Types Of Financial Instruments Research Articles

ФАКТОРИ ІНВЕСТИЦІЙНОЇ СТРАТЕГІЇ В СИСТЕМІ ПІДВИЩЕННЯ КОНКУРЕНТОСПРОМОЖНОСТІ ПІДПРИЄМСТВА

In the modern turbulent terms of manage enterprises constantly take part in competitive activity. For that, not to become an outsider at the market any enterprise must be competitive and begin to think of by strategy of the development. The aim of this work is research of basic factors of investment strategy enterprises that assist the increase of competitiveness of enterprise directly. On such conditions acquire actuality there is forming of investment strategy of enterprise and increase of competitiveness of enterprise through expansion of volumes of investment activity, use of new various types of financial instruments and non-material assets. The article analyzes the investment strategy as an important component of increasing the competitiveness of the enterprise. The investment attractiveness, which is the basis for creating an investment strategy, is characterized, its factors that influence the development of investment attractiveness are considered. The work is based on the consideration of the investment strategy of the enterprise as the development of long-term development goals of the company. The necessity of combining the implementation of the investment strategy with increasing the competitiveness of the enterprise is substantiated. An investment attractiveness that is basis for creation of investment strategy is described, her factors that influence for development of investment strategy are considered. In basis of work consideration of investment strategy of enterprise is stopped up as development of long-term aims of development of enterprise in relation to the increase of competitiveness. The synergy of factors of investment strategy is reasonable and by the increase of competitiveness of enterprise. It follows to take to the number of factors of direct influence – financially-economic to that the elements of control system (structure, methods, aims et al) must be included first of all. With the aim of increase of competitiveness of enterprise a management must direct investments in an innovation. The most modern digital technologies introduction of that needs considerable investments are described to basis, but the increase of competitiveness of enterprise will promote afterwards.

ІНФРАСТРУКТУРНІ ОБЛІГАЦІЇ У ПРОЄКТНОМУ ФІНАНСУВАННІ: СВІТОВИЙ ДОСВІД ТА МОЖЛИВОСТІ ДЛЯ УКРАЇНИ

There are many types of financial instruments used to finance infrastructure projects. In the world practice for the implementation of large-scale and capital-intensive projects for several decades actively used the mechanism of project financing with the use of various forms of borrowing, which are provided by income generated by the cash flows of the project. The focus is now on instruments that allow for financing, reducing risks and providing investors with certain incentives to attract investment. There is a great practice in the world space of application of different methods, ways and tools allowing solving such issue. In different countries, the use of financing forms through debt securities and this financing has own peculiarity and certain differences in each individual country. These features have determined by the specifics of the municipal promissory notes and corporate borrowing, as well as the system of state regulation. In particular, the issues concern the determination of interest rates, tax preferences, government support. The need to adapt the existing foreign experience in the Ukrainian reality is due to the fact that the existing system of local borrowing is not adequate to modern requirements, and infrastructure bonds are not used in Ukraine at all. Therefore, the purpose of this article is to study foreign experience of using infrastructure bonds in project financing, generalize it and find solutions to adapt this experience in Ukraine. In this context, the benefits of project finance have identified and these main objectives have defined. The mechanism of project financing has substantiated taking into account the use of debt instruments through the disclosure of their essence, purpose and application features. The current practice of issuing infrastructure bonds in countries such as the USA, India, Australia and Chile have analyzed. Based on the analysis, foreign experience is summarized and the characteristics of the mechanism for financing projects through the use of municipal and corporate infrastructure bonds have determined. The main directions of adaptation of foreign experience in Ukraine have proposed.

