Benefits Of Developing Countries Adopting Capital Controls During A Recession

Title I sets a closer look and evaluation of domestics and international financial institutions to achieve better control over the financial stability and finding better and more efficient ways to overlook the of the country finding more efficient ways. Monitor.

policy makers should consider the interconnectedness of global economy. As seen from our results and those other relevant literatures, the U.S. monetary policy have significant effects on capital flows in emerging market economies, which in turn feed back into the U.S economy. Even though, the relative magnitude of monetary policy spillovers depends on various country-specific characteristics including exchange rate policy, financial market development, macro-economic fundamentals, and trade openness, it is important for both advanced and emerging economies to take measures to limit the negative spillovers.

Regulation of the economy is very critical because any economy is susceptible to the fundamental mismatch that can possibly lead to negative externalities in demand for liquidity, which include bank runs and credit cycles. In a well-functioning economy, there should be easy access of money-like instruments (safe assets) to promote liquidity. Safe assets refer to highly liquid assets which can be easily converted into cash without affecting the financial value of the asset. Further, there must be a platform for facilitating creation and exchange of securities, thus creating assets and liabilities (credit system) for the market players. Asset holders expect a return on holding assets because of the risks they assume by holding the liquid assets. However, producing

This article will consider the global issues that has led to stock market volatility in the past year. It will look at how these issues developed, its effect on the equity and global economy and how they interrelate with each other. It considers how investors can benefit by selecting and allocating assets alternative to equity in their investment portfolio. This would help counteract the effects of the

Money and capital markets and their major components are introduced in this chapter. Firms need to raise capital in order to survive. Financial institutions give firms access to the money they need to grow. However, greed can drive financial managers and institutions to commit actions that get them into trouble and even force bankruptcy. These bankruptcies result in limited capital flows to firms, and both they and the whole economy can suffer. Therefore, financial institutions and markets should be well regulated. The final section covers a discussion of the impact of taxation on the firm’s financial activities.

Conventional financial repression theories right from its inception by Shaw (1973) and McKinnon (1973) have always claimed that both credit and interest rates controls are detrimental to economic performance. For instance Fry (1978), Shaw (1973), Kapur (1976) and Matheison (1980) all argued that

The Capital market in any country is one of the major pillars of long-term economic growth and development. The market serves a broad range of clientele, including different levels of government, corporate bodies and individuals within and outside the country. Capital formation entails accumulated savings out of the current incomes of either organization or individual. It is investment in fixed assets which in part is financed with monies raised through the capital market (Al-Faki, 2006). The Capital market has been one of the major means through which foreign funds are injected into most economies and the tendency towards a global economy is more visible there than anywhere else. It is therefore, quite valid to state that the growth of the capital market has become one of the barometers for measuring the overall economic growth of a nation (Emenuga, 1998).

Q1. How did deregulation of financial markets and the large flow of capital between countries contributed to vulnerability of the contemporary global financial system.

When investing internationally there are risks beyond the risk of individual securities or portfolios. There is liquidity risk, because it is often

Until 1996, many developing countries, especially the Southeast Asian countries were developing their financial markets, which attracted huge inflows of foreign capital. Coupled with weak supervision on continued liberalization of the financial markets, huge current account deficits, and adoption of fixed exchange rate system, these economies were vulnerable to speculative attacks.

In figure 3, Cho and Rhee (2014) show the composition of capital flows for all 10 Asian Countries excluding Hong Kong and Singapore. While the FDI was quiet stable, the portfolio investment part decreased from 2.2% of GDP in 2007 to -2.9% in 2008. Also, the other investment part of capital inflows, like bank loans, declined since 2007; nevertheless, it rebounded over than the pre-crisis level and became the major source of capital inflows after GFC.

Every finance students have learnt diversification is to reduce total risk by investing a basket of assets in portfolios. But what contributes to the success of portfolio diversification? A large number of assets? A variety types of asset allocation? Adding international investment? Numerous of risk factors? They are all indicators of a well-diversified portfolio. In this case, we will discuss about the advantages and disadvantages of diversification in portfolio management with related indicators. On one hand, some mention dynamic and numerous assets allocation in the portfolio will reduce both risks. While some also state the benefit of introduce multi-factor portfolio pricing models. On the other hand, arguments arise demonstrating adding international investment may disappoint investors because foreign market could be correlated and moved together. Another disadvantage could be the correlated assets collected weaken the effect of diversification. At the end, a balanced conclusion will be drawn to support the useful diversification.

The demand for money has been an essential part of economics from the beginning of economics, even though minimal attention was given to it before the 1920s. This apparent lack of thought appears to have dramatically changed since the Great Depression of early 1930’s. These crises have lured special attention in monetary theory and consequently an equally particular attention has been focused on the demand for money. Today, over sixty years after these crises, interest on the causation of the failure of governments and depression, and the monetary authorities to prevent it happening. This importance rises to a crest whenever the economy of other countries declines or when our domestic economy enters a recession and/or depression. These events can raise issues such as what are the duties of monetary policy in causing an international or domestic economic boom or recession, who holds money, and why is it held? The debate usually centers on whether effortless or strict monetary policies are preferable. Strictly speaking, should credit and money be ample and cheap or limited and overpriced? These controversies call for an applicable analysis of how money is used and the functioning of monetary policy instruments. This is more so for developing countries where they face problems of growth and development and appear to be of a precise nature and are tied down by structural rigidities and bottlenecks. The problem in the developing countries is how more or less

1. To begin with,“internal control”cannot guarantee the legitimate rights and interests of all the stockholders. The government has held too many shares nearly 100% and the ownership belongs to country in theory. However, in practice, no stockholders is willing to be responsible for the state-owned assets, the owner vacancy problem is very salient. Under this circumstance, the profits of country owner cannot be promised and on the other hand, the ubiquitous ownership of the bank engenders the unclear boundaries between government and companies, leading to a heavier burden on the country finance. The state-owned commercial banks don’t take the limited responsibility, if the government over supervises or over interferes, it may cause the financial repression, and with the increase of bank debts, the government has to loosen the requirement and invest revenues to bank again and again .As a result, the country must hold the burden.

The International Monetary Fund (IMF) was one of the many international organizations that emerged after the end of World War II. The primary function of the IMF is to promote the international financial stability and spur monetary cooperation. Many countries see the IMF as a “lender of last resort” (Thacker, 1999:38), meaning countries borrow money from the Fund for “short-term balance of payment support” (Steinwand and Stone, 2007:11) in order to avert the collapse of their domestic economies. Many of the loan programs offered by the IMF are accompanied by the terms commonly known as conditionality. IMF conditionality is a set of intensive fiscal and monetary policy reforms that must be implemented by the borrowing country. An important question often raised in connection with IMF imposed conditionality is whether such programs are effective and they work to enhance the economic situation of the developing country. In this paper, I argue that there are mixed results regarding the IMF program effectiveness, and the success of IMF lending program does depend on domestic factors of the borrowing country.