Gos 2024 (Hoa) - World Finance PDF

The list of questions for the state exam based on the content of the profile "International Finance (in English)" 1. The essence, structure and main functions of world finance. Modern global financial architecture. Essence: To manage financial resources on a global scale...

The list of questions for the state exam based on the content of the profile "International Finance (in English)" 1. The essence, structure and main functions of world finance. Modern global financial architecture. Essence: To manage financial resources on a global scale, including the allocation of capital, investment, and risk management. To facilitate the flow of funds across borders and support economic activities worldwide. Structure: financial markets (e.g., stock markets, bond markets, foreign exchange markets), financial institutions (e.g., banks, investment firms, insurance companies) international organisations (e.g., IMF, World Bank). regulatory bodies Main Functions: 1. Capital Allocation: allocating capital from surplus areas to deficit areas, thereby supporting investment and economic growth. 2. Risk Management: including credit risk, market risk, and operational risk, through instruments such as derivatives, insurance products, and hedging strategies. 3. Facilitation of Trade and Investment: facilitates international trade and investment by providing mechanisms for currency exchange, trade finance, and investment funding across borders. 4. Financial Intermediation: providing essential services such as deposit-taking, lending, and investment management. 5. Regulation and Oversight: overseeing financial markets and institutions to ensure stability, transparency, and integrity in the global financial system. Modern global financial architecture: Definition: a complex system of institutions, rules, and practices that govern how money flows between countries. Structures of the global financial architecture International Financial Institutions (IFIs): - the International Monetary Fund (IMF) and the World Bank.. - providing financial assistance, promoting economic stability, and facilitating development in member countries. - offering loans, grants, and technical assistance to address crises, promote poverty reduction, and support infrastructure projects Central banks and regulatory authorities: - managing a country's monetary policy, including the regulation of interest rates, money  supply, and exchange rates. - overseing financial markets, ensuring transparency, stability, and fair practices. Financial markets: - capital, bond, foreign exchange, and commodity markets, enable the trading of financial instruments. - provide a platform for investors to allocate capital and manage risk. Multinational Corporations (MNCs): - engage in cross-border investments, mergers, acquisitions, and joint ventures, influencing capital flows and economic growth. Bilateral and multilateral agreements: - Trade agreements, investment treaties, and regional economic blocs create frameworks for cooperation, - reducing trade barriers and promoting economic integration among nations. 2. The concept and classification of currencies. Factors influencing the formation of the exchange rate. Currency refers to the system of money that is used in a particular country or region for conducting transactions, facilitating trade, and measuring the value of goods and services. Forms: coins and banknotes; digital or electronic representations Concepts: - Medium of exchange: as a means to buy goods or services. - Store of value: saved and used later to purchase goods or services. - Unit of account: used to measure the value of goods or services and express prices. Classification: - Commodity money: These are physical commodities that have value in themselves, such as gold, silver, or precious stones. - Representative money: is a form of currency that represents the intent to pay. These include credit cards, money orders, cheques and bank drafts. - Fiat money: has no intrinsic value and is not backed by a commodity but by the government's guarantee of its value. Ex. U.S. dollar, the euro - Digital currencies: These are currencies that exist only in digital form, such as Bitcoin (Crypto currency) Factors influencing form. ExR:  Inflation rate: If a country has low inflation rates consistently => the currency’s purchasing power becomes higher than the other currencies => its currency value rises Interest rate: If a country has a high-interest rate, lenders have the chance to earn more. => This attracts foreign capital looking to earn at higher rates => the country’s foreign exchange rate rises, making its currency stronger. Public debt: Countries with large public debt are viewed as unattractive investment destinations. => This means the country needs to pay more to service its debt. => their exchange rates decrease Export - Import If the country’s export growth rate is higher than its imports => it denotes more demand for its currency => strengthening its currency and exchange rates. 3. The essence and features of international monetary relations. The role of gold in international monetary relations. Essence: - International monetary relations involve the exchange of currencies, the coordination of monetary policies, and the management of international financial systems. - They aim to facilitate international trade, investment, and economic stability. Features: - Currencies and exchange rates: + Each nation has its own currency, and exchange rates determine how much one currency is worth in terms of another. + This can be a fixed exchange rate (tied to another currency) or a floating exchange rate (determined by supply and demand in the foreign exchange market). + This allows for comparisons and pricing in international trade. - International institutions: + play a role in promoting stability and cooperation in the global monetary system. + They offer financial assistance, promote policy coordination, and work to prevent financial crises. (ex: the International Monetary Fund (IMF) - Balance of payments: + a record of a country's economic transactions with the rest of the world. + It tracks imports, exports, investments, and other financial flows. - The Trilemma: A concept stating that a country can only achieve two out of three goals simultaneously: fixed exchange rates, free movement of capital, and independent monetary policy.  