Institutionalization of the green finance market as an opportunity for the Modernization of the regional economy, and ecosystem preservation

The green finance market, which began to emerge during the period of the well-known recession of the world stock market in 2007, has now crossed the mark of $500 billion. The rapid development of this new type of financial instrument is determined by the desire of the population, political leaders and investment funds to more rapid (and legally facilitated) fulfilment of the obligations by the countries of the world on programs to combat climate change and environmental protection that have been adopted more than once at global climate forums, where the total amount resources, according to some experts, should be at least $100 trillion. Currently available green finance markets in most countries of the world cannot yet fully provide affordable financing for the real sector of the export-oriented economy; this circumstance negatively affects the opportunities for their faster growth, competitiveness in the domestic and foreign arenas, and is ultimately determined by the growing shortage of foreign sources of financing during the sanctions war. The study put forward and substantiates the hypothesis of increasing the level and role of green markets in the transformation of the domestic economy as well as ecosystems during the post-coronavirus transformed world economic and financial systems.

The Impact of Public Interventions on Self-Sustainable Venture Capital Market Development in Latvia from the Perspective of VC Fund Managers

This paper presents the results of a study on the impact of EU structural funds on the development of a self-sustainable venture capital (VC) market in Latvia from the perspective of VC fund managers. The study had two objectives. The first was to assess the contribution of European Union (EU) structural funds (SF) programmes toward the development of a self-sustainable VC industry in Latvia. The second was to identify ways by which the structural fund support could be better exploited for the development of the VC industry in Latvia. During three SF planning periods, the stated primary goal of the programmes to support high-growth SMEs was attained—to date, 294 VC investments have been made by publicly supported hybrid VC funds. During the 2004–2006 planning period, the first generation of professional VC fund managers in Latvia emerged in response to the opportunity to manage publicly supported hybrid VC funds. During the subsequent programmes, a high continuation rate by the established managers was observed. Nevertheless, Latvian VC fund managers are not yet capable of raising private funds and still encounter difficulties in attracting the necessary level of private capital for the publicly supported hybrid VC funds. The novelty of the study is the finding that improvements in the SF programme designs did not significantly decrease the impact of factors identified as limiting the success of the operations of VC managers. This suggests and confirms conclusions of other studies that argue that public policies aimed at creating healthy and supporting conditions for VC activity are necessary in addition to public financial support for VC funds. Regarding the next planning period, the suggestion regarding programme design is to continue with already started improvements: increasing the volume of funds, widening the geographic area eligible for investments, reducing restrictions on the types of financial instruments that may be used, lowering the administrative burden for VC fund managers and avoiding micromanagement of VC funds by governmental agency. The observation that the influence of investments in VC funds on the governmental agency’s responsible for VC investments financial statements may be partly responsible for the tendency to micromanage VC funds could be useful not only in Latvia but also in other countries.

Essential aspects of electronic money in the conditions of digitalization of banking business

Introduction. Advances in information technology and digitalization of the banking business have created the basis for the modernization of modern payment systems that operate using a wide range of new financial instruments, a special place among which belongs to electronic money. It is electronic money that is gradually replacing traditional forms of monetary relations, covering an increasing range of relationships between market participants and ensuring the movement of goods and services in each business cycle. Given the importance of money supply as a major factor influencing the dynamics of economic processes, a clear understanding of the nature of electronic money and their place and role in the modern monetary system and economy is especially important in the context of effective monetary policy and financial stability.Purpose. The aim of the study is to substantiate and systematize theoretical views on understanding the nature and basic types of electronic money, taking into account the evolution of monetary relations and the banking system, digitalization of which creates new conditions for market participants in the organization of payments using different types of financial instruments.Results. The nature of electronic money as a legal tender cannot be different from the nature of credit money, which is this tool in the country. Only those instruments of circulation and payment that are issued by the banking system of the country and have all the characteristics to regulate their circulation by the central bank should be considered real money, regardless of their material carrier. Therefore, electronic money should be defined as special electronic ways of storing monetary value in bank accounts using a technical device that can be exploited to make payments.Prospects. Necessary directions of further research of electronic money should be the development of proposals and recommendations for a clearer legislative regulation of differences between real money and their substitutes in order to ensure comprehensive protection of the interests of consumers of financial services.

