Lecture 45 Recap 1 Financial Environment

Lecture # 45 Recap

1) Financial Environment & Financial Institutions 1. Role of Financial Institutions 2. Long Run Performance of Financial Institutions for Economic Growth 3. Capital Market 4. Stock markets 5. Bond markets

6. Commodity markets 7. Money markets 8. Derivatives markets 9. Futures markets 10. Borrowers of Financial Markets 11. Lenders Of Financial Market

2) Financial Institutions 1. Types of Financial Institutions 2. Central Bank 3. Commercial Banks 4. Investment Bank 5. Saving Bank 6. Micro Finance Bank

7. Financial Institution & THEIR FUNCTIONS 8. Islamic Bank 9. Agriculture Bank 10. SME Banks 11. Non-Banking Financial Institutions

12. Investment Companies 13. Brokerage Houses 14. Leasing Companies 15. Insurance Companies 16. Mutual Fund

3) Central Bank • • • Activities & Responsibilities Monetary Policy Central or National “Bankers Bank” Interest Rate Intervention Limits of Enforcement Power

• • • Policy Instruments Interest rate Intervention Limits of Enforcement Power Interest Rates Open Market Operations Repo Market known as repurchase operations

• Direct Operations • Buying or selling securities ("Direct Operations") • Foreign exchange operations such as forex swaps. • Capital Requirements • Reserve requirements • Exchange Requirements

5) Economic Factors Balance of Trade Balance of Payments Factors that can affect BOT 1. Exchange rates 2. Trade agreements or barriers 3. Other tax, tariff and trade measures 4. Business cycle at home or abroad.

– Current Account Surplus & Deficit – Capital or Financial Account Surplus & Deficit – Balance of Payments Equilibrium – Challenges of a Central Bank • • Economic Growth Poverty Reduction Inflation Stability in Forex Rate

5) State Bank of Pakistan • • History Functions Primary Function Secondary Function Non-Promotional Function Regulation of Liquidity Banking Assets & Liabilities

6 to 11) Various Departments of State Bank of Pakistan • • • Agricultural Credit Audit Banking Inspection Banking Policy Banking Supervision Corporate Services

• • • Economic Policy Exchange and Debt Management Exchange Policy Human Resource Information System Islamic Banking

• Legal Services Department • Research Department • Small and Medium Enterprises

11 & 12) Macro Economic Performance of a Country • • National Income Concepts of National Income Difference b/w GDP & GNP Regulating risk and the importance of risk management • Basel 2 Type Rules for Insurers • GLOBAL FINANCIAL SYSTEM

• INTERNATIONAL FINANCIAL INSTITUTIONS • International Monetary Fund • The World Bank • World Trade Organization • Role of WTO in Pakistan Trade Environment • Asian Development Bank • ADB Projects in Pakistan • Paris Club

13) Pakistan Economic Aid & Debt • The major causes of poverty in Pakistan • Key challenges facing the Government of Pakistan • Future Prospects for Pakistan's Economy • Macroeconomic Stability • Strengthening Institutions

14) Increasing Foreign Direct Investment • Foreign Interest in Local Financial Markets • Enhancing and Sustaining a Growing GDP • How can Pakistan improve and sustain its growth rate? • Industrial Sector

• Inter-provincial harmony in Pakistan • Achieving a Favorable Balance of Trade • Managing the Debt • Economic Resilience

15 to 19) Role of Commercial Banks • • Purpose of a bank Commercial Lending Banking Services A Bank’s Profit Services Typically Offered by Banks Types of banks Banks in the Economy

• • Role in the money supply Size of Global Banking Industry Bank Crisis Challenges within the Banking Industry • Economic Environment

• Growth Strategies • The Management of the Banks – Public perceptions of banks • Profitability

– SWIFT Society for Worldwide Interbank Financial Transactions – COMMERCIAL BANKING IN PAKISTAN CAMEL 1) Capital Adequacy, 2) Asset Quality, 3) Management Soundness, 4) Earnings and Profitability, 5) Liquidity and Sensitivity to Market Risk.