Role of gold: Historically: - Gold Standard: Currencies were directly tied to a specific amount of gold. Countries with more gold reserves had stronger currencies. - After the Bretton Woods, The US eventually abandoned the gold peg, major currencies were pegged to the US dollar - However, gold's direct influence on exchange rates is minimal compared to the past. Most currencies today are floating. Gold's Role Today: - Reserve Asset: Central banks around the world hold gold as part of their foreign exchange reserves. It's seen as a safe asset, valuable during economic turmoil when other currencies might weaken. - Speculative Trading: Gold is also traded as a commodity, and its price fluctuates based on market sentiment and economic conditions. 4. Main directions and forms of monetary policy. Management of the country's international reserves. Monetary Policy - is a central bank’s actions to manage the money supply to achieve economic stability. The money supply includes forms of credit (loans, bonds, and mortgages), cash, checks, and money market mutual funds Instruments - Open market operations involve the buying and selling of government bonds and securities from member banks. This action changes the reserve amount the banks have on hand. - The discount rate/Federal Fund rate is the interest rate charged by Federal Reserve Banks to borrow funds from its discount window. + It raises the discount rate to discourage banks from borrowing. That action reduces liquidity and slows the economy. + By lowering the discount rate, it encourages borrowing. That increases liquidity and boosts growth. Reserve requirements are the portions of deposits that banks must maintain either in their vaults or on deposit at a Federal Reserve Bank.  + When a central bank wants to restrict liquidity, it raises the reserve requirement. That gives banks less money to lend. + When it wants to expand liquidity, it lowers the requirement. That gives banks more money to lend. Types of Monetary Policy Expansionary Monetary Policy: increase in the amount of money in circulation by - Lowering Interest Rates: Central banks can decrease policy interest rates, making borrowing cheaper and encouraging spending and investment. - Open Market Operations: Purchasing government securities in the open market to increase the money supply. - Discount Rate Reduction: Lowering the rate at which banks can borrow directly from the central bank. Contractionary Monetary Policy: vice versa Management of international reserves International reserves are any kind of reserve funds, which central banks can pass among themselves, internationally.(gold, dollar, euro..) Composition of International Reserves: a. Foreign Currencies: major international currencies such as the U.S. dollar, euro, yen, and British pound. These currencies provide liquidity and serve as a medium of exchange in international transactions. b. Gold: Gold provides a store of value and serves as a hedge against economic uncertainties and currency fluctuations. c. Special Drawing Rights (SDRs): SDRs are an international reserve asset created by the International Monetary Fund (IMF). They are a weighted basket of currencies and can be used by countries to supplement their reserves. d. Reserve Position in the IMF: Central banks may hold a portion of their reserves as their reserve position in the IMF, which represents their claim on IMF resources. Objectives Currency Stability: Maintaining stable exchange rates to promote economic stability and investor confidence. Liquidity: Ensuring that the country can meet its international payment obligations and respond to economic crises. Confidence: Providing assurance to investors and international markets about the country's financial health. Earnings: Investing reserves to generate returns while maintaining safety and liquidity. 5. Exchange rate regulation. Currency control and currency regulation authorities. Exchange rate regulation involves the policies and actions taken by a government or central bank to influence or control the value of its national currency relative to other currencies. Objectives - Stabilize the Economy: Avoid excessive volatility in exchange rates that can disrupt economic planning and investment. - Control Inflation: Prevent depreciation that can lead to higher import prices and inflation. - Boost Exports: Sometimes, maintain a lower exchange rate to make exports more competitive. - Attract Investment: Provide a stable and predictable exchange rate environment to attract foreign investment. Exchange Rate System Description Pros Cons Provides stability and The currency's value is Requires large reserves to Fixed Exchange predictability in fixed against another maintain the peg and limits Rate international prices and stronger currency monetary policy flexibility. trade. Allows for automatic The currency's value is Can be volatile and adjustment to economic Floating Exchange determined by market unpredictable, affecting conditions and Rate forces without direct international trade and independent monetary intervention. investment. policy. The currency primarily Requires constant floats but the central bank Combines the flexibility Managed Float monitoring and timely intervenes occasionally to of floating rates with the (Dirty Float) intervention, which can be stabilize or direct its stability of fixed rates. resource-intensive. value. Spot rates are the rates to buy currency for immediate delivery. Forward rates are the rates to buy currency at some agreed-upon date in the future. Methods of Exchange Rate Regulation 1. Fixed Exchange Rates: A country pegs its currency to another strong currency, like the US dollar. This maintains a very stable exchange rate but limits the country's control over its monetary policy. 