СТРАТЕГІЧНІ ОРІЄНТИРИ ЗАБЕЗПЕЧЕННЯ ЕКОНОМІЧНОЇ БЕЗПЕКИ ІНВЕСТИЦІЙНОЇ ДІЯЛЬНОСТІ ПРОМИСЛОВИХ ПІДПРИЄМСТВ

The article seeks to explore the concepts of building strategy and strategic guidelines for industrial enterprises to ensure their economic security. It should be noted that in modern business settings, company strategy is of long-term character and is affected by a wide range of economic activity factors. Operating in industrial sector of the economy is associated with multicomponent production arrangements that challenge the need for high-quality technical support. In this regard, investment activity is of critical importance to industrial enterprises. Its key strategic priority is to promote research and development, technological and technical modernization of production. Within the scope of this study, the two issues of the industrial enterprise investment plan have been addressed, i.e. investment funds attracting and their placement. Investment generation to upgrade the production process, along with gaining additional benefits triggers certain risks inherent to such type of financial instruments. In the context of setting strategic guidelines for industrial enterprises, it is suggested to consider investment security as a subsystem and critical element in the economic security system. It is argued that investment security policy should be developed within the framework of tactical planning, since investment security is only part of the overall economic security paradigm. However, the outcomes of such activities should be anticipated at the stage of designing strategic guidelines for efficient enterprise functioning. While implementing the company strategy, it is proposed to divide the total range of tactical actions into two contingent groups: horizontal and vertical. Horizontal activities are targeted on enhancing the enterprise capacity building which in turn will make a resource base for facilitating the transition to the next stage of approaching the desired effect or a final goal. It is also argued that selecting strategic priorities and developing pathways to implement them is a complex and multifaceted process that requires a thorough approach for setting strategic objectives as well as elaborating interim stages in total enterprise development plan.

Interval Estimation of Value-at-Risk Based on Nonparametric Models

Value-at-Risk (VaR) has become the most important benchmark for measuring risk in portfolios of different types of financial instruments. However, as reported by many authors, estimating VaR is subject to a high level of uncertainty. One of the sources of uncertainty stems from the dependence of the VaR estimation on the choice of the computation method. As we show in our experiment, the lower the number of samples, the higher this dependence. In this paper, we propose a new nonparametric approach called maxitive kernel estimation of the VaR. This estimation is based on a coherent extension of the kernel-based estimation of the cumulative distribution function to convex sets of kernel. We thus obtain a convex set of VaR estimates gathering all the conventional estimates based on a kernel belonging to the above considered convex set. We illustrate this method in an empirical application to daily stock returns. We compare the approach we propose to other parametric and nonparametric approaches. In our experiment, we show that the interval-valued estimate of the VaR we obtain is likely to lead to more careful decision, i.e., decisions that cannot be biased by an arbitrary choice of the computation method. In fact, the imprecision of the obtained interval-valued estimate is likely to be representative of the uncertainty in VaR estimate.

Restructuring rural financial market for agricultural growth in Nigeria

Abstract. All developing economies require a sophisticated financial system, which incorporates both the financial institutions and financial market. These institutions and market exist to mediate between those who wish to save or lend and those who wish to borrow or invest. This basic rationale seems complex, since offering new types of financial instruments which can reduce transaction cost in the face of highly risky and challenging agricultural business coupled with the urgent quest for revitalization of agricultural sector for meaningful growth and development is needed. This paper searches the missing link between financial sector and agricultural growth in Nigeria between 1996Q1 and 2017Q4. The study adopts Autoregressive Distributed Lag (ARDL) Bounds testing approach developed by Pesaran, Shin and Smith (2001) in estimating the relevant relationship. The results of the long run estimates show that agricultural credit, money markets, capital markets, exchange rate have positive relationship with agricultural growth in Nigeria, while expected inflation has negative impact on agricultural growth in the long run. The results of the short run dynamics of (one lagged) of variables shows negative impacts on agricultural growth, whereas the lagged two of the variables shows positive impacts on agricultural growth in the short run. The study recommends that the policy makers need to restructure the financial sector to influence agricultural credit as mandate to rescue the agricultural sector from this unimpressive growth. Keywords. Financing, Agriculture, Exchange rate, Growth. JEL. L00, L16, F31.

