Monetary stability pertains to low inflation and a stable currency. Stable prices are defined by the government's inflation target. The Central Bank applies various monetary policy options in order to respond appropriately at each stage of the change in the existing macro-economic environment…
Low inflation is a positive scenario as it enables a country to maintain a stable economy and keep the value of local currency money.
For example, if a Central Bank wants to attain and keep exchange rate stability and stem capital outflow, the bank must implement a high interest rate policy such as increasing call market rates to a range of 20 to 30% from a regular level of 10% in most cases. A stable foreign exchange rate will prevent a deep contraction of domestic economic activity. The Central Bank can also encourage an expansion of bank lending to small and medium enterprises by expanding its credit facility to support local enterprises. By achieving its primordial goals of stablility and efficiency in the monetary and financial frameworks, the Central Bank makes its very important contribution to the growth of the local economy.
The Central Bank sets a base rate at which it transacts with other financial institutions. This interest rate then impacts on an array of interest rates set by commercial banks and building societies for their clients consisting of both borrowers and lenders. It also affects the price of financial assets including bonds and shares. The policy of decreasing or raising interest rates influences the level of spending in the economy. For instance, lower interest rates makes saving less attractive and borrowing more attractive. Lower interest rates can affect the consumers' and the firms' cash-flow. For example, a steep drop in interest rates reduces the income from savings and the interest payments due on loans. Borrowers also spend more of any extra money they have. The final effect of lower interest rates is to encourage higher spending in aggregate.
Lower interest rates can boost the prices of other assets such as houses. Higher house prices permit the home owners to extend their mortgages to finance higher consumption. Higher share prices increase the households' wealth also.
In addition, the main macroeconomic objectives of long-term growth and employment are achieved by monetary authorities through the judicious application of the appropriate monetary policy. Over the years, monetary authorities are focused on price stability by setting numerical targets for inflation over specific periods.
As a strategic move to set the base rates, the monetary authorities make a series of choices regarding the information used as the basis for short-term and longer-term monetary policy adjustments by giving weight and specific roles to crucial economic variables. This information is applied in setting the base rate for interest rates, the prevailing foreign exchange rate regime, the intermediate money supply targets, the preferred forecasting mechanisms and the prevailing indices of the prevailing conditions in the monetary sphere. Individual country assessments on the base rate vary in most respects. The financial variables which exert an important role at the strategic level include important targets such as money, credit and asset prices.
The main operating procedures which relate to the tactical level of policy implementation encompass the choice both of instruments and of operating objectives. The central bankers use major policy instruments such as official interest rates, market operations such as repurchase tenders, reserve requirements and specific direct controls like ceilings on loans and ceilings on bank deposits ...
Cite this document
(“Global Financial Markets Essay Example | Topics and Well Written Essays - 2750 words”, n.d.)
Retrieved from https://studentshare.net/business/275679-global-financial-markets
(Global Financial Markets Essay Example | Topics and Well Written Essays - 2750 Words)
“Global Financial Markets Essay Example | Topics and Well Written Essays - 2750 Words”, n.d. https://studentshare.net/business/275679-global-financial-markets.
As the report, Introduction to Financial Markets, declares a financial market is a trading environment where individuals and business entities can buy and sell financial assets, securities, and other fungible products at relatively low transaction costs. Securities consist of bonds and stocks, and commodities include metals or agricultural goods.
Financial markets and sovereign debt. Financial markets and sovereign debt Introduction Just as is the case with the common notion of market, financial market is a platform in which people as well as other entities interact to trade on financial securities, valued fungible items as well as other committees at relatively lowered costs of transaction with prices reflecting the state of supply and demand.
They channel the funds from firms, households and the governments which they have surplus funds to those who have shortage of funds as they spend more than their level of income. Primarily governments, corporations, households, foreigners have excess funds with them and hence they lend them.
International Financial Market trends have been on a growth rate since the last three decades. This study is to highlight the growth trend that has been achieved in the international financial market showing the curve over the past three decade. The paper starts with the basics of the global financial markets and moves to explaining the components viz., the foreign exchange, international capital and the international stock markets.
The financial industry as a whole is massive, according to Axiss (2005,5), "It is a major driver of Australia's economic growth, considerably outweighing agriculture and mining combined, the two Industries traditionally associated with Australia's economic wellbeing." The success of banks has benefited the economy as a whole but has also affected various financial institutions, instruments and markets in Australia.
This paper will define what financial markets and institutions are and their implication in an economy particularly in a largely consolidating world market.
Financial markets "consist of agents, brokers, institutions, and intermediaries transacting purchases and sales of securities." The individuals and institutions operating in the financial markets are linked by contracts and communications networks that form an externally visible financial structure, laws, and friendships.
According to Fisher and Shaw (2003), “securitisation is the packaging of designated pools of loans or receivable with an appropriate level of credit enhancement and the redistribution of these packages to