2. Dirty Floats: The currency is allowed to float freely based on supply and demand, but the government intervenes in the foreign exchange market by buying or selling its own currency to influence the exchange rate.  3. Capital Controls: These are restrictions on the movement of money in and out of a country. They can be used to limit speculation on the currency and prevent capital flight (sudden large outflows of money). Currency Control Currency control refers to government regulations and policies designed to manage and monitor the flow of currency into and out of a country. Objectives Stabilize the Exchange Rate: Prevent excessive volatility and ensure predictability in international trade. Control Inflation: Avoid currency depreciation that can lead to higher import prices and inflation. Manage Foreign Exchange Reserves: Ensure adequate reserves to support the currency and meet international payment obligations. Prevent Capital Flight: Avoid large-scale movement of capital out of the country that can destabilize the economy. Facilitate International Trade: Create a favorable environment for trade by maintaining a stable currency. Authority Role - manages monetary policy Central Bank - intervenes in the foreign exchange market - managing reserves. - to implement fiscal policies that impact the currency Ministry of Finance - sets regulations related to foreign exchange and international financial transactions. - Licensing and regulation of foreign exchange dealers Foreign Exchange - monitoring cross-border transactions Regulatory Authorities - enforcing exchange control laws.  - Provides guidance, financial support, and policy advice to member International Monetary countries. Fund (IMF) - monitors global economic and financial developments. 6. The concept and structure of the international monetary system. The relationship between national, regional, international and world monetary systems. Concept: The International Monetary System formulates the framework that facilitates the exchange rates, international payments, and movement of capital between countries. Structure Functions: Facilitates the free flow of different currencies in the open market. Facilitate global trade of goods, services, and money. Minimize intervention from government or central banks Maintain a system that regulates the exchange rates through the forces of the market The relationship between national, regional, international and world monetary systems. Level Features Influence Own currency, central bank, Affects and is affected by regional, National domestic regulations. international, and global systems.  Shapes and is shaped by national Common currency, regional central Regional policies, enhances regional trade, banks, economic integration. contributes to global stability. Exchange rate mechanisms, Sets frameworks for national and International international institutions (IMF), regional policies, promotes global global standards (Basel III). financial stability. Dominant currencies, global Managed through coordination with World financial institutions (IMF, World national and regional systems, ensures Bank), integrated financial markets. global economic stability. 7. Features of the functioning and regulation of FOREX, credit, stock, insurance segments as the main parts of the global financial market. 1. Foreign Exchange (FOREX) Market: Functioning: ○ Decentralized marketplace: The forex market operates over-the-counter (OTC) 24/5, with no central exchange. ○ Determination of exchange rates: Supply and demand dictate currency values. Currencies are always traded in pairs (e.g., USD/EUR). Regulation: ○ National Regulators: Various national authorities regulate FOREX brokers and ensure compliance with local laws (e.g., the Commodity Futures Trading Commission (CFTC) in the US, the Financial Conduct Authority (FCA) in the UK). ○ Anti-Money Laundering (AML): Regulations to prevent money laundering and ensure the integrity of the financial system. ○ Reporting Requirements: Brokers must report trading activities to regulatory bodies to ensure transparency. 2. Credit Market: Functioning: ○ Channels credit: Connects borrowers (individuals, businesses, governments) with lenders (banks, financial institutions). ○ Loan instruments: Loans, bonds, mortgages, etc. with varying terms and interest rates. ○ Risk assessment: Lenders evaluate borrower creditworthiness to determine loan eligibility and interest rates. Regulation: ○ Regulations cover capital adequacy for lenders, loan disclosure requirements, and consumer protection, maintaining financial stability  3. Stock Market: Functioning: ○ Equity Trading: Companies issue shares of stock to raise capital, and these shares are traded on stock exchanges. Companies go public and list shares on stock exchanges through IPOs. ○ Market Indices: Indices like the S&P 500 and Dow Jones Industrial Average track the performance of segments of the market. Regulation: ○ Ensures fair and transparent trading practices. ○ Protects investors from fraud and manipulation. 4. Insurance Market: Functioning: ○ Risk pooling: Individuals and businesses pay premiums to an insurance company in exchange for financial protection against specific risks (e.g., car accidents, property damage, illness). ○ Types of insurance: Life insurance, health insurance, auto insurance, etc. ○ Risk assessment: Insurance companies assess risk profiles to determine premiums. Regulation: ○ Protects policyholders and ensures solvency of insurance companies. ○ Solvency requirements, product approval processes, consumer protection laws. Segment Features Regulation decentralized market (operates over-the-counter (OTC) 25/4, high National regulators, AML regulations, reporting FOREX Market liquidity), currency pairs, ex rate is requirements determined by S&D Diverse instruments (loans, bonds), interest Financial stability oversight, consumer protection Credit Market rates, credit ratings laws Fair and transparent trading practices, investor