Reducing Social Welfare by Making Financial Markets More Complete: Implications for the 2008 Crisis

In the two decades leading up to the 2008 financial crisis, numerous significant changes in federal law greatly reduced transactions costs in financial markets and made possible new types of trading in new types of financial instruments. The driving policy assumption behind these and similar regulatory changes was that making financial markets more complete would increase social welfare by moving financial markets closer toward Arrow-Debreu. In this paper, we present a model that can explain why, contrary to this policy assumption, regulatory changes that made financial markets more complete in the years leading up to 2008 seemed to produce the opposite effect. Our model shows how when agents have heterogeneous expectations, making financial markets more complete can reduce social welfare by increasing aggregate risk; reducing aggregate returns; and skewing perceptions of wealth in ways that inefficiently distort aggregate consumption decisions, causing agents to over-consume in some periods so that they are forced to cut back consumption sub-optimally in subsequent periods. The intuition underlying our model is that when agents have heterogeneous expectations, making markets for financial instruments more complete amplifies the magnitude of the “winner’s curse” observed in many common-value auctions with the detrimental welfare effects we describe. This paper remains in draft form because of the untimely death of the first author. The second author is posting it to honor her memory and to share what is some of her last work. She will be missed.

Dilutive Securities and Earnings Per Share

The purpose of this article is to discuss the proper accounting for stock-based compensation. In addition, issues related to other types of financial instruments, such as convertible securities, warrants, and contingent shares, including their effects on reporting earnings per share.

THE FEASIBILITY AND RISKS OF INVESTING IN MODERN FINANCIAL INSTRUMENTS

Relevance of the article is that the post–crisis economic recovery and the rapid development of European integration are both – a cause and a consequence of higher investment activity, which causes the expansion of the frontiers of the use of financial instruments while increasing the their riskiness in the current economic conditions. The dynamics of sales of financial instruments used in the investment process in the financial market of Ukraine, such as stocks, corporate bonds, government bonds of Ukraine, local bonds, savings certificates, certificates of deposit of the National Bank of Ukraine, investment certificates, mortgage bonds, option certificates, derivatives. The types of risks inherent to all modern financial instruments and specifies types of risks that are specific to certain types of financial instruments are shown.The advantage of investing in certain types of financial instruments is grounded. The directions of risk reduce in exposure of investment in modern financial instruments, such as diversification (by type of instrument, the currency of a financial instrument, the countries issue a financial instrument, capitalization and sector of the issuer of financial instruments) and investment taking into account the time interval investment are offered. The main idea of the article was to prove the rationale for investing assets in financial instruments with simultaneous identification of risks that accompany this process, for finding out the ways to minimize them in the future.

Weather Derivatives in Russia: Farmers’ Insurance against Temperature Fluctuations

This project proposes the use of weather derivatives, a type of financial instrument with a payout based on weather conditions, as a method for Russian farmers to hedge against daily temperature fluctuations. We created a weather derivative simulation tool in Microsoft Excel that calculates the effect of temperature on crop yield and then analyzes how the return of weather derivatives can potentially compensate for crop loss. Based on this tool, we developed a series of recommendations to help implement this system of protection with real users.

