The international financial system

The international financial system

1. The International Financial System




STUDY PROGRAMME: FINANCE AND BANKING





Monetary Economics REPORT


Title: The International Financial System


Students:
Rajab, Mohamad Louai



Academic year: 2021-2022, 1
st
Semester

2. The International Financial System


Table of Contents
Introduction: ............................................................................................................................... 3
The concept of the financial system:............................................................................................ 4
The concept of the financial market and its functions: .................................................................. 4
Direct financing: .................................................................................................................... 4
Indirect financing: .................................................................................................................. 4
Elements of the international financial system: ............................................................................ 4
Dealers:..................................................................................................................................... 4
Investors ................................................................................................................................ 5
Borrowers: ............................................................................................................................. 5
Participants ............................................................................................................................ 5
Money markets: ..................................................................................................................... 5
Capital markets: ..................................................................................................................... 6
instruments ................................................................................................................................ 6
International loans:...................................................................................................................... 8
international bonds:..................................................................................................................... 8
(Foreign Direct Investment) FDI: ................................................................................................ 9
Foreign Portfolio Investment-FPI: ............................................................................................... 9
References.................................................................................................................................. 10

3. The International Financial System
















Introduction:

The financial system is seen as any interacting system as a set of responsive inputs among them
through processes to achieve certain goals, and to assess how well these objectives have been
met. One of the most crucial indicators of a state's financial and economic capability.
Because it is related to numerous transformations and variables of economic operations, the
financial system is the bedrock of any country's economy. As a result, the effectiveness of a
country's financial system determines its economic progress and lag, as it provides the financial
resources required for the process of economic activity, which is accomplished by providing
effective markets, institutions, and tools that can collect savings and invest them.
Therefore, managing and managing the financial system is one of the major challenges facing
countries, especially developing ones, because the macro economy is linked to the state of the
financial system, which in turn is reflected in policies and financing systems, and this is what
determines the type of financial system; If it is a debt economy where finances dominate in an
indirect way, or a financial market economy where finances dominate in a direct way, both of
them have their own peculiarities and advantages.

4. The International Financial System

The concept of the financial system:
What is meant by the financial system, institutions, markets, general laws, statistics and
techniques through which monetary and financial assets are traded such as treasury bills, bonds,
shares, etc., and the role of the financial system is pivotal in contemporary societies, as it secures
the transfer of surplus financial resources from savers to borrowers for investment or
consumption, in other words It makes available funds for lending and borrowing, and provides
financial means and tools that contribute to promoting the economic development of the
country, and thus raise the standard of living enjoyed by its citizens.

The concept of the financial market and its functions:
The financial market is the field in which the desires of economic units with a financial surplus
and economic units with a financial deficit converge through money market intermediaries, or
what they are called financial intermediaries, which are represented by banks, insurance
companies, pension funds and other specialized financial institutions.
And the financial market performs an important function in economic activity in any society,
which is the transfer of financial resources from units with financial surplus to units with
financial deficit, which leads to an increase in the level of economic activity and an increase in
its efficiency. Surplus savings are usually transferred to deficit units through the money market
in two ways:

Direct financing:
where the units with financial deficit obtain the necessary funding directly from the units with
financial surplus, through the units with financial deficit issuing financial rights on themselves
in the form of shares and bonds and selling them to units with financial surplus, and these
financial assets represent a debt on the units that issued and payable from its future income, and
for the units it has purchased, these assets represent rights over the assets and income of the
borrowers.

Indirect financing:
Where financial institutions obtain financial resources from units with surplus in return for
issuing financial assets on themselves, and sell them to units with surplus, and they are called
indirect financial assets such as savings and investment certificates, and then lend these
financial resources to economic units with financial deficit, which issue Selling financial assets
directly to financial institutions.


Elements of the international financial system:
Dealers:
They constitute the most important elements of the international financial system, and they are
divided into, Investors and borrowers and participants.

