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Global Financial System

INTRODUCTION

Financial service refers to the participants of financial services and markets along

with the regulatory mechanism.

Financial service comprise of assisting in sourcing of funds (intermediation),

funding, advising and procedural assistance in deployment of fund.

Global Financial System

The global financial system (GFS) is the financial system consisting ofinstitutions and regulators that act on the international level, as opposed to thosethat act on a national or regional level.

History

The history of financial institutions must be differentiated from economic historyand history of money. In Europe, it may have started with the first commodityexchange, the Bruges Bourse in 1309 and the first financiers and banks in the15th17th centuries in central and western Europe. The first global financiers theFuggers (1487) in Germany; the first stock company in England (RussiaCompany 1553); the first foreign exchange market (The Royal Exchange 1566,England); the first stock exchange (the Amsterdam Stock Exchange 1602).

Milestones in the history of financial institutions are the Gold Standard (18711932), the founding of the International Monetary Fund (IMF) and World Bank atBretton Woods 1944, and the abandonment of fixed exchange rates in 1973.

The main players are the global institutions are:

Supranational Institutions:


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o International Monetary Fundo Bank for International Settlementso World Trade Organizationo World Banko United Nations Conference on Trade and Development

Regional Cooperation:o South Asian Association for Regional Co-opo Organization of petroleum Exporting Countrieso Association of Southeast Asian Nationso South Asian Free Trade Areao North American Free Trade Agreemento European Union

International Monetary Fund

The IMF works to foster global growth and economic stability. It provides policyadvice and financing to members in economic difficulties and also works withdeveloping nations to help them achieve macroeconomic stability and reducepoverty.

The IMF promotes international monetary cooperation and exchange ratestability, facilitates the balanced growth of international trade, and providesresources to help members in balance of payments difficulties or to assist withpoverty reduction. The IMF works with other international organizations topromote growth and poverty reduction. It also interacts with think tanks, civilsociety, and the media on a daily basis.

The IMF, or International Monetary Fund, is an organization of 187 membercountries. Their goal is to work with the Fund to stabilize the global economy bycooperating in practices which achieve that aim. Ideally, these countries are

willing to forfeit some of their sovereign authority if it is necessary to strengthenthe global economy.

In return, the IMF helps its members by:

Surveying global economic conditions. Advising member countries on methods to improve their economy.


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Providing short-term loans to avoid currency instability.Since the IMF does lend money, it is often confused with the World Bank. TheBank's purpose is to lend money to developing countries for specific projects thatwill fight poverty. The IMF, on the other hand, only provides loans if it will helpprevent a global economic crisis. Its overall goal is to prevent these crises throughguidance to, and cooperation among, its members.

Importance of the IMF:

The importance of the IMF has increased since the onset of the 2008 globalfinancial crisis. In fact, an IMF surveillance report warned about the economiccrisis, but was ignored. As a result, the IMF has been called upon more and moreto provide global economic surveillance. It's in the best position to do so becauseits requires members to subject their economic policies to IMF scrutiny. Member

countries also committed to pursue policies that are conducive to reasonable pricestability, and avoid manipulating exchange for unfair competitive advantage

History of the IMF:

The International Monetary Fund (IMF), like the World Bank, was conceived atthe Bretton Woods conference that sought to rebuild Europe after World War II.Unlike the Bank, its goal was to help countries maintain the value of theircurrencies without resorting to trade barriers and high interest rates. These were

seen as a major cause of the Great Depression.

Membership

The IMF has 187 member countries. It is a specialized agency of the UnitedNations but has its own charter, governing structure, and finances. Its membersare represented through a quota system broadly based on their relative size in theglobal economy.

Functions

Surveillance over Members Economic Policies Financing Temporary Balance of Payments Needs Dissemination of Information and Research Building Capacity through Technical Assistance and Training
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Increasing the Global Supply of International Reserves Strengthening the International Monetary System Mobilizing External Financing Combating Poverty in Low-Income Countries

Our Work

The IMF's fundamental mission is to help ensure stability in the internationalsystem. It does so in three ways: keeping track of the global economy and theeconomies of member countries; lending to countries with balance of paymentsdifficulties; and giving practical help to members.

Surveillance

The IMF oversees the international monetary system and monitors the financialand economic policies of its members. It keeps track of economic developmentson a national, regional, and global basis, consulting regularly with membercountries and providing them with macroeconomic and financial policy advice.

Technical Assistance

To assist mainly low- and middle-income countries in effectively managing theireconomies, the IMF provides practical guidance and training on how to upgradeinstitutions, and design appropriate macroeconomic, financial, and structuralpolicies.

