International Financial Transactions Research Articles

International transmission of financial shocks without financial integration

In a two-country model of Ricardian trade with a continuum of goods and financial frictions, it is shown that a credit crunch in a country can trigger a synchronized economic downturn even in the absence of international financial transactions.

Forecasting the volatility of a combined multi‐country stock index using GWMA algorithms

AbstractGlobalization has increased the volatility of international financial transactions, particularly those related to international stock markets. An increase in the volatility of one country's stock market spreads throughout the globe, affecting other countries' stock markets. In particular, the Dow Jones Industrial Average plays an extremely important role in the international stock market. This paper uses the generally weighted moving average method and data from the Dow Jones Industrial Average, the National Association of Securities Dealers Automated Quotations, Japan's Nikkei 225, the Korea Composite Stock Price Index, and the Hong Kong Hang Seng Index to predict the performance of the Taiwan Capitalization Weighted Stock Index. This paper attempts to find the smallest prediction error using the optimal combination of generally weighted moving average model parameters and combinations of various international stock market data and compares the results to that found using the exponentially weighted moving average model to explore differences between the two types of forecasting models.

The Philanthropic Organizations' Assistance to Jews of Romania and "Transnistria" during the World War II

The article is devoted to assistance, rescue to the Jewish people in Romanian territory, including "Transnistria" in 1939–1945. Using the archival document from different institutions (USHMM, Franklyn D. Roosevelt Library) and newest literature, the author shows the scale of the assistance, its mechanism and kinds. It was determined some of existed charitable organizations and analyzed its mechanism of cooperation between each other. Before the war, the Romanian Jewish Community was the one of largest in Europe (after USSR and Poland) and felt all tragedy of Holocaust. Romania was the one of the Axis states; the anti-Semitic policy has become a feature of Marshal Antonescu policy. It consisted of deportations from some regions of Romania to newly-created region "Transnistria", mass exterminations, death due to some infectious disease, hunger, etc. At the same moment, Romania became an example of cooperation of the international organizations, foreign governments on providing aid. The scale of this assistance was significant: thanks to it, many of Romanian Jews (primarily, children) could survive the Holocaust: some of them were come back to Romanian regions, others decide to emigrate to Palestine. The emphasis is placed on the personalities, who played important (if not decisive) role: W. Filderman, S. Mayer, Ch. Colb, J. Schwarzenberg, R. Mac Clelland and many others. It was found that the main part of assistance to Romanian Jews was began to give from the end of 1943, when the West States, World Jewish community obtained numerous proofs of Nazi crimes against the Jews (and, particularly, Romanian Jews). It is worth noting that the assistance was provided, mostly, for Romanian Jews, deported from Regat; some local (Ukrainian) Jews also had the possibility to receive a lot of needful things. But before the winter 1942, most of Ukrainian Jews was exterminated in ghettos and concentration camps. The main kinds of the assistance were financial (donations, which was given by JDC through the ICRC and Romanian Jewish Community), food parcels, clothes, medicaments, and emigrations from "Transnistria" to Romania, Palestine (after 1943). Considering the status of Romania (as Nazi Germany's ally in World War II), the international financial transactions dealt with some difficulties, which delayed the relief, but it was changed after the Romania's joining to Allies. The further research on the topic raises new problem for scholars. Particularly, it deals with using of memoirs. There is one other important point is inclusion of national (Ukrainian) historiography on the topic, concerning the rescue of Romanian Jews, to European and world history context.

International Financial Transactions and Corporate Performance in a Dynamic Financial Market (Evidence from Nigerian Financial Sector)

The primary aim of this study is to examine the relations between international financial transactions and corporate performance in a dynamic financial market within the banking industries using Annual Time Series Data of the Variables. The annual time series data were sourced majorly from central bank of Nigeria statistical bulletin. This study covers 33 years period between 1980-2013. Econometric techniques of ordinary least square (OLS) Augmented were employed in the analysis. Return on investment was used as a measure of corporate performance. The international financial transactions measure includes (growth of cross-border credits to total deposit money banks assets, growth of non oil export to deposit money bank asset, cross border banking claims to total deposit money bank assets and exchange rate) as independent variables. The results indicate that corporate performance in a financial market which is measured by return on Investment has a positive and significant relationship on growth of cross boarder credit to total deposit money banks assets, growth of non-oil export to deposit money banks assets, cross boarder banking claims to total deposit money bank assets and ratio of exchange rate of Naira to Dollar. Consequently, it is recommended that there is every need for the deposit money banks management to strengthen their international financial transactions management scope as the indicators studied largely exhibit strong influence on the performance of deposit money banks.