5. The International Financial System

Investors:
They can be called (financial surplus units) and they may be individuals, institutions,
governments, regional or international organizations, and the investor is the one who owns
surplus funds and wishes to employ them and benefit from them, and here it is worth noting the
difference between (funds recruting) and between (real money recruting).
funds recruting :
It refers to investing in a financial asset such as stocks, bonds or other financial instruments that
generate a financial return for the owner of this money.
real money recruting (investment):
It refers to the purchase of new equipment and machines (assets) for the purpose of pushing
production to increase or maintain production capacity through replacement investment. As for
depositing money in one of the savings vessels
(Such as banks) does not change the investment character of this person and in this case he
becomes a saver and not a financial investor.
Borrowers:
They are also called (financial deficit units), and they may be individuals, institutions,
governments, or regional or international organizations who suffer from deficits in their budgets
and poor funding, which leads them to think about obtaining loans from international financial
markets or offering (selling) bonds. In these markets, or by direct borrowing from financial
institutions, international organizations, or governments.
Participants:
The participants in the international financial system refer to the brokers and brokers who deal
in the markets for their own account or for the account of others from individuals, institutions,
banks, financial investment companies, insurance companies, provident funds ... etc. The
participants deal in the international financial markets by investing their surplus funds to
achieve returns and profits on these funds. They also obtain loans from the financial markets or
issue international bonds in these markets.

Financial Markets:
The domestic and international financial markets represent the main network through which
capital is transmitted. The financial markets are divided from the point of view of time periods
and the tools used into capital and money markets.
Money markets:
These are the business sectors wherein short term financial tools are dealt with, with maturities
ranging from one day to less than a year. The money markets are affected by changes in the
exchange rates of different currencies, and the instruments reflect a specific debt.

6. The International Financial System

Capital markets:
They are the markets that deal mostly with property rights such as stocks and bonds, and they
reflect long-term debts such as bonds, and interest rates greatly affect the movement of funds
in these markets and to a lesser extent changes in exchange rates.

instruments:
The instruments differ according to the type of market.
In the money markets, dealing instruments are mostly short-term, such as:
- treasury bills.
- Bank acceptances.
- Commercial papers and negotiable certificates of deposit.
- Stored certificates of deposit, term deposits and various debt instruments.

As for the instruments used in the capital markets, which are long-term instruments, such as:
- Shares issued by industrial companies.
- These corporations' foreign bonds, as well as those given by governments of other nations, are
traded on international financial markets..




Elements of the international financial system:

7. The International Financial System

8. The International Financial System

International loans:
An advance or obligation is a monetary or material right owed by one of the exchange's
members (the account holder or the borrower) to the opposite side (the loan boss or the bank).
The advance is acquired when the leaser consents to loan to the indebted person an amount of
cash, and by and large the advance is conceded with the assumption that the chief sum will be
reimbursed inside a predefined timeframe, and this term can be utilized borrowed to incorporate
moral or moral commitments and different exchanges not founded on financial worth, and the
advance is accomplished when the bank consents to loan to the account holder an amount of
cash, and the advance is accomplished when the lender consents to loan to the obligation; With
the addition of a percentage or a lump sum called (interest), in the field of finance, the loan is
seen as a means of using the expected future purchasing power at the present time before it is
actually acquired, so some countries, companies and commercial establishments use loans as
part of a future financing strategy.