Lending

The IMF provides loans to countries that have trouble meeting their internationalpayments and cannot otherwise find sufficient financing on affordable terms. Thisfinancial assistance is designed to help countries restore macroeconomic stability

by rebuilding their international reserves, stabilizing their currencies, and payingfor importsall necessary conditions for re-launching growth. The IMF alsoprovides concessional loans to low-income countries to help them develop theireconomies and reduce poverty.

The Top the Agenda:
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Reinforcing multilateralism Rethinking macroeconomic principles Stepping up crisis lending Strengthening the international monetary system Supporting low-income countries

World Trade Organization

The International trade is based on multilateral trading system. It is a systeminvolving trade amongst various countries. It is therefore, necessary that the rulesand regulation of such system are properly defined. In the year 1947, an attemptwas made by 23 countries in the world to define the basic norms for conduct ofinternational trade. The trade negotiation amongst these 23 countries inmultilateral treaty called General Agreement on Traffic and Trade (GATT) in theyear 1948. The GATT was established to secure the conduct of international tradebased on the principles of non-discrimination, transparency and liberalization.

The GATT 1994 is being implemented with effect from 1 of January 1995 whenthe very first agreement regarding the establishment of world trade organization(WTO) was established. Thus the World Trade Organization (WTO) held its lastround of international trade negotiation at Doha in July 2006. At present 151countries are member of World Trade Organization (WTO).

The World Trade Organization (WTO), established on 1 January 1995, isthe legal and institutional foundation of the multilateral trading system. Itprovides the principal contractual obligations determining howgovernments frame and implement domestic trade legislation andregulations. And it is the platform on which trade relations among countriesevolve through collective debate, negotiation and adjudication.

The WTO is the embodiment of the results of the Uruguay Round tradenegotiations and the successor to the General Agreement on Tariffs andTrade (GATT)

Objective of World Trade Organization (WTO)

* To ensure the conduct the international trade on non-discrimination basis.* To raise standard of living and income, ensuring full employment.* To expend production and trade


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* Protecting environment* Ensuring better share for developing countries.

Function of World Trade Organization (WTO)

* Administering World Trade Organization (WTO) trade agreement* Forum the trade negotiation* Handling trade disputes* Monitoring national trade policy* Technical assistance and training for developing countries* Co-operation with other international organization (like help from WorldBank and IMF)

Legal framework of World Trade Organization (WTO)

* Protection through import traffic* Reduction in traffic and binding against further increase* Conduct of trade according to M.F.N. clauses* Commitment to national treatment rule.

Key Principles

Trade without discrimination. Under the "most-favoured nation" (MFN)clause, members are bound to grant to the products of other members noless favourable treatment than that accorded to the products of any othercountry. The provision on "national treatment" requires that once goodshave entered a market, they must be treated no less favourably than theequivalent domestically-produced good.

Predictable and growing access to markets. While quotas are generallyoutlawed, tariffs or customs duties are legal in the WTO. Tariff reductionsmade by over 120 countries in the Uruguay Round are contained in some

22,500 pages of national tariff schedules which are considered an integralpart of the WTO. Tariff reductions, for the most part phased in over fiveyears, will result in a 40 per cent cut in industrial countries' tariffs inindustrial products from an average of 6.3 per cent to 3.8 per cent. TheRound also increased the percentage of bound product lines to nearly 100per cent for developed nations and countries in transition and to 73 per centfor developing countries. Members have also undertaken an initial set of


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commitments covering national regulations affecting various servicesactivities. These commitments are, like those for tariffs, contained inbinding national schedules.

Promoting fair competition. The WTO extends and clarifies previousGATT rules that laid down the basis on which governments could imposecompensating duties on two forms of "unfair" competition: dumping andsubsidies. The WTO Agreement on agriculture is designed to provideincreased fairness in farm trade. That on intellectual property will improveconditions of competition where ideas and inventions are involved, andanother will do the same thing for trade in services.

Encouraging development and economic reform. GATT provisionsintended to favour developing countries are maintained in the WTO, inparticular those encouraging industrial countries to assist trade ofdeveloping nations. Developing countries are given transition periods to

adjust to the more difficult WTO provisions. Least-developed countries aregiven even more flexibility and benefit from accelerated implementation ofmarket access concessions for their goods.

World Bank

Introduction

The World Bank provides financial and technical assistance to emerging

market countries. The World Bank is not actually a bank in the common sense.Instead, it consists of two development institutions -- the International Bank forReconstruction and Development (IBRD) and the International DevelopmentAssociation (IDA)-- owned by 186 member countries.