Stock Market Equity trading, market indices, IPOs protections Risk management, premiums and claims, Insurance commissions, solvency requirements, Insurance Market underwriting consumer protection laws 8. The concept, main functions and the role of international credit. International loan terms and conditions. Concept: - the borrowing and lending of funds across borders. - involves transactions where the borrower is located in one country and the lender is in another. - including loans, bonds, and trade finance. Main Functions: Facilitates international trade: International credit allows importers to pay upfront and exporters to receive payment quickly. Enables foreign direct investment (FDI): Companies seeking to expand operations in other countries can leverage international credit to finance local investments like building factories or acquiring assets. Contributes to economic development in borrowing countries: Governments can use international credit to fund infrastructure projects, social programs, or business development initiatives, fostering economic growth. The Role of International Credit: Channels funds: International credit acts as a bridge, directing surplus savings from countries with high saving rates to countries with greater investment opportunities. This financial flow benefits both sides: lenders earn a return on their investment, and borrowers gain access to capital for growth. Promotes global economic integration: By facilitating trade and investment, international credit fosters deeper connections between economies worldwide. Can be a source of risk: If not managed properly, international credit can expose lenders to risks like currency fluctuations or borrower defaults. This can lead to financial instability, impacting both lenders and borrowers. International Loan Terms and Conditions Loan Characteristics: Amount: The total sum of money being borrowed. Interest Rate: The cost of borrowing the money. This can be fixed or variable. Maturity: The date by which the loan must be repaid in full. Loans can be short-term (less than a year) or long-term (several years or even decades).  Currency: The currency in which the loan is denominated (e.g., USD, EUR) Covenants and Conditions: certain requirements or limitations on the borrower's behavior to protect the lender's interests and ensure the loan is repaid as agreed. Examples include: ○ Financial covenants: Maintaining minimum financial ratios (e.g., debt-to-equity ratio) to demonstrate financial health. ○ Use of funds restrictions: Specifying how the borrowed money can be used. ○ Negative pledge clauses: Limiting the borrower's ability to take on additional debt without lender consent. ○ Security interest: The lender may require collateral (assets pledged in case of default) to secure the loan. ○ Dispute Resolution: The agreement will specify how any disagreements between the lender and borrower will be resolved (e.g., arbitration). 9. The essence and role of modern banks in the system of global finance. Trends in the development of modern international banking. Essence and Role: Financial Intermediation: Banks take deposits from individuals and businesses and then provide loans, mortgages, and other financial products. This facilitates efficient allocation of capital across the economy. Payment Systems: They operate electronic payment networks, issue debit and credit cards, and facilitate money transfers. Management of Financial Risks: Banks assess and manage credit risks associated with lending, as well as foreign exchange risks in international transactions. This helps maintain financial stability. Financial Products and Services: Modern banks offer a wide range of financial products beyond traditional loans and deposits, including wealth management, investment banking, and financial advisory services. Trends in Modern International Banking: Globalization: Banks are increasingly expanding their operations across borders, offering services in new markets and catering to a global clientele. Technological Innovation: Banks are embracing these technologies to improve efficiency, reach new customers, and compete more effectively. Rise of Non-Bank Financial Institutions: like insurance companies, pension funds, and investment firms, offering alternative sources of financing and competing with traditional banks in certain areas. Regulatory Landscape: Regulatory frameworks for international banking are constantly evolving to address new challenges, such as financial crises, cyber security threats, and money laundering. Banks need to adapt their operations to comply with evolving regulations. 10. Banking risks when carrying out transactions on the international financial market. Risk Type Description Mitigation Strategies  Credit assessments, portfolio diversification, Credit Risk Risk of borrower or counterparty default. credit derivatives, guarantees. Risk of losses from market price movements Market Risk Hedging strategies, diversified asset portfolio. (interest rates, FX rates, equity prices). Risk of being unable to meet financial Liquidity reserves, credit lines, liquidity stress Liquidity Risk obligations. tests. Risk from inadequate or failed internal processes, Internal controls, technology investment, Operational Risk people, systems, or external events. audits, employee training. Geographic diversification, political risk Political Risk Risk from political instability or changes. insurance, monitoring political developments. Compliance and Legal Risk from failure to comply with laws, Compliance with regulations, strong legal and Risk regulations, or policies. compliance department, compliance audits. 