Comments by Anwar Nasution, on The Economics of RMB Internationalization

Anwar Nasution: It is my pleasure to comment on this excellent paper on the important topic of analyzing the People’s Republic of China’s (PRC) reforms over the past decade to move toward internationalizing the Renminbi (RMB). The RMB is beginning to be used as an international medium of exchange in dominating and setting cross-border trade and financial transactions. The paper summarizes the benefits and costs of RMB internationalization from a theoretical point of view. There are also econometric studies on the impacts of RMB internationalization on financial development in the PRC and the estimate of seigniorage revenue of RMB, but there is no estimate on the inflationary tax enjoyed by the PRC from foreign holdings of its currency. In addition, internationalization of the RMB allows the PRC to borrow from the international community with liabilities denominated in that currency without exchange rate risk. Unfortunately, there are no brief summaries of PRC government policies on how to make the RMB become an international unit of account, medium of exchange, and store of value. Also there is no information provided in the paper on the size of capital markets in the PRC: the structural financial system, the size of public sector debt and security market, and their liquidity.

Economic Sanctions as ‘Negative Development’: The Case of Cuba

AbstractEconomic sanctions are often viewed as a useful tool to enforce international law. However, they can do significant damage to the economy and development of the targeted country. The US embargo against Cuba has not only blocked its access to US markets but also intervenes in Cuba's trade with third countries, its international financial transactions, and the repair of its infrastructure. The embargo also targets each of the areas in which Cuba is positioned to produce goods and services on a par with highly developed countries, including medicine, biotechnology, and software. Copyright © 2015 John Wiley & Sons, Ltd.

Эволюция регулирования глобального финансового рынка в период послекризисного восстановления мировой экономики

This article focuses on changes in regulation of financial markets abroad after the financial crisis of 2007-2009 and provides comments on the effectiveness of such regulation. Specially the author analyzes the risks that the derivatives market creates for the financial sector and proposes mechanisms to enhance transparency and stability of the market. The author considers how introduction rules of FATCA and FCPA to the U.S. will influence on the financial sector, the possibility of continuing Russian banks overseas financial transactions, the cost of loans to Russian companies. Also the author writes how the introduction of Tobin tax will impact on international financial transactions in Europe. He describes the changes in the area of offshore jurisdictions in the world occur. There is the experience of creating an international financial center abroad. He gives information on what measures taken to transform the emirate of Dubai to International Financial Centre. In conclusion, the author proposes measures of increase of investment attractiveness of Russia and the possibility of establishing a Russian international financial center.

Marshall y los sistemas productivos locales

The reductions in trade barriers and the integration of national markets in free trade zones have produced an enormous increase in trade and international financial transactions. This development has set the grounds for new trends in the agglomeration of economic activity, differing in the rules of competition and in the modes of productive collaboration, as well as the in way knowledge is generated and exchanged, and in which new forms of productive organization prevail at a local level, with a tendency to attract new firms and to create local productive systems (lps). These lps have gained importance due to their role in the generation of innovations and new knowledge. The so-called “marshallian districts” are productive organisations located geographically and with autonomy in the generation and application of new technologies, which flourish upon local knowledge, sometimes of a traditional character. Alfred Marshall, at the end of xix century noted that the presence of several firms belonging to the same sector and the same area helped creating an “industrial atmosphere” of “mutual confidence and acquaintance” able to sustain and promote local industrial development. It is in this context that some of the marshallian concepts of competition acquire new interest in the analysis of lps, and particularly, the notions about the diffusion of knowledge and external economies. In particular, they allow to explore the causes behind the agglomeration of firms in industrial districts and to find concepts that might be useful in the analysis and definition of regional development strategies.

