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Financial Services The Commercial Environment - Essay Example

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Financial Services The Commercial Environment

(Greiber, C and Lemke, W 2005)
At a preliminary stage of analysis it is worth appreciating this "one size fits all" approach to interest and inflation rates can lead to manifest injustices with countries with faster inflation, (often accompanying stronger growth), who will technically be facing lower 'real' interest rates than those countries currently going through lower inflation. (Aharony 1986)Therefore an excessively deflationary monetary policy in the slower growing regions of the Eurozone will be a cause of concern.In this case Bank lending and housing prices with in the member states can counter the effects of such a uniform treatment. (Greiber, C and Lemke, W 2005) .
Now coming back to the first part of the question,a thorough understanding of the intricacies of the banking and financial system of any country is integral to the effective management of any economy.Infact the world economy is the ultimate beneficiary of the health and wealth of the financial institutions of major economies like those of the United Kingdom.
The development of UK's financial sector has its roots as far back as the Roman age where it is reported that professional banking still existed even in its most basic forms and banks were able to receive deposits and advance credit. (Fama, E.F. and K.R. French.1992.) Indeed the mention of a "pound of flesh" by Shakespeare in the medieval England indicates that credit lending existed even back then even though in a very crude form!

The Bank of England emerged as a joint stock bank during the industrial revolution as the advent of improved transportation and improved means of communication paved the way for further financial development (for example the development of the NatWest bank which was the first UK national bank.By the 18th and 19th century the banking systems had been divided into Clearing "High Street" Banks Merchant Banks; and other financial institutions; such as Building Societies. (Fama, E.F. and K.R. French.1992.) The United Kingdom's financial markets have gone through radical changes in the past few decades particularly in the area of credit risk. (Fama, E.F. and K.R. French.1992.)This is particularly because of the large banks expanding into the area of credit risk this accelerating the process of disintermediation.Instead of holding it in their balance sheets the financial intermediaries have made Credit something which has a market of its own. (Fama, E.F. and K.R. French.1992.)This has led to an increased trading of securitized credit instruments and in turn caused an explosive growth in the market for credit derivatives.The UK financial markets have also seen the growth of derivatives and structured products in other risk categories, such as interest rates, foreign exchange and equities. (Mishkin, F. 2007).
There has also been a quantitative shift in the growth of hedge funds and private equity funds. Also private equity funds have increased in their role as devices of restructuring corporate asset and the deviation towards innovative loan structures and financing techniques which ...Show more

Summary

The question requires a descriptive and critical discussion of the UK financial industry's initial development and its role in the shaping of monetary policy. The Second part of the question however focuses on the different techniques of inflation targeting adopted by the European Central Bank and The Bank of England.The different historical premises and the inflation experiences on which these policies are based are also appreciated…
Author : eleonoreheaney
Financial Services The Commercial Environment essay example
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