11. The concept and features of international payments. Basic forms of international payments. Legislative regulation of international payments. Concept: International payments are the transfer of money between entities in different countries Features Cross-Border Nature: Involves parties in different countries. Currency Exchange: Requires converting one currency to another. Processing Time: Usually takes longer than domestic payments. Regulatory Compliance: Must follow international and national regulations. Payment Methods: Utilizes various methods like bank transfers, letters of credit, etc. Intermediaries: Often involves banks and financial institutions. Basic forms 1. Bank Transfers (Wire Transfers) - Electronic fund transfers between banks. - Secure, widely used, can be slow and expensive. 2. Letters of Credit (LC) - Bank guarantees payment to the seller if conditions are met. - Provides security for both buyer and seller. 3. Bills of Exchange - Written order for payment at a future date. - Used in trade finance, negotiable. 4. Open Account - Goods shipped before payment. - High risk for seller, used with trusted partners.  5. Advance Payment - Buyer pays before shipment. - High risk for buyer. 6. Credit Cards and Online Payment Systems - Use of cards or platforms like PayPal. - Convenient, subject to fees and exchange rates Legislative regulations 1. National Regulations Authorities: Central banks and financial regulators oversee compliance and regulate currency flows. AML and CTF: Anti-money laundering and counter-terrorism financing laws require due diligence and reporting. 2. International Regulations SWIFT: Standardized platform for secure international transactions. Basel III: measures to strengthen the regulation, supervision and risk management of banks. ICC: International Chamber of Commerce sets rules for trade finance (e.g., UCP 600). 3. Bilateral and Multilateral Agreements Trade Agreements: Facilitate international trade and streamline payments. FATF (The Financial Action Task Force): Develops global policies to protect global financial systems against money laundering and terrorism financing. 12. International payment systems and their main functions and structure Component Role Functions Oversee and regulate payment Settlement services, system stability, Central Banks systems. compliance enforcement. Commercial Facilitate international payments Process transactions, currency exchange, Banks for clients. manage correspondent relationships. Correspondent Provide services on behalf of Facilitate cross-border transactions, currency Banks other banks. conversion, access to local systems. Standardized messaging Transmit payment instructions, data security, SWIFT platform. compliance support.  Large-value payment system Real-time settlement, liquidity management, CHIPS (US). risk reduction. Real-time Euro transaction settlement, efficient TARGET2 RTGS system for the Eurozone. payment processing. Settlement system for forex Simultaneous settlement in different currencies, CLS transactions. counterparty risk reduction. Online Payment Facilitate low-cost, fast, and Currency exchange, payment processing, Platforms user-friendly payments. international compliance. 13. The essence and main forms of foreign direct investment. The concept, structure and features of portfolio investment. Essence FDI - involves an investor from one country making a long-term investment in a business or asset in another country. - includes acquiring a significant degree of influence or control over the foreign company. Main Forms of FDI - Equity Capital: + Purchase of shares of an enterprise in a foreign country. + Can involve mergers and acquisitions or greenfield investments (starting new operations). - Reinvested Earnings: + Profits earned by foreign subsidiaries that are reinvested in the local economy rather than repatriated - Intra-Company Loans: + Loans or financial support provided by a parent company to its foreign subsidiaries. Concept Portfolio Investment - involves buying securities and other financial assets in foreign countries without seeking control over the companies. Structure and Features of Portfolio Investment 1. Equities: Purchase of shares in foreign companies. Provides dividend income and potential capital gains, involves stock market investments. 2. Bonds: Investment in foreign government or corporate debt securities. Provides interest income, generally lower risk compared to equities, sensitive to interest rate changes. 3. Mutual Funds and ETFs:  Investment in funds that pool money from multiple investors to buy a diversified portfolio of foreign assets. Diversification, managed by professional fund managers, can focus on specific sectors or regions. 4. Derivatives: Financial instruments like options, futures, and swaps based on foreign assets. Used for hedging or speculative purposes, can be complex and involve higher risk. Comparison of FDI and Portfolio Investment Aspect Foreign Direct Investment (FDI) Portfolio Investment Objective Long-term control and influence Financial returns and diversification Equity capital, reinvested earnings, Equities, bonds, mutual funds, ETFs, Forms intra-company loans derivatives Investor Involvement High (management control) Low (no management control) Risk Level Higher (business and political risks) Varies (market risk, interest rate risk) Significant (job creation, technology Impact on Host Country Limited (capital inflows, market liquidity) transfer) Strict (subject to host country laws and Moderate (subject to financial market Regulation policies) regulations) 14. The trend of deoffshorization in the global economy and global finance. Deoffshorization refers to the process of reducing or eliminating the use of offshore financial centers (OFCs) for tax avoidance, and other forms of financial secrecy Reasons: 1. Tax Avoidance: - Offshoring can be used as a way to avoid taxes by shifting profits to low-tax jurisdictions. - Deoffshorization aims to prevent such practices and ensure that companies pay their fair share of taxes. 2. Transparency and Accountability: in financial transactions to combat money laundering, corruption, and other illicit activities. 3. Economic Development: retain more economic activity within their borders, which can lead to increased investment, job creation, and overall economic development. 