Justice in Finance: The Normative Case for an International Financial Transaction Tax

There has recently been much debate about the idea of levying a tax on particular transactions on international financial markets. Economists have argued about how much revenue such an international financial transaction tax would raise and they disagree about what effects it would have on trade volumes, financial stability, and overall growth. Politicians have argued about the feasibility of introducing such a tax internationally and they disagree on its adequacy as a policy response to the current financial and economic crisis. This article contributes to the debate about international financial transaction taxation by bringing the perspective of political philosophy to bear on the politicians’ and economists’ arguments about policy. I shall outline a framework for thinking about justice in finance, and defend the idea of an international financial transaction tax as an instrument for making the international financial system more just.

Regulatorní zásahy, podpora centrální banky a dohled a kontrola mezinárodních finančních trhů

The aim of the article is to answer a question to what extent the recent crises in international financial markets have confirmed the need for formal regulatory intervention and for official central bank support and subsequently, to what extent transactions in wholesale international financial markets should be subject to official oversight and control or if they can be left to internal market devices. The paper begins with an analysis of major financial disruptions in the last 20 to 25 years from which key findings and conclusions are derived. Subsequently, particular forms of market failure are analyzed with regard to the need of oversight and control of international financial transactions. The author concludes that wholesale international financial markets can be mostly governed by internal market devices. Nevertheless, governments and central banks should have suitable tools of oversight and control of financial transactions and regulatory means of intervention at disposal once the stability of international financial system is at risk.

Research on Assessing Internationalization of Chinese Currency

The diversified reform of the international currency system in the post-financial crisis era brought opportunities for the Internationalization of Chinese currency RMB. The year 2011 has seen a huge progress in the trade settlement and international financial transaction of RMB. However, an objective evaluation of the improvement in RMB internationalization is still difficult. Different from the index of the proportion of international reserve currency, this essay is to analyze the internationalization based on the pricing, trading and reserve functions of international currency. The innovation of this essay lies in the compilation principles of RII and the construction of index system. RII stood at 0.45 in 2011, indicating its preliminary recognition from the international community. But there is still great gap in the internationalization between RMB and other major currencies like US dollars, Euro.  Index Terms—internationalization of RMB, compilation principle of RII, construction of index system, RII model, application of RII

Use of Currencies in International Trade: Any Changes in the Picture?

The paper reviews a number of issues related to the use of currencies in international trade, more than one decade after the introduction of the euro and shortly after steps taken by the Chinese authorities to liberalize the use of the RMB in off-shore markets. Trade is an important factor in establishing a currency as an international currency, notably by fulfilling the transaction/medium of exchange and unit of account motives of currency demand. A well prepared liberalization of currency use for international trade and foreign direct investment transactions can even be helpful in achieving the international investment and reserve currency status. While in the distant past the later was also linked to preponderance of a country in trade markets, it is now linked to the prevalence of the currency in international financial transactions, which supposes that the country in question engages at least partly in some liberalization of capital account transactions. This paper shows theoretical and practical reasons explaining the current dominance of the US dollar and the euro in the invoicing of international trade. There is little doubt, though, that in the medium-to-long term the RMB will become a major currency of settlement in international trade. This is not only the current direction of government policy but also that of markets, as evidenced by the rapid expansion of off-shore trade payments in that currency. In the meantime, though, the US dollar and the euro are enjoying a near-duopoly as settlement and invoicing currencies in international trade. The stability of this duopoly is enhanced by a number of factors recently highlighted by economic analysis: coalescing, thick externalities and scarcity of international currencies are useful to explain that, until such time that RMB payments match at least the share of China in global trade, the US dollar and of the euro will remain the main currencies in the invoicing and payment of international trade. Section 1 looks at the factors that determine the use of currencies in the invoicing and settlement of international trade. Section 2 looks at the actual reality of currency use for international trade flows, and short-term prospects for the development of a possible alternative to the use of the US dollar and the euro (in particular in Asia), the RMB.

Make or Buy? Approaches to Financial Market Integration

The sharp differences between financial markets as they exist in Latin America and how we might expect them to look under full integration suggest that the financial constraints on Latin American economic development have much to do with the region`s financial markets` incomplete integration in the world financial system. This paper suggests that the underlying cause of Latin America`s limited integration with world financial markets is not explicit barriers to international financial transactions. Rather, weaknesses in the domestic financial markets that would be called upon to intermediate international capital flows impedes integration. An appropriate financial integration approach can strengthen and deepen the domestic financial system by permitting indirect imports of the requisite public goods (provided by the banks` home countries) and by allowing a greater diversification of national risks.