international bonds:
Bonds are a common financial instrument that governments and enterprises employ to fund
projects because they give a reasonable return for investors in exchange for a low risk factor.
The return given by a smaller export organization will be reduced as a result of a big exporting
business, lowering the risk in large organizations.
Bonds are protections with differing values dictated by these elements, and they are one of the
venture pools. A security is normally a security that demonstrates that its holder is a leaser to
the backer of the security by the amount of the worth fixed in the security, paying little heed to
the idea of the guarantor of the security, regardless of whether it is an administration,
organization, association, or project, and frequently Bonds are made available for purchase in
the monetary business sectors to gather a particular measure of cash. For example, a country
may need to build a railway project, a metro line, or establish a power station, or a company
needs to purchase equipment and machinery, but it will collide with the absence or weakness
of financing resources. , which cannot be provided in the short term or due to the enormity of
the goal to be achieved, and at the same time the project owner does not want to enter partners
because of the difficulty of that in the case of government projects such as the establishment of
universities or large service projects.
the project owner also does not want to borrow under the pressure of a mortgage or to interfere
with the details of the project. The person in need does not want a partner in his job, whether it
is impossible to participate, such as government and municipal enterprises or schools, or even
firms that do not want to develop by forming new partnerships. As a result, the best option will
continue to be to look for alternate funding sources, such as asking a loan from a bank or a
group of institutions to pay the amount you require. Bonds can be offered in relatively small
amounts so that they can be purchased by the ordinary public, and these bonds are like a debt
paper on the issuer and are sold Bonds are for people as a guaranteed way to invest.
Bonds are offered for sale by offering them in the financial markets on the basis that their value
is in the specified amount, and the amount of government bonds is often much higher than the
amount of non-governmental bonds, as government bonds start from five thousand dollars

9. The International Financial System

upwards, and start in large companies from 1000 dollars and upwards and less than that for
medium and small companies.

(Foreign Direct Investment) FDI:
International capital movements strive to establish, grow, or sustain other overseas subsidiaries,
as well as exert control or influence over their management. Foreign investment occurs when a
natural or legal person in a nation other than his own utilizes his experience, efforts, or money
to start a project or joint initiatives, whether alone or in collaboration with a local or foreign
natural or legal person, the state, or its residents.
The International Monetary Fund characterizes it as a company that puts resources into projects
outside of the motherland's limits determined to impact the activities' working. At the point
when an unfamiliar financial backer holds 10% or a greater amount of the capital portions of
an organization, it is viewed as immediate venture. This possession is attached to the ability to
impact the foundation's administration.

Direct venture, as characterized by the United Nations Conference on Trade and Development
(UNCTAD), is a speculation that includes a drawn out relationship that mirrors a sort of long-
lasting interest, just as the capacity to oversee regulatory control between the homeland's
organization and an organization or creation unit in another country. Regardless of whether the
financial backer is an individual, an organization, or an establishment, and the proprietorship is
as an offer equivalent to or more noteworthy than 10% of the conventional offers or casting a
ballot power (in the directorate) for nearby organizations or its identical for different
organizations as a partitioning line for the motivations behind characterizing the unfamiliar
speculation.
Foreign Portfolio Investment-FPI:
It is the second most significant type of worldwide capital streams later unfamiliar direct
venture, and it is otherwise called portfolio unfamiliar speculation since it manages venture
portfolios, as unfamiliar interest in a stock portfolio is connected to medium-and long haul
capital developments between various nations, and it implies Purchasing different protections
from public foundations' portions and bonds through occupants of another country. This
monetary speculation qualifies the financial backer for a piece of the incomes of the
organizations that gave the offers, yet not at all like direct venture, financial backers don't have
any command over or support in the administration of these organizations. Indirect foreign
investment has been defined as investment that takes one of two forms, the purchase of
company shares by foreigners, or giving loans to the company or the government in the form
of bonds or treasury bills that the foreign investor purchases.
The concept of indirect foreign investment in particular in securities includes investments
directed to the purchase of securities and issued by public or private bodies in developing
countries, provided that foreigners do not have the right to manage the project, take decisions
or control those projects related to their investments, and they have the right to obtain return
for their participation.

10. The International Financial System

Most of the special concepts of indirect foreign investment have focused on the purchase of
securities by foreigners, in particular stocks and bonds, ...., although it includes the purchase of
other financial instruments such as international deposit certificates or treasury bills, because
the securities (shares and bonds) constitute The majority of (indirect) portfolio investments, in
summary, the vast majority of definitions focused on foreign ownership of shares and bonds.




References:

Books:
Sukumar Nandi. (2014). Economics of the International Financial System. Routledge India.