Description
This is a presentation explaining about Money and Payment Systems; Financial Markets; Regulation and Supervision of Financial Markets; Money and Real Sector
Money Banking and Financial Markets
Money and Payment Systems
? Money – generally accepted means of payment
Medium of exchange ? Unit of account ? Store of value ? Standard of deferred payment ? Which is the most critical of these? ? Payment, settlement and clearing system ? Settling transactions between different entities ? Clearing mechanism for payments ? Setting rules for payments and clearance ? Institutional mechanism
?
?
Cheque, ECS, Internet, Mobile, Payment Gateway
?
National Payments Corporation of India
Financial Markets
? Role of financial markets
Bring savers and investors together ? Lowers transaction costs ? Intermediation itself introduces transaction costs ? On balance benefits outweigh costs ? ? Efficiency ? Trading, settlement, payment, risk management, regulation and supervision ? Completeness – all needs of all at all times ? Can you trade with 1 Q soybean? ? Can someone access the market with Rs.10? ? Can you trade one year future? ? Innovation results in filling gaps in needs
?
Financial Markets
? Financial Markets – Key ingredients
?
Trading and Settlement systems
?
Exchange, OTC, Open pit -market makers
Clearing - payments and financial instruments ? Trading and settlement rules
?
Order matching and execution ? Price discovery process ? Settling payments and instruments
?
?
Risk management
What if a broker defaults? ? What if a client of a broker defaults? ? What if there is a panic in the market? ? What if order matching system fails?
?
Regulation and Supervision of Financial Markets
? Financial markets are imperfect – asset prices can
?
? ? ? ? ? ?
deviate from fundamentals for an extended period of time Information flow is asymmetric ? Bankers and their credit customers Incentives structure - appropriate risk assessment? Investor behaviour – risk assessment standards and asset price bubbles What should regulators do? Old paradigm – light, disclosure based ? Belief in the market’s ability to correct distortions Events in 2008 shattered the old paradigm New paradigm? – the search is on
Money and Real Sector
? Money facilitates transactions that are valuable in ? ? ?
?
? Global financial crisis – role of money and
their own right – with or without money ? consumption, production, investment etc Facilitation by financial instruments makes these transactions even more valuable – how? More generally, at the heart of every monetary phenomenon there lies a real (physical) event or a transaction Therefore the real sector and the financial sector must have a strong and direct relationship Consider this ? Many European nations displayed bank asset to GDP ratio in the range of 300- 600% ? Role of financial instruments – mere facilitators of transactions or assets in themselves?
financial instruments ???
Real sector - Financial sector linkage
? Innovations in finance ? Cross border multi-currency transactions ? Cross border institutions
? ?
?
?
In 2008 more than 50% of citibank assets were outside the US Very low transaction costs – thanks to ICT End result Often it is impossible identify the real phenomenon ? Crude oil - $ 110/b to $145/b and back to $ 100/b. What is the true demand supply balance? ? Size of home loan write-offs $2 trillion – how many home owners are impacted ? Linking financial sector to real sector – one often gropes in the dark
?
Financial Markets and Real Sector
? Implications of weakening links and growing
complexity ? Financial markets often provide confused signals ? Interpretation of movements in financial prices – interest rates, exchange rates, forward premia ? Increased uncertainty – at times not amenable for analysis by the standard tools and techniques ? Decision makers who use financial markets and instruments need to be aware of this setting. ? Scores of Indian firms and banks lost disproportionate amounts during 2008-09 by taking bets on exchange rate they did not understand well
doc_928970791.ppt
This is a presentation explaining about Money and Payment Systems; Financial Markets; Regulation and Supervision of Financial Markets; Money and Real Sector
Money Banking and Financial Markets
Money and Payment Systems
? Money – generally accepted means of payment
Medium of exchange ? Unit of account ? Store of value ? Standard of deferred payment ? Which is the most critical of these? ? Payment, settlement and clearing system ? Settling transactions between different entities ? Clearing mechanism for payments ? Setting rules for payments and clearance ? Institutional mechanism
?
?
Cheque, ECS, Internet, Mobile, Payment Gateway
?
National Payments Corporation of India
Financial Markets
? Role of financial markets
Bring savers and investors together ? Lowers transaction costs ? Intermediation itself introduces transaction costs ? On balance benefits outweigh costs ? ? Efficiency ? Trading, settlement, payment, risk management, regulation and supervision ? Completeness – all needs of all at all times ? Can you trade with 1 Q soybean? ? Can someone access the market with Rs.10? ? Can you trade one year future? ? Innovation results in filling gaps in needs
?
Financial Markets
? Financial Markets – Key ingredients
?
Trading and Settlement systems
?
Exchange, OTC, Open pit -market makers
Clearing - payments and financial instruments ? Trading and settlement rules
?
Order matching and execution ? Price discovery process ? Settling payments and instruments
?
?
Risk management
What if a broker defaults? ? What if a client of a broker defaults? ? What if there is a panic in the market? ? What if order matching system fails?
?
Regulation and Supervision of Financial Markets
? Financial markets are imperfect – asset prices can
?
? ? ? ? ? ?
deviate from fundamentals for an extended period of time Information flow is asymmetric ? Bankers and their credit customers Incentives structure - appropriate risk assessment? Investor behaviour – risk assessment standards and asset price bubbles What should regulators do? Old paradigm – light, disclosure based ? Belief in the market’s ability to correct distortions Events in 2008 shattered the old paradigm New paradigm? – the search is on
Money and Real Sector
? Money facilitates transactions that are valuable in ? ? ?
?
? Global financial crisis – role of money and
their own right – with or without money ? consumption, production, investment etc Facilitation by financial instruments makes these transactions even more valuable – how? More generally, at the heart of every monetary phenomenon there lies a real (physical) event or a transaction Therefore the real sector and the financial sector must have a strong and direct relationship Consider this ? Many European nations displayed bank asset to GDP ratio in the range of 300- 600% ? Role of financial instruments – mere facilitators of transactions or assets in themselves?
financial instruments ???
Real sector - Financial sector linkage
? Innovations in finance ? Cross border multi-currency transactions ? Cross border institutions
? ?
?
?
In 2008 more than 50% of citibank assets were outside the US Very low transaction costs – thanks to ICT End result Often it is impossible identify the real phenomenon ? Crude oil - $ 110/b to $145/b and back to $ 100/b. What is the true demand supply balance? ? Size of home loan write-offs $2 trillion – how many home owners are impacted ? Linking financial sector to real sector – one often gropes in the dark
?
Financial Markets and Real Sector
? Implications of weakening links and growing
complexity ? Financial markets often provide confused signals ? Interpretation of movements in financial prices – interest rates, exchange rates, forward premia ? Increased uncertainty – at times not amenable for analysis by the standard tools and techniques ? Decision makers who use financial markets and instruments need to be aware of this setting. ? Scores of Indian firms and banks lost disproportionate amounts during 2008-09 by taking bets on exchange rate they did not understand well
doc_928970791.ppt