Globalization of capital investment and finance has surfaced for a long period of time in the world of global financial market. Capital flow liberalization has brought up the importance of capital controls for some countries to achieve their economic growth. The Description of Capital Controls Since the failure of Bretton Woods system in 1971, the international capital movements within developed and developing countries become unstable and for some countries the capital flows need to be controlled. Capital controls are restrictions to regulate the movement of capitals which are flowing in or out of the country. Capital flows may be in forms of bank loans, portfolio investment and foreign direct investment. The controls of short terms portfolio investment and bank loans are quite necessary since they are quite risky because of the roll-over risks. For long term credits and FDI are less risky if they are politically guaranteed. Looking back to Continue reading
Financial System
The Pros and Cons of Bitcoin
The Bitcoin was designed to be the perfect virtual currency. Bitcoin is completely anonymous, cryptographically secure, and friction-less. It is also invisible to law enforcement as well as the taxman. It can be seen as the holy grail of payments for anyone trying to avoid bank fees while spending money domestically or abroad. On another note it is the perfect trading grounds for members of the underground economy, attempting to avoid law enforcement and prosecution. Although there are many pros in the use of Bitcoins, there are always cons. Nothing is perfect. The strengths of Bit coin can also be considered its weaknesses. Once the money is sent, it is sent, it was designed so that there is no trust required between buyer and seller, payment was guaranteed, as soon as it enters the account, it cannot be taken back unless the seller refunds it. Not many people are willing Continue reading
Introduction to Merchant Banking
Definition of Merchant Banking The Notification of the Ministry of Finance defines merchant banker as; “Any person who is engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing to securities as manager-consultant, adviser or rendering corporate advisory services in relation to such issue management” The Amendment Regulation specifies that issue management consist of prospectus and other information relating to issue, determining financial structure, tie-up of financiers and final allotment and refund of the subscriptions, underwriting and portfolio management services. In the words of Skully “A Merchant Bank could be best defined as a financial institution conducting money market activities and lending, underwriting and financial advice, and investment services whose organization is characterized by a high proportion of professional staff able to able to approach problems in an innovative manner and to make and implement decisions rapidly.” Nature of Merchant Banking Merchant banking is Continue reading
Introduction to Investment Banking
‘Investment Banking‘ as term suggests, is concerned with the primary function of assisting the capital market in its function of capital intermediation, i.e., the movement of financial resources from those who have them (the Investors), to those who need to make use of them for generating GDP (the Issuers). Banking and financial institution on the one hand and the capital market on the other are the two broad platforms of institutional that investment for capital flows in economy. Therefore, it could be inferred that investment banks are those institutions that are counterparts of banks in the capital markets in the function of intermediation in the resource allocation. Nevertheless, it would be unfair to conclude so, as that would confine investment banking to very narrow sphere of its activities in the modem world of high finance. Over the decades, backed by evolution and also fuelled by recent technologies developments, an investment Continue reading
Role of Development Banks in Indian Economy
Capital Formation: The significance of Development Finance Institutions or DFIs lies in their making available the means to utilize savings generated in the economy, thus helping in capital formation. Capital formation implies the diversion of the productive capacity of the economy to the making of capital goods which increases future productive capacity. The process of Capital Formation involves three distinct but interdependent activities, viz., saving financial intermediation and investment. However, poor country/economy may be, there will be a need for institutions which allow such savings, as are currently forthcoming, to be invested conveniently and safely and which ensure that they are channeled into the most useful purposes. A well-developed financial structure will therefore aid in the collections and disbursements of investible funds and thereby contribute to the capital formation of the economy. Indian capital market although still considered to be underdeveloped has been recording impressive progress during the post-interdependence period. Continue reading
Functions of Merchant Bankers
Recommended reading: Introduction to merchant banking The important functions of merchant bankers are: Management of Debt and Equity Offerings: This forms the main function of the merchant banker. He assists the companies in raising funds from the market. The undergoing tasks include instrument designing, pricing the issue, registration of the offer document, underwriting support, marketing of the issue, allotment and refund and listing on stock exchanges. Placement and Distribution: The merchant banker helps in distributing various securities like equity shares, debt instruments, mutual funds, insurance products, and commercial paper, to name a few. The distribution network of the merchant banker can be classified as institutional and retail in nature. The institutional network consists of mutual funds, foreign institutional investors; private equity funds pension funds, financial institutions, etc. Corporate Advisory Services: Merchant bankers offer customized solutions to their clients’ financial problems. Financial structuring includes determining the right debt-equity ratio and the framing of appropriate Continue reading