The Devil behind the Mirror: Globalization and Politics in the Dominican Republic , and : Negociando la aldea global con un pie “aquí” otro “allá”: La diáspora femenina dominicana y la transculturalidad como alternativa descolonizadora (review)

Reviewed by: The Devil behind the Mirror: Globalization and Politics in the Dominican Republic, and : Negociando la aldea global con un pie “aquí” otro “allá”: La diáspora femenina dominicana y la transculturalidad como alternativa descolonizadora Jesse Hoffnung-Garskof Steven Gregory. 2007. The Devil behind the Mirror: Globalization and Politics in the Dominican Republic. Berkeley: University California Press. 285 pp. ISBN: 9780520249295. Karin Weyland. 2006. Negociando la aldea global con un pie “aquí” otro “allá”: La diáspora femenina dominicana y la transculturalidad como alternativa descolonizadora. Santo Domingo: Instituto Tecnológico de Santo Domingo. 319 pp. ISBN: 9993425648. Over the last two decades of the twentieth century the politics of international development dramatically remade the relationship between the Dominican Republic and the world economy. This shift began in the midst of the Latin American debt crisis. Under pressure from the IMF and the United States government (both committed fully to neoliberal economic theory) Dominican governments entered into a series of structural adjustment agreements, including drastic cuts in public spending, financial reforms, lower barriers to imports, and eventually privatization of utilities and state industries. With support from Washington, Dominican governments also began a shift away from a heavy focus on agricultural exports towards export processing and tourism. Since the middle of the 1990s, the process of structural adjustment and neoliberal reform has been largely subsumed into a broader boom in international trade, communications, and financial transactions (supported by the same neoliberal politics) known as globalization. As the Dominican state withdrew from spending on education, health care, and price supports, Dominicans turned to the informal sector and international migration in order to survive. Yet Dominicans, even those precariously perched on the informal margins of the new economy, had increasing contact with a flood of goods and images generated by the global boom—a promise of material well being that in no way matched the limited economic opportunities afforded by the new economy. Meanwhile, the political and subsistence crises in neighboring Haiti led to a major flow of migration of Haitians into the Dominican Republic. Haitians had long been part of Dominican society in border and sugar regions. Now they became part of an increasingly multicultural society in cities and in the new tourism and export-processing enclaves. As [End Page 269] Dominican governments sought to maintain legitimacy in an era of austerity, they made Haitians into targets of official xenophobia, racism, and human rights violations. The two books under review seek to document and analyze the social and cultural consequences of neoliberalism and globalization in the Dominican Republic. They share a deeply humane concern for the effects of structural adjustment policies and globalization on local communities and individuals in the Dominican Republic and an interest in the creative responses of those communities to these new circumstances. In Negociando la aldea global, Karin Weyland, a sociologist who has lived and worked in Santo Domingo, offers primarily a work of theoretical synthesis, drawing together ideas about globalization from Octavio Ianni, Saskia Sassen, Néstor García Canclini, and Manuel Castells with the classic accounts of transnationalism by Glick Schiller, Basch, Blanc-Szanton, Portes, and others. Blending this theory with a survey of secondary literature and coverage in Santo Domingo newspapers, Weyland argues that contemporary international migration, which she calls “transnationalism from below,” constitutes a distinctly new practice of border crossing and should be seen as a creative response to the repressive “from above” forms of globalization. Her research subjects are Dominican women migrants who settled in New York City during the 1980s and 1990s. These women, she argues, used family and kinship ties to get visas, to share childcare across national boundaries, to start businesses, and most importantly to move from a context of informal and household labor (or factory labor in export processing zones) to factory labor in New York sweatshops. Though she notes the struggles and injustices migrant women face as workers, women, and racialized minorities in the U.S., she also hears in their accounts a consistent thread of improvement. They have more freedom in their households, better wages, even better status back home as a result of migration. Since these women faced entrenched barriers to social mobility and personal freedom...