4. National Security Concerns: - Offshore entities can sometimes be used for illicit purposes that pose risks to national security. - Deoffshorization measures aim to mitigate these risks and enhance national security. 5. International Cooperation: - international cooperation to combat tax evasion and ensure fair taxation practices. - Initiatives like the Common Reporting Standard (CRS) and the Automatic Exchange of  Information (AEOI) aim to enhance transparency and information sharing among countries. 15. The concept and structure of the country's external debt. The problem of growing global external debt. Principles of effective external debt management. Concept: Total debt a country owes to foreign creditors, repayable in foreign currency. The structure Public and publicly guaranteed debt Non-guaranteed private-sector debt Central bank deposits Loans from the International Monetary Fund (IMF) Problem of Growing Global External Debt: Vulnerability to External Shocks: Countries with high external debt levels are more vulnerable to external economic shocks, such as fluctuations in exchange rates, interest rates, or commodity prices. Crowding Out Investment: High levels of external debt can crowd out private investment and government spending on essential services like healthcare and education. Creditworthiness Concerns: Excessive external debt can lower a country's creditworthiness and make it more expensive to borrow in the future. Dependency on Foreign Creditors: Countries with high external debt may become increasingly dependent on foreign creditors, which can reduce the flexibility of national economic policies. Principles of Effective External Debt Management: Sustainability & Transparency: Ensure debt levels are clearly manageable and repayment obligations do not hinder economic growth. Diversification: Borrow from multiple sources to avoid dependency on a single creditor. Prudent Borrowing: Borrow only for projects that generate economic returns exceeding borrowing costs. Risk Management: Mitigate currency, interest rate, and refinancing risks. International Cooperation: Engage with international organizations for support and adhere to global best practices. 16. Analysis and assessment of factors influencing balance of payments. The balance of payments (BoP) is a record of all economic transactions between a country and the rest of the world over a specific period. It consists of the current account, capital account, and financial account. Influencing factors:  Current Account: 1. Trade Balance (Exports and Imports): The trade balance directly impacts the current account balance. Higher exports lead to a surplus, while the opposite results in a deficit. 2. Exchange Rates: A depreciation of the domestic currency can boost exports but may also increase the cost of imports, impacting the trade balance. Capital Account: Government Policies: Trade policies, fiscal policies, and monetary policies can all impact the balance of payments. For example, protectionist trade policies may affect export levels, while expansionary fiscal policies can influence capital flows. Financial Account 1. Foreign Direct Investment (FDI): Inflows of FDI can positively impact the capital and financial accounts, contributing to a surplus in the overall balance of payments. 2. Interest Rates: Differentials in interest rates between countries can influence capital flows. Higher interest rates in a country can attract foreign investment, affecting the financial account balance. 17. The main signs of the international financial crisis. Classification of international financial crises. Basic methods of overcoming financial crises. Signs of an international financial crisis 1. Exchange Rate Volatility: Depreciation: Currency loses value due to loss of confidence, economic shocks, etc., leading to inflation and debt problems. Appreciation: Currency gains value due to capital inflows, trade surpluses, etc., hurting competitiveness and creating asset bubbles (when the price of an asset, such as stocks, bonds, real estate, or commodities, rises rapidly without underlying fundamentals to justify the price spike)  2. Capital Flow Reversals: Sudden withdrawal of foreign capital due to shocks or changing expectations, causing liquidity crunch and asset price collapse. 3. Financial Sector Fragility: Increase shocks and causes instability due to excessive leverage, poor regulation, poor supervision, and lack of transparency. 4. Sovereign Debt Distress: Difficulty accessing credit, meeting payments deadlines, leading to a debt crisis affecting government solvency and banking stability. 5. Global Imbalances: Global imbalances can reflect distortions, such as exchange rate manipulation, trade barriers, and capital controls. Global imbalances can create tensions, vulnerabilities, and spillovers. Classification 1. Currency Crises: speculative attacks on a country's currency, leading to sharp devaluations or forced currency peg adjustments. 2. Banking Crises: widespread banking sector distress, with bank failures, liquidity problems, and credit crunches. 3. Sovereign Debt Crises: when a country faces difficulties in servicing its sovereign debt obligations, potentially leading to default or restructuring. 