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
International Financial Institutions
Commodity Market Participants
Commodity market is a place where trading in commodities takes place. Markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized Contracts. It is similar to an Equity market, but instead of buying or selling shares one buys or sells commodities. Commodity market is an important constituent of the financial markets of any country. It is the market where a wide range of products, viz., precious metals, base metals, crude oil, energy and soft commodities like palm oil, coffee etc. are traded. It is important to develop a vibrant, active and liquid commodity market. This would help investors hedge their commodity risk, take speculative positions in commodities and exploit arbitrage opportunities in the market. In current situation, all goods and products of agricultural (including plantation), mineral and fossil origin are allowed for commodity trading Continue reading
Working of International Monetary Fund (IMF)
Recommended Reading: International Monetary Fund (IMF) 1. Financial Resources: IMF’s resources mainly come from two sources Quotas and Loans. The capital of the Fund includes quotas of member countries, amount received from the sale of gold, General Arrangements to Borrow (GAB), New Arrangements to Borrow (NAB) and loans from members nations. Quotas and Loans and their Fixation: The Fund has General Account based on quotas allocated to its members. When a country joins the Fund, it is assigned a Quota that governs the size of its subscription, its voting power, and its drawing rights. The country will be assigned with an initial quota in the same range as the quotas of existing members that are broadly comparable in the economic size and characteristics. At the time of the formation of the IMF, each member is required to pay its subscription in full or on joining the Fund — of which Continue reading
International Financial Institutions: International Monetary Fund (IMF)
Origin of International Monetary Fund (IMF) The International Monetary Fund (IMF) also called the Fund is an International monetary institution/ supranational financial institution established by 45 nations under the Bretton Woods Agreement of 1944. Such an institution was necessary to avoid repetition of the disastrous economic policies that had contributed to Great depression of 1930’s. The principal aim was to avoid the economic mistakes of the 1920s and 1930s. It started functioning from March 1, 1947. In June, 1996, the Fund had 181 members. The IMF was established to promote economic and financial co-operation among its members in order to facilitate the expansion and balanced growth of world trade. It performs the activities like monitoring national, global and regional economic developments and advising member countries on their economic policies (surveillance); lending member hard currencies to support policy programmes designed to correct BOP problems; offering technical assistance in its areas of Continue reading
International Financial Markets
International financial markets provide links connecting the financial markets of each country and independent markets external to the authority of any one country. The heart of the international financial market is being governed by the currency market where the foreign currency is denominated by the international trade and investment. Hence the purchase of goods and services is preceded by the purchase of currency. The following are the reasons given for the enormous growth in the trading of foreign currency: Deregulation of international capital flows – Without the major government restrictions, itis extremely simple to move the currencies and capital around the globe. Gain in technology and transaction cost efficiency — The advancements in technologyis not only taking place in the distribution of information, in addition to the performance of exchange or trading. This has resulted greatly to the capacity of individuals on these markets to accomplish instantaneous arbitrage. Market upswings Continue reading
Growth of Development Banks
Although development banks attracted great attention after World War II but there one insurances or such institutions even much earlier, First development bank was found in Belgium in 1822. The purpose of financing and promoting industry. It was a joint stock bank which nursed funds through the sale of shares and bonds in order to finance; commercial and industrial enterprises. This new technique of banking got impetus only in 1852 when ‘Credit Mobilize of France’ was set up. It mobilized resources through the sale of bonds and promissory notes and made long-term investments particularly in public utility undertakings, railways, insurance companies and banks. It set a model for similar investment banks established in Germany, Austria, Belgium, Netherlands, Italy, Spain and Switzerland. Throughout the 19th century, the Credit Mobilize provided a great appeal to all countries which wanted to develop industries on a fast pace. In 1902, Industrial Bank of Japan Continue reading