StudentShare solutions
Triangle menu

International Financial Markets - Essay Example

Not dowloaded yet

Extract of sample
International Financial Markets

Reasons for this trend are the fiscal stimulus packages, nationalization of private-sector debt, and reduction in tax revenues (Nelson, 2012). While government securities are considered close to risk-free, there have however been worries in 2010 that U.S. municipal bonds may default because of lack of liquidity, a fear which proved unfounded (MeritWealth, 2011). When the government requires high levels of borrowing, it tends to raise the yield on its bonds in order to attract investors. In a low interest environment, high-yield bonds become attractive to investors because the present value of high-yielding bonds makes the bonds more valuable when traded in the open market. However, by increasing the yield on its bonds the government crowds out private business and credit tends to become more costly – that is, added risk premiums increase interest rates over that offered by the government, discouraging private borrowers from resorting to bond financing because of the higher default risk involved. The result is a credit crunch that reduces funding to business and slows down productive activity, eventually causing downsizing, lay-offs and company closures. The central bank resorts to quantitative easing to introduce liquidity in the economy to spur nominal spending; this is done by purchasing financial assets from the private sector. The new central bank money used to pay for the assets increases the money held by banks and increases the level of deposits held by private parties. Quantitative easing is seen to help restore the inflation rate to positive levels when the economy is too weak that deflation (negative inflation) threatens to set in (Benford, et al, 2009). As for other developments, retail bond trading (lower-denominated bonds offered to individual investors) is seen as the better alternative to institutional bond trading. Retail had been growing when institutional was shrinking in the past crisis, due to its lower risk (Kite, 2008). Furthermore, emerging market dollar bond issuance has surged to $100 billion in 2012, as investment funds found safer markets in emerging economies little affected by the subprime financial crisis (Natarajan, 2012). Another alternative is sukuk bonds, which are Islamic financial instruments resembling conventional bonds but, consistent with Shariah law, are not debt instruments and do not pay interest. Instead, sukuk are ownership investments representing “legal/beneficial interest in specified tangible assets and/or services and/or projects.” Sukuk investments yield pre-determined returns, and specifies profit-and-loss sharing between fund user and provider (Adam & Thomas, 2004, p. 54-55). Contingent convertible bonds, also known as CoCo bonds, are a novel way by which banks may raise capital. These are bonds that automatically convert to equity when a particular trigger takes place, such as when the issuer needs money (Pietersz, 2012; . The CoCo mechanism quickly converts temporary capital (debt capital, which must be paid back) to permanent capital (equity, which however tends to dilute shareholdings). As for the future of securitisation, there is still a great need for developing securities which businesses resort to for hedging and risk management. However, new regulations have been adopted to ensure that the ...Show more

Summary

International Financial Markets Question 1: (a) Issues that have affected the international bond markets since the start of the global financial crisis. Sovereign debt, otherwise known as public debt, is borrowing incurred by governments. This figure has risen significantly and become unsustainable for at least three Eurozone countries, namely Greece, Ireland, and Portugal, which have all turned to the International Monetary Fund (IMF) and other Eurozone member states for financial assistance…
Author : cathyking
International Financial Markets essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"International Financial Markets"
with a personal 20% discount.
Grab the best paper

Related Essays

International Financial Markets
However, over the times it has been found that this key function has been compromised as the secondary trading now accounts for a high proportion of its trading activities. Basically, stock exchange is a platform or market place that provides services for traders and stock brokers.
7 pages (1750 words) Essay
International Financial Markets
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.
10 pages (2500 words) Essay
International Financial Markets
It was in this in this meeting gathering that the Bretton Woods system was born. Initially, this has initiated an acceleration of global activity. However as the system progresses, its flaws surfaced out so intensely that the former United States President Richard Nixon sentenced it to its demise on August 1971.
8 pages (2000 words) Essay
International Financial Markets Master Essay
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.
8 pages (2000 words) Essay
International Financial Markets paper
The subject of investment management has evolved many theories and concepts to facilitate identification of healthy investment opportunities and allow investors to analyse different investment avenues so as to increase their return. Many of the investment management theories were found worthless in an investment climate which is characterized by innumerable number of investment opportunities with differing categories of risk.
9 pages (2250 words) Essay
Historical Development of Main International Financial Markets
They are of the view that there must be stricter norms for controlling the flow of capital. However, other economic experts like Fischer, (1998) and Summers, (2000) argue that development of international financial markets would lead to improvement in the economies of developing, less developed countries, and it would automatically enhance stability among developed countries.
10 pages (2500 words) Essay
International financial markets
ression representative economists of these two nations, Harry Dexter White and John Maynard Keynes, respectively led the gathering of economists at the Mount Washington Hotel in Bretton Woods, New Hampshire to formulate a system that will prevent the recurrence of this traumatic
8 pages (2000 words) Essay
International financial markets
Long-term debt may be raised through several ways, but the most common is through the sale or flotation of bonds. Equity capital, on the other hand, is in the form of stocks, of which there are at least
8 pages (2000 words) Essay
International Financial Markets
The role of the capital market is to facilitate an exchange of funds among all member participants. By doing so, members present themselves with having surplus funds or a deficit of the same. As a result, trading is
8 pages (2000 words) Essay
International Financial Markets
Euro zone is at risk because all the members of the European Monetary Union (EMU) were guarantees of each other when they were applying for the loan. Because of this, all the member state of Europe including those
8 pages (2000 words) Essay
Get a custom paper written
by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT
Comments (0)
Rate this paper:
Thank you! Your comment has been sent and will be posted after moderation