4. Balance of Payments Crises: unsustainable current account deficits, external debt imbalances, or sudden stops in capital inflows. Methods to overcome financial crisis Method Description Interest rate cuts, quantitative easing to to increase money supply and Monetary Policy encourage lending Government spending and tax relief to boost economic activity, increase Fiscal Policy disposable income and consumer spending, create jobs Financial Sector Support, Bank bailouts, liquidity support to stabilise the banking sector. International Assistance Debt restructuring, austerity measures to manage and reduce debt Debt Management burden. Currency interventions, capital controls to stabilize exchange rates and Exchange Rate Stabilization prevent capital flight. *2008 The Financial Crisis: - Before, the dotcom bubble (collapse of many fintechs) creates crash on stock market - In 2003, FED decreases the interest rates from 6.5% to 1% => encourages the borrowing and spending of the economy - People borrow the fund to buy houses, and use houses as loan mortgages - Investment banks then collect all the mortgages together create mortgage backed security (MBS) and sell to investors - When the demand for MBS increases, investment banks need more mortgages and borrowers to create more MBS => they lower the borrowing requirements, which is called subprime mortgages for low income people to access the loan easier - To control the inflation, the FED decided to increase the interest rate from 1% to 5% in 2005. This action creates a burden on borrowers. Many mortgages were recalled because the borrowers can’t pay back the loan => Housing prices dropped dramatically. Banks had no money to pay for investors => Banks collapse => Stock market crashed => Global financial crisis *COVID19 Pandemic. A global stock market crash began in February 2020. The S&P 500 lost over 30% of its value. This was a result of the COVID-19 pandemic, which caused widespread panic and uncertainty about the future of the global economy. Despite being severe and with global reach, markets and national economies rebounded quickly and by early April 2020, the S&P 500 had began a decisive rise, surpassing its pre-pandemic high in August 2020. 18. International monetary and financial organizations. Examples of Organization Established Purpose Members Members Promote international monetary cooperation, balanced growth of International United States, China, 1944 international trade, provide resources to 190 Monetary Fund (IMF) Germany, India, Brazil help members in financial difficulty, offer policy advice. Provide financial and technical assistance to developing countries for United Kingdom, World Bank 1944 development projects that reduce poverty 189 Japan, France, and support sustainable economic Canada, Australia growth. Federal Reserve (USA), European Serve as a bank for central banks, Bank for International Central Bank, Bank of 1930 facilitate international monetary and 63 Settlements (BIS) England, Bank of financial cooperation Japan, Swiss National Bank Organisation for Promote policies that improve economic South Korea, Mexico, Economic and social well-being, focus on trade, 1961 38 Turkey, Sweden, Co-operation and investment, innovation, and sustainable Norway Development (OECD) development. Deal with global rules of trade between Russia, Saudi Arabia, World Trade 1995 nations, ensure trade flows smoothly, 164 South Africa, Organization (WTO) predictably, and freely. Argentina, Indonesia G20 countries, Federal Reserve international System (USA), Coordinate national financial authorities financial European Central Financial Stability 2009 and international standard-setting bodies institutions, Bank, Bank of Japan, Board (FSB) to promote global financial stability. regulatory People's Bank of authorities, China, International central banks Monetary Fund 19. The main types of innovative technologies used in the global financial system. 1. Blockchain Technology: Known for its application in cryptocurrencies like Bitcoin, blockchain has broader uses in financial systems, particularly for secure and transparent transactions, smart contracts, and decentralized finance (DeFi).  2. Artificial Intelligence (AI) and Machine Learning: AI and machine learning are used for fraud detection, risk assessment, algorithmic trading, customer service chatbots, and personalised financial recommendations. 3. Big Data Analytics: Financial institutions use big data analytics to analyze large volumes of data for insights into customer behavior, risk management, and market trends. 4. Mobile and Digital Payments: Mobile wallets, digital payment platforms, and peer-to-peer payment apps have revolutionized the way people make transactions, offering convenience and speed. 5. Robotic Process Automation (RPA): RPA is used to automate repetitive tasks such as data entry, compliance reporting, and reconciliation, leading to operational efficiency. 6. Cloud Computing: Financial institutions are increasingly using cloud-based services for data storage, infrastructure, and software applications, enabling scalability and cost-effectiveness. 7. Cybersecurity Technologies: With the rise of cyber threats, financial institutions heavily invest in cybersecurity technologies such as encryption, biometrics, and advanced threat detection systems. 8. RegTech (Regulatory Technology): These technologies help financial institutions comply with regulations more efficiently through automation of compliance processes, monitoring, and reporting. 20. Characteristics of the main instruments of corporate activities’ debt financing. Debt financing is a common method for corporations to raise capital, and there are several main instruments used for this purpose. Characteristics: 1. Bonds: Bonds are debt securities issued by corporations to investors. - Fixed Income: Bonds pay a fixed interest rate to bondholders at regular intervals until maturity. - Maturity Date: Investors receive interest payments (coupons) and repayment of principal at maturity. - Security: Some bonds are secured by specific assets of the company, providing a level of security to bondholders. - Types: government bonds, corporate bonds, high-yield bonds (junk bonds), and convertible bonds. 2. Bank Loans: Corporations can obtain financing from banks through loans - Interest Rates: Bank loans may have fixed or variable interest rates. - Repayment Terms: the schedule of principal and interest payments. - Collateral: Some bank loans require collateral to secure the debt. - Types: term loans, revolving credit facilities, and lines of credit 3. Debentures: Debentures are unsecured debt instruments issued by corporations. - Similar to bonds, but typically unsecured (no collateral). - May offer higher interest rates to compensate for the higher risk. 4. Commercial Paper: This short-term debt instrument is typically used for working capital needs (Financing gaps between receivables (money owed) and payables (money owed).)  - Short-Term Maturity: Commercial paper has a maturity typically ranging from a few days to 270 days. - Low Risk: Typically issued by highly-rated corporations, commercial paper is considered low risk. 5. Convertible Debt: This type of debt can be converted into equity under certain conditions. - Conversion Option: Holders have the right to convert the debt into a predetermined number of shares of the issuer's common stock. 21. Ways for corporations to attract foreign capital. Foreign Direct Investment (FDI): - Allowing foreign investors to acquire ownership stakes in the company through FDI. - This can involve setting up subsidiaries, joint ventures, or mergers with foreign companies. Foreign Portfolio Investment: - Foreign investors buy shares or bonds of the corporation without acquiring direct control. - This can be done through stock markets or bond markets. Issuing Equity: - Public Offerings: Listing shares on foreign stock exchanges (e.g., American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs)). - Private Placements: Selling shares directly to foreign institutional investors. Foreign Loans and Bonds: Corporations can also attract foreign capital by issuing bonds or taking loans from foreign investors or financial institutions. 22. Methods and organization of financial risk management in a modern corporation. Risk Identification: - To identify and assess various types of financial risks that the corporation faces, such as market risk, credit risk, liquidity risk, and operational risk. Risk Measurement: - Quantify the risks using various risk metrics and models to understand the potential impact on the corporation's financial performance. Risk Mitigation Strategies: - Develop strategies to mitigate or manage the risks. - This can include hedging strategies, diversification of investments, setting risk limits, and using financial instruments like options and futures. Risk Monitoring and Control: - Implement systems to monitor and control risks on an ongoing basis. - Regularly review risk exposures and adjust risk management strategies as needed. Risk Reporting: - Establish a reporting framework to communicate risk information to key stakeholders, including management, board of directors, and regulators. 23. World prices on commodity markets. International value as the basis of world prices. Concept: - World prices refer to the current prices of commodities traded internationally. - They serve as benchmarks for the pricing of commodities worldwide. Commodity Market Benchmarks/Examples Key Influencing Factors Crude Oil Brent Crude, WTI OPEC decisions, geopolitical tensions, economic growth. Investment demand, industrial use, currency strength, inflation Precious Metals Gold, Silver, Platinum expectations. Wheat, Corn, Soybeans, Agricultural Products Weather, crop yields, food demand, trade policies. Seasonal demand, production levels, geopolitical events, Natural Gas extraction technology. 24. System of factors, defining pricing policy of an international company. Factor Category Specific Factors Production Costs, Operational Costs, Economies of Scale, Corporate Objectives, Product Internal Factors Characteristics, Financial Goals Market Demand Consumer Preferences, Elasticity of Demand, Seasonality Competition Competitive Pricing, Market Structure Economic Environment Economic Conditions, Exchange Rates, Tariffs and Taxes Regulatory Environment Price Controls, Legal Requirements, Trade Policies Cultural Factors Cultural Preferences, Perceived Value Distribution Channels Channel Margins, Channel Strategy 25. Structure, participants and features of the international credit market. Trends in the development of the international credit market. Concept: A credit market, often referred to as a debt market, is a significant financial sector where businesses and governments raise money by selling investors debt instruments. Structure: I. Short term credits: - Credits in advance: Loans provided before the delivery of goods or services, such as purchasing raw materials or paying for initial production costs. - Export credits: Loans provided to exporters to finance the production and sale of goods abroad. II. Long term credits: - Syndicated loans: Large loans provided by a group of banks to a single borrower, where the risk and amount are too large for one bank. - Eurocredits: Long-term loans by banks in Europe to foreign companies or MNCs. - Floating rate loans: ex LIBOR (London Interbank Offer Rate) is a common rate for interbank loans, since bank asset and liability maturities may not match. III. Special credits: - Leasing: Renting equipment or property for a specific period -> Use assets without purchasing - Factoring: Selling accounts receivable at a discount -> Immediate cash flow and reduced collection burden - Forfeiting: Selling medium to long-term receivables at a discount, without recourse -> Convert credit sales to immediate cash Features: 1. Currency Diversification: Participants can access credit in different currencies to manage currency risk. 2. Risk Management: Credit derivatives and other financial instruments are used to hedge against credit risk. 3. Global Reach: The international credit market allows borrowers to access capital from a diverse range of lenders worldwide. 4. Interest Rate Variability: Interest rates in the international credit market can vary based on economic conditions, central bank policies, and geopolitical factors. Trends in Development: 1. Digitalization: Increasing use of technology for online lending platforms, peer-to-peer lending, and blockchain-based solutions. 2. Sustainability: Growing focus on green finance and sustainable lending practices in response to environmental concerns. 3. Regulatory Changes: Stricter regulations to enhance transparency, reduce risk, and improve market integrity. 4. Emerging Markets: Greater participation from emerging economies in the international credit market. 5. Innovative Products: Development of new financial products and structures to meet evolving market needs.