• • • Deposit Mobilization Credit extension Banking spreads Asset composition Problem bank management

BANKING SECTOR REFORMS in Pakistan 1. Privatization of Nationalized Commercial Banks 2. Corporate governance. 3. Capital Strengthening. 4. Improving Asset quality. 5. Liberalization of foreign exchange regime 6. Consumer Financing

• • • Mortgage Financing Legal Reforms Prudential Regulations Micro financing SME Financing Taxation

• • • Agriculture Credit E-Banking Human Resources Credit Rating Supervision and Regulatory Capacity • Payment Systems

20) Branch Banking in Pakistan • • • Remittances Demand Draft Telegraphic Transfer Mail Transfer Online Fund Transfer Types of Account

• • • Individual Joint Account Sole Proprietorship Club & Societies Joint Stock Companies Agents

Operations & Status of Accounts Nature of Accounts • • • Current Account Profit & Loss Sharing Current foreign currency Saving Foreign Currency Term Deposits BBA “Basic Banking Account”

• • Types of Loan Personal finance Mortgage Finance Business Finance

21) Role of Commercial Banks in Micro Finance Sector • • Micro credit Micro insurance Micro finance sector in Pakistan Micro finance banks in Pakistan

22 to 26 ) Mutual Funds • • What is mutual funds Turnovers Expenses Management Fees Non-management Expenses Service Fees and Expenses Borne by the Investor (not the Fund) • Brokerage Commissions

• • Types of mutual funds Open-end fund Exchange-traded funds Equity funds Capitalization Growth vs. value Index funds versus active management

• • Bond funds Money market funds Funds of funds Hedge funds Mutual funds vs. other investments Share classes Load and expenses Criticism of managed mutual funds

28) Investment Banking • Organizational structure of an investment bank • The main activities and units of Investment Banks • Size of industry • Recent evolution of the business • New products • Possible conflicts of interest • Types of Investment banks

29 & 30) Letter of Credit & International Trade • Terminology • How it works • Legal principles governing documentary credits • The price of LCs • Legal Basis for Letters of Credit • Risks in International Trade

31 & 32) Foreign Exchange & Role of Financial Institutions • Market size and liquidity • Market participants – Banks – Commercial companies – Central banks – Investment management firms – Hedge funds – Retail forex brokers

• Trading characteristics • Factors affecting currency trading – Economic factors – Political conditions – Market psychology • Algorithmic trading in forex

• Financial instruments – Spot – Forward – Future – Swap – Option – Exchange Traded Fund • Speculation

33 & 34) Leasing Companies • Conceptual background – Leasing of real property – Leasing of tangible personal property • Real leases – Private property rental – Commercial leasehold • Advantages of commercial leasing • Disadvantages of commercial leasing • The Leasing Sector in Pakistan and its Role in Capital Investment

35 & 36) Insurance Companies • Principles of insurance • Indemnification • When is a policy really insurance? – Does the contract contain adequate risk transfer? – Is there a brightline test? – "Safe harbor" exemptions – Risk limiting features

• • • Insurer’s business model Gambling analogy History of insurance Types of insurance companies

• • Life insurance and saving Size of global insurance industry Financial viability of insurance companies Controversies – Insurance insulates too much – Closed community self-insurance – Complexity of insurance policy contracts

– Redlining – Health insurance – Dental insurance – Insurance patents – The insurance industry and rent seeking • Criticism of insurance companies

• 37) Role of Financial Institutions in Agriculture Sector • 39) SME sector & Financial Institutions • SME Policy in Pakistan • Government of Pakistan & its Role

40) Financial Crimes • • • Money Laundering Modern development Process Irregular funding Captive business Legal considerations

– Fighting money laundering – Using information technology – September 11, 2001 and the international response to the underground economy

• 41) Financial Institutions & Risk Management • 42) Banking Crimes • 43) Collapse of Enron • 44) Misleading in Baring Bank, Black Wednesday, Soloman Brothers and Treasury Fraud.