Foreign exchange refers to money denominated in the currency of another nation or group of nations. Foreign exchange can be cash, bank deposits or other short-term claims. But in the foreign exchange market as the network of major foreign exchange dealers engaged in high-volume trading, foreign exchange almost always take the form of an exchange of bank deposits of different national currency denominations. A Foreign exchange market or Forex market is a market in which currencies are bought and sold. It is to be distinguished from a financial market where currencies are borrowed and lent. Short History of the Foreign Exchange Market Foreign exchange markets mainly established to make easy cross border trade in which there is involvement of different currencies by governments, companies and individual investors. More ever these markets generally existed to supply for the international movement of capital and money, even the initial markets had speculators. Today, Continue reading
Financial Institutions
Role of Financial Intermediaries in Economic Development
Financial intermediation is defined as the process which had been carried out by the financial intermediaries as the middleman between the borrower (spender) and lender (saver) to smooth the flow of the fund. Financial intermediation called the process of using indirect finance in the financial system, which the primary route to transfer funds from lender to borrower. Those savers who have the surplus money will deposit their funds in the financial institution, which will lend those funds to borrowers such as business firms, households, government, or foreigners who shortage of funds. Financial intermediaries are that financial institutions such as commercial banks, finance companies, or merchant banks. The financial intermediary helps to transfer the funds between the lender and borrower in the ways of borrow money from the lender-saver and then using this money to make a loan to the borrower-spender. For example, the financial institution acquires funds through the public Continue reading
Industrial Finance Corporation of India (IFCI)
At the same time raw industrial units were to be set up for industrializing the country. Government of India came forward to set up the Industrial Finance Corporation of India (IFCI) in July 1948 under a Special Act. The Industrial Development Bank of India, scheduled banks, insurance companies, investment trusts and co-operative banks are the shareholders of IFCI. The Government of India has guaranteed the repayment of capital and the payment of a minimum annual dividend. Since July I, 1993, the corporation has been converted into a company and it has been given the status of a Ltd. Company with the name Industrial Finance Corporations of India Ltd. IFCI has got itself registered with Companies Act, 1956. Before July I, 1993, general public was not permitted to hold shares of IFCI, only Government of India, RBI, Scheduled Banks, Insurance Companies and Co-operative Societies were holding the shares of IFCI. Management Continue reading
National Securities Clearing Corporation Ltd. (NSCCL)
National Securities Clearing Corporation Ltd. (NSCCL) is a wholly owned subsidiary of NSE and was incorporated in August 1995. It was the first clearing corporation to be established in the country and also the first clearing corporation in the country to introduce settlement guarantee. It was set up with the following objectives: to bring and sustain confidence in clearing and settlement of securities; to promote and maintain, short and consistent settlement cycles; to provide counter-party risk guarantee, and to operate a tight risk containment system. Clearing and Settlement by National Securities Clearing Corporation Ltd. (NSCCL) National Securities Clearing Corporation Ltd. carries out the clearing and settlement of the trades executed in the equities and derivatives segments of the NSE, It operates a well-defined settlement cycle and there are no deviations or deferments from this cycle. It aggregates trades over a trading period, nets the positions to determine the liabilities Continue reading
Case Study: Reasons behind the Bankruptcy of Lehman Brothers
The bankruptcy of Lehman Brothers was a result of the investment bank’s exposure to the 2007-2010 financial crisis. In fact, the demise of the investment bank would come to symbolize the crisis. Therefore, in order to understand the bankruptcy of Lehman Brothers, a consummate understanding of the 2007-2010 financial crisis is requisite. As such, an examination of crisis will serve as introductory. Several factors contributed to the fall of Lehman Brothers. Perhaps most important, however, was the period of deregulation that preceded the crisis. Arguably, the period of deregulation started during the Reagan Era. Reaganomics, the lassiez faire economic policies advocated by the former president, may have served as the starting point for the deregulatory climate that ensued for the following two decades. Either way, the following two decades witnessed an overriding belief in the virtues of deregulation. In 1999, President Clinton signed the Gramm-Leach-Bliley Financial Services Modernization Act into Continue reading
Over The Counter Exchange of India (OTCEI)
Over The Counter Exchange of India (OTCEI) was incorporated in October 1990 under Section 25 of the Companies Act, 1956 with the objective of setting up a national, ringless, screen-based, automated stock exchange. It is recognized as a stock exchange under Section 4 of the Securities Contracts (Regulations) Act, 1956. It was set up to provide investors with a convenient, efficient and transparent platform for dealing in shares and stocks; and to help enterprising promoters set up new projects or expand. their activities, by providing them an opportunity to raise capital from the capital market in a cost-effective manner. Trading in securities takes place through OTCEI’s network of members and dealers spanning the length and breadth of India. Over The Counter Exchange of India was promoted by a consortium of financial institutions including: Unit Trust of India. Industrial Credit and Investment Corporation of India. Industrial Development Bank of India. Industrial Continue reading