The Bank is closely affiliated with three other organizations --the InternationalFinance Corporation (IFC), the Multilateral Guarantee Agency (MIGA), and theInternational Centre for the Settlement of Investment Disputes (ICSID) -- thatsupport its goal of reducing worldwide poverty. The five organizations make upthe World Bank Group.

Purpose of the World Bank

The World Bank provides low-interest loans, interest-free credits and grants todeveloping countries. In the past, this usually occurred when they were in dangerofsovereign debt default, itself often a result of overspending and extensive
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borrowing. Many countries then devalued their currencies, which resultedin hyperinflation. To combat this, the Bank often required austerity measures,where the country must agree to cut back on spending and support its currency.

The World Bank loans are usually to invest in education, health, andinfrastructure. The loans can also be used to modernize a country's financialsector, agriculture, and natural resources management. The Bank's goal is to"bridge the economic divide between poor and rich countries, to turn rich countryresources into poor country growth and to achieve sustainable poverty reduction."

To achieve this goal, the Bank focuses on six areas:1. Overcome poverty by spurring growth in the poorest countries, focusing on

Africa.2. Offer reconstruction to poor countries emerging from war, a major

contributing factor to extreme poverty.3. Provide a customized development solution to help those middle-incomecountries overcome problems that could throw them back into poverty.

4. Spur governments to act on preventing climate change, controllingcommunicable diseases, (especially HIV/AIDS and malaria), managinginternational financial crises, and promoting free trade.

5. Work with the League of Arab States to improve education, buildinfrastructure and provide micro-loans to small businesses in the Arab world.

6. Share its expertise with developing countries, and its knowledge with anyonevia reports and its interactive online database.

History

The World Bank was created at Bretton Woods in 1944 to lendto European countries to help them rebuild after World War II. It was the world'sfirst multilateral development bank, and was funded through the sale of WorldBonds. Its first loans were to France and other European countries, but soon lentmoney to Chile, Mexico and India to build power plants and railways. By 1975,the Bank also lent money to countries to help with family planning, pollution

control and environmentalism.

Statistics and Reports

The World Bank provides a wealth a downloadable data for more than 200countries. In 2010, the Bank launched a new Open Data website. It provides freeaccess to 298 major indicators, including

Climate change, the environment and energy,
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Health, such as life expectancy, Urban development and infrastructure, Labor, income and education, Government, economic policy and sovereign debt, Demographics such as poverty, gender and aid effectiveness, Business, agriculture and financial areas.

The Bank also does in-depth analyses of development issues, including the annualWorld Development Report. A variety of research reports examine global trendsin trade, financial flows, and commodity prices, and their impacts on developingcountries. Other reports include the World Development Indicators, GlobalDevelopment Finance, Little Data Book, Little Green Data Book and The WorldBank Atlas.

Organization of the Petroleum Exporting

Countries, OPEC

The Organization of the Petroleum Exporting Countries (OPEC) is apermanent intergovernmental organization, currently consisting of 12 oilproducing and exporting countries, spread across three continents America,Asia and Africa. The members are Algeria, Angola, Ecuador, the IslamicRepublic of Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, UnitedArab Emirates & Venezuela.

These countries have a population of more than 408 million and for nearly allof them; oil is the main marketable commodity and foreign exchange earner.Thus, for these countries, oil is the vital key to developmenteconomic,social and political. Their oil revenues are used not only to expand theireconomic and industrial base, but also to provide their people with jobs,education, health care and a decent standard of living.The organizations principal objectives are:1. To co-ordinate and unify the petroleum policies of the Member Countriesand to determine the best means for safeguarding their individual and

collective interests;2. To seek ways and means of ensuring the stabilization of prices ininternational oil markets, with a view to eliminating harmful and unnecessaryfluctuations; and3. To provide an efficient economic and regular supply of petroleum toconsuming nations and a fair return on capital to those investing in thepetroleum industry.


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Since oil revenues are so vital for the economic development of these nations,they aim to bring stability and harmony to the oil market by adjusting their oiloutput to help ensure a balance between supply and demand. Twice a year, ormore frequently if required, the Oil and Energy Ministers of the OPEC Membersmeet to decide on the Organization's output level, and consider whether anyaction to adjust output is necessary in the light of recent and anticipated oilmarket developments.

OPEC's eleven Members collectively supply about 40 per cent of the world's oiloutput, and possess more than three-quarters of the world's total proven crude oilreserves.