Review of the Method of Valuation of the SDR

This paper provides the basis for the quinquennial review of the method of valuation of the SDR, and the financial instruments used to determine the SDR interest rate. Under the governing Board decisions, the new SDR valuation and interest rate baskets would come into effect on January 1, 2011. The review examines developments during the 2005–09 period in the variables relevant to the SDR valuation. These variables include exchange rates, exports of goods, services and income, and reserve holdings. Data for exports of goods and services show China has become the third largest exporter among Fund members and monetary unions including Fund members. Nonetheless, indicators such as reserves and international banking and debt securities suggest that the currencies in the current SDR basket continue to predominate in international financial transactions, and these currencies also account for the bulk of global foreign exchange turnover. At this time, the Chinese renminbi would not appear to meet the criteria for being determined by the Fund to be a freely usable currency, which is also required for inclusion in the SDR basket.

Legal Risk in the Financial Markets, by Roger McCormick

Legal Risk in the Financial Markets, by Roger McCormick, 2006, Oxford, UK: Oxford University Press, pp. ix + 297. The use of information and communication technologies, globalization, and the liberalization of financial markets have all gone hand in hand with increasingly complex financial innovations. These new products, the new technologies, and the increased exposure to different, sometimes conflicting, legislation have increased the importance of legal risk. This legal risk in now recognized as a form of operational risk by the Basel II accords. In an innovative, ambitious, path-clearing work, Roger McCormick attempts to clarify what constitutes legal risk in the financial markets and how to manage it. He provides many examples of such risks that, he repeats often, have small probabilities but large impacts, large enough to wipe out a business and create systemic effects for other contracting parties. The examples he provides, as well as the compilation of different definitions and different perspectives to these risks, makes the book an ideal source for generating material for a course on English law in financial markets. In the introduction, McCormick divides this risk into two categories: the risk of being sued (type 1 risk) and the risk of losing money because of technical defects in the way the transaction is done especially if the other contracting party defaults (type 2 risk). According to McCormick writing in 2005/2006, the type 2 kind of risk can create systemic risks, owing largely due to legal uncertainty, but it is occupying the market much less in recent years, reassured by English court decisions. He felt that the market, at that time, was more concerned with type 1 risk and the rise of the opportunism culture of suing or as he aptly terms it, having a go. Recent events show that systemic risk really existed and that indeed the financial market and its actors did not really understand the legal ramifications of all the complex financial products that had been bought, and that there were many technical defects in the way transactions were being conducted. Thus, the importance of his work is reinforced. This financial crisis highlights the importance of the work by McCormick, daring because not even the financial markets understand the legal risks involved, and few lawyers, if any, would really understand the complexity of all the financial products. The book is therefore useful to policymakers, lawyers, and financial actors, besides academics. To heighten the interest of policymakers to the book, McCormick points out that there is competition in the market place on the laws to adopt and if England wants its laws to be adopted, then it would have to create more legal certainty and reduce risk. For this, the government needs to constantly monitor the marketplace for new technologies and new products that have been introduced and ensure that actors involved with these innovations understand the legal ramifications. The first part of the book provides some historical examples of legal uncertainty in financial markets based largely on English law examples, notwithstanding four isolated mentions of cases in other countries. The examples include a case on swaps, another on charge backs in the context of invoice discounting, and a third on settling differences (set-offs/netting) in the context of bankruptcy. McCormick justifies the usefulness of English law as it is, according to a British financial newspaper, the most important law in international financial transactions. In any case, a start has to be made somewhere, and harmonization through directives and imitation may have rendered legislations similar enough for the legal niceties to be comprehensible to a wide Audience even if treated differently in different laws. The second part of the book presents the characteristics of legal risk, using the historical examples as a justification for the importance of the subject. …

Financing the United Nations: An Apparatus for Control of Major Powers

After World War II, a new organization was created to carry out policies that the League of Nations failed to serve. The United Nations was established to answer the problems brought by the World War II. It does not only seek to help countries to stand up after the war, it also helps to prevent future confrontations. By taking the lead towards peace, the United Nations adopted several peacekeeping operations. It also helps a country cope up by providing loans and/or financial assistance to build their economy.One of the purpose and main principle of the United Nations is to cooperate in solving international economic, social, cultural and humanitarian problems and in promoting respect for human rights and fundamental freedom. (Childers 1999) The United Nations needed funds to carry out and achieve its goal. Financing a big organization like the United Nations is a big and highly political issue. Even though UN is not being biased, some states which are in direct contact with UN can influence the decision and policy making of the organization.The funding system of UN is very problematic. One of the probable reasons for this is the lack of stable source of fund which will secure the finance system of the UN. Another reason is that some countries do not take responsibility to provide fund as their counterpart to the UN budget. The negligence of the member states to pay as their contributions contributed to the instability and shortage of budget of the UN.With the financial crisis in the system, there are several critics and recommendations that require for the reform of the UN system. Some proposed that to save the UN a global tax on the international financial transactions should be carried out. This requires every citizen in the world to share the burden of financing the UN. However, this is not the best option to take because the payments that the UN member states should pay are levied to the citizens of each country. This does not consider the fairness and equality in social and economic sense as one of the purpose of existence and the very nature of the UN itself.

