
each other.
 To keep track of the global economy and the economies of
member countries.

 To lend to countries with balance of payments difficulties.

 To help member countries design and implement economic
policies that foster stability and growth by strengthening
their institutional capacity and skills
 Surveillance
 Oversees the international monetary system and monitors the economic and
financial policies of member countries
 Highlights possible risks to stability and advises on needed policy adjustments

Core responsibility
 To provide loans to members experiencing actual or potential Balance of
Payment problems
 Extending financial support to enable countries to rebuild their international
reserves, stabilize their currencies, and continue paying for imports
 To restore conditions for strong economic growth, while undertaking policies to
correct underlying problems
 Established in 1930.

 Head office: Basel, Switzerland

 Owned by 60 central banks, representing countries that

together account for about 95 per cent of global GDP

 Mission: To serve central banks in their pursuit of monetary

and financial stability, to foster international cooperation in
those areas and to act as a bank for central banks

Website: https://www.bis.org/
 Headquarters: Geneva, Switzerland
 Established: 1 January 1995
 Membership: 164 members states representing 98% of
world trade
 The only global organization dealing with the rules of trade
between nations.
 The goal: To ensure that trade flows as smoothly, predictably
and freely as possible
 At its heart are the WTO agreements, negotiated and signed
by the bulk of the world’s trading nations and ratified in their
parliaments.
Functions
 Administering WTO trade agreements
 Forum for trade negotiations
 Handling trade disputes
 Monitoring national trade policies
 Technical assistance and training for developing
countries
 Cooperation with other international organizations
Founded: 1966 to facilitate economic development of Asian countries
Headquarters: Manila, Philippines
Regional Office in India: New Delhi
STATED GOALS:

 Promoting economic growth

 Reducing poverty
 Developing human resources
 Improving the status of women
 Protecting the environment
 Provides loans and equity investments to its developing
member countries (DMCs)

 Extends technical assistance for planning and execution of

development projects and programs and for advisory services

 Promotes and facilitates investment of public and private

capital for development

 Assists in coordinating development policies and plans of

DMCs
Spectrum of activities
 Agriculture and natural resources
 Transport and communications
 Energy
 Industry and non-fuel minerals
 Finance
 Social infrastructure
 The African Development Bank (AfDB)
 European Bank for Reconstruction & Development (EBRD)

Established and designed with developmental agendas similar

to the ADB to improve financial service and support to their
constituencies viz. the countries and peoples of their respective
continents.