OPEC was formed at a meeting held on September 14, 1960 in Baghdad, Iraq, byfive Founder Members: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. OPECwas registered with the United Nations Secretariat on November 6, 1962 (UNResolution No 6363).

OPEC Member Countries:

Country Joined OPEC Location

Algeria 1969 Africa

Angola 2007 Africa

Ecuador ** rejoined 2007 South America

IR Iran * 1960 Middle East

Iraq * 1960 Middle East

Kuwait * 1960 Middle East

Libya 1962 Africa

Nigeria 1971 Africa

Qatar 1961 Middle East


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Saudi Arabia * 1960 Middle East

United Arab Emirates 1967 Middle East

Venezuela* 1960 South America

* founder Members** Ecuador joined OPEC in 1973, suspended its membership from Dec. 1992-Oct. 2007

Functions:

Representatives of OPEC Member Countries (Heads of Delegation) meet at theOPEC Conference to co-ordinate and unify their petroleum policies in order to

promote stability and harmony in the oil market. They are supported in this by theOPEC Secretariat, directed by the Board of Governors and run by the SecretaryGeneral, and by various bodies including the Economic Commission and theMinisterial Monitoring Committee.

The Member Countries consider the current situation and forecasts of marketfundamentals, such as economic growth rates and petroleum demand and supplyscenarios. They then consider what, if any, changes they might make in theirpetroleum policies. For example, in previous Conferences the Member Countrieshave decided variously to raise or lower their collective oil production in order to

maintain stable prices and steady supplies to consumers in the short, medium andlonger term.

OPEC-1973 oil crisis

The 1973 oil crisis started in October 1973, when the membersof OPEC plus Egypt, Syria and Tunisia) proclaimed an oil embargo.

This was "in response to the U.S. decision to re-supply the Israeli military"during the Yom Kippur war. the Arab members of OPEC, led by Saudi

Arabia, decided to reduce oil production by 5% per month on October 17. It lasted until March 1974. On October 19, President Nixon authorized a major allocation of arms

supplies and $2.2 billion in appropriations for Israel. In response, Saudi Arabia declared an embargo against the United States,

later joined by other oil exporters and extended against the Netherlands andother states, causing the 1973 energy crisis.


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South Asian Association for Regional Cooperation(SAARC)

-AFGANISTAN BANGLADESH BHUTAN INDIA

NEPAL MALDIVES PAKISTAN SRI LANKA

is an organization of South Asian nations

Dedicated to economic, technological, social, and cultural development

emphasizing collective self-reliance

Its seven founding members are Sri Lanka, Bhutan, India, the Maldives, Nepal,

Pakistan, and Bangladesh. Afghanistan joined the organization in 2005. Meetings

of heads of state are usually scheduled annually; meetings of foreign secretaries,

twice annually. It is headquartered in Kathmandu, Nepal.

Objectives

The objectives of the Association as defined in the Charter are;

to promote the welfare of the people of South Asia and to improve theirquality of life;

to accelerate economic growth, social progress and cultural development inthe region and to provide all individuals the opportunity to live in dignityand to realize their full potential;

to promote and strengthen selective self-reliance among the countries ofSouth Asia;

to contribute to mutual trust, understanding and appreciation of oneanother's problems;

to promote active collaboration and mutual assistance in the economic,social, cultural, technical and scientific fields;

to strengthen cooperation with other developing countries;


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to strengthen cooperation among themselves in international forums onmatters of common interest; and

to cooperate with international and regional organizations with similar aimsand purposes.

Principles

The principles are:

Respect for sovereignty, territorial integrity, political equality andindependence of all members states

Non-interference in the internal matters is one of its objectives Cooperation for mutual benefit All decisions to be taken unanimously and need a quorum of all eight

members All bilateral issues to be kept aside and only multilateral(involving many

countries) issues to be discussed without being prejudiced by bilateralissues

South Asian Free Trade Area

Over the years, the SAARC members have expressed their unwillingness onsigning a free trade agreement. Though India has several trade pacts with

Maldives, Nepal, Bhutan and Sri Lanka, similar trade agreements with Pakistanand Bangladesh have been stalled due to political and economic concerns on bothsides. In 1993, SAARC countries signed an agreement to gradually lower tariffswithin the region, in Dhaka. Eleven years later, at the 12th SAARC Summit atIslamabad, SAARC countries devised the South Asia Free Trade Agreementwhich created a framework for the establishment of a free trade area covering 1.6billion people. This agreement went into force on January 1, 2006. Under thisagreement, SAARC members will bring their duties down to 20 per cent by 2009.

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