Rethinking the Effects of Financial Liberalization

During the last few decades, many emerging markets have lifted restrictions on cross-border financial transactions. The conventional view was that this would allow these countries to: (i) receive capital inflows from advanced countries that would finance higher investment and growth; (ii) insure against aggregate shocks and reduce consumption volatility; and (iii) accelerate the development of domestic financial markets and achieve a more efficient domestic allocation of capital and better sharing of individual risks. However, the evidence suggests that this conventional view was wrong. In this paper, we present a simple model that can account for the observed effects of financial liberalization. The model emphasizes the role of imperfect enforcement of domestic debts and the interactions between domestic and international financial transactions. In the model, financial liberalization might lead to different outcomes: (i) domestic capital flight and ambiguous effects on net capital flows, investment, and growth; (ii) large capital inflows and higher investment and growth; or (iii) volatile capital flows and unstable domestic financial markets. The model shows how these outcomes depend on the level of development, the depth of domestic financial markets, and the quality of institutions

Who Drove the Boom in Euro-Denominated Bond Issues?

We make use of micro-level data for over 45,000 private bond issues by over 5000 firms from 22 countries in 1990-2006 to analyze the impact that the launch of the EMU had on their currency denomination. The use of the micro data allows us to isolate the "euro effect" on new and seasoned bond issuers while conditioning on individual issue characteristics. To our knowledge, ours is the first systematic analysis of this topic at the micro level. We find that the impact on new issuers is larger than on seasoned issuers and that most of the increase in the euro-denominated bond issuance by seasoned borrowers was along the "extensive" margin, i.e. borrowers switching currency denomination of their issues. Insofar as new entrants to the bond market will define the overall currency composition in the long run, these results imply that aggregate studies might be underestimating the euro effect. We also find that to a large extent the increase in euro issuance was "at the expense" of U.S. dollar issuance, suggesting that euro competes with the U.S. dollar as a currency of choice for international financial transactions.

Monetary Policy Strategy in a Global Environment

This paper discusses the structural implications of real and financial globalisation, with the aim of drawing lessons for the conduct of monetary policy and, in particular, for the assessment of risks to price stability. The first conclusion of the paper is that globalisation may have played only a limited role in reducing inflation and output volatility in developed economies. Central banks should remain focused on their mandate to preserve price stability. However, the globalisation of financial markets over the last 25 years has had major implications for the conduct of monetary policy. Four elements characterise the new financial landscape: the decline in the “home bias”; the increase in the size of international financial transactions relative to transactions in goods and services; the increase in the number of countries adopting inflation targeting and currency peg monetary regimes; and the transformation of financial market microstructure. The paper argues that in this new environment monetary policy should systematically incorporate financial analysis into its assessment of the risks to price stability. Monetary policy should “lean against the wind” of asset price bubbles that could burst at a high cost and hinder the maintenance of macroeconomic and financial stability. Further, in view of the interlinkages among financial markets worldwide, macro-financial surveillance at the international level needs to be strengthened and monetary policymakers need to cooperate and exchange information on a wider scale and at a deeper level with financial supervisors. Finally, the paper reviews the rationale for a central bank to act (in concert with other central banks) as the ultimate provider of liquidity to financial markets in situations of extreme instability and market malfunctioning. A sudden and sharp liquidity drought in the market should be tackled with appropriate measures that could even go beyond the extraordinary refinancing of monetary and financial institutions. In these circumstances, the central bank should clearly communicate that the aim of its liquidity provision measures is to support the proper functioning of financial markets, and that they do not indicate a change in the monetary policy stance (“separation principle”).