ОСОБЛИВОСТІ БУХГАЛТЕРСЬКОГО ОБЛІКУ ОКРЕМИХ ФІНАНСОВИХ ІНСТРУМЕНТІВ НА ПРИКЛАДІ ФОРВАРДНИХ КОНТРАКТІВ

In modern business conditions, in particular, during the pandemic caused by the COVID-19 virus, companies are looking for financial instruments that will ensure their stable operation for a long period of their operation. One of the types of financial instruments used in the daily activities of grain traders is the conclusion of forward contracts. This in turn gives the buyer a guarantee that in the future he will be able to buy the product at a fixed price, which is specified in the forward contract, and the seller gives a guarantee that his product will be sold. The purpose of the article is to highlight the features of accounting for certain financial instruments, including forward contracts. The materials of the study are: 1) domestic legislation on the organization and methods of accounting for financial instruments, including forward contracts; 2) works of domestic authors conducting their scientific and practical research in the field of accounting for financial instruments, in particular forward contracts; 3) Scopus database for bibliometric analysis regarding the selection of the authors' publication activity on the accounting of financial instruments using VOSviewer software. During the research such methods as theoretical generalization, formalization and analysis, logical generalization of results were used. Practical recommendations are given on the choice of accounting policy as an element of it as a date of recognition of financial assets acquired as a result of systematic operations. Correspondence of accounts on reflection in the journal of the account of economic operations of the enterprise on display of performance of the forward contract with their corresponding documentation on a numerical example is offered. Further research is proposed to focus on the peculiarities of accounting for futures transactions, which are a type of financial instrument.

The Legal Regulation of U.S. Crowdfunding: An Organically Evolving Patchwork

The legal regulation of crowdfunding in the United States is neither well calibrated nor holistic. With the exception of specific securities regulation legislation, the regulation of crowdfunding under U.S. law exists as an extension of principles of pre-existing regulation to a specific new and continually changing Internet-based financing space. As a result, while some common consumer protection objectives can be identified, the legal regulatory approach to crowdfunding did not develop through deliberate, rational choice based on coherent public policy objectives. Instead, it arose and evolved by necessity in response to the spontaneous and natural origination and development of crowdfunding as a socioeconomic phenomenon. As a general matter, U.S. law regulates crowdfunding based on the deemed nature of the financial interest of the funder. Some funders expect nothing back in return for their contribution to a crowdfunding campaign; others expect a good, service, or possible financial return. Each of these funding interests is governed by distinct rules operating, most prominently, to protect the funder from certain elements of risk. Regulation of these various types of offering also may have the objective of fostering or encouraging that particular type of financial instrument or method of financing. Accordingly, it is important to identify various types of crowdfunding in the United States based on the nature of the applicable funding interest and the various manners in which crowdfunding is engaged to best understand how crowdfunding is regulated under U.S. law. This report, written in anticipation of the The XXth International Congress of the International Academy of Comparative Law (to be held in 2018 in Fukuoka, Japan), begins by identifying and defining types of crowdfunding that engage U.S. legal regulation. It continues by briefly describing the legal regulation applicable to each type. This represents the bulk of the report. Finally, before concluding, the report highlights a few additional legal regulatory risks and considerations in U.S. crowdfunding.

International Experience of Infrastructure Projects Financing

The article examines practical experience of financing of infrastructure projects in the US, Australia, Chile, China, India and Kazakhstan. The author points out the specifics of the circulation of infrastructure bonds. Financing of infrastructure projects through bonds has both advantages and disadvantages. In the world practice, there are examples of successful application of the mechanism of issuing infrastructure bonds in order to finance real projects. In the US, infrastructure bonds are issued at the municipal level and are called special purpose bonds. In recent years, financing of infrastructure projects is actively developing in the world practice due to corporatization. In order to attract investments, infrastructure funds are being created in countries with developed economy that already account for 2% of the total investment funds. The world largest investor in the development of transport infrastructure is China which invests amounts equivalent to 8% of the national GDP in infrastructure projects. In the system of financing of the transport infrastructure facilities in India, the main focus is on private capital. The share of the state budget funds and government loans in the volume of the infrastructure investments is a little more than 35%. Today, imperfection of the legal mechanism obstructing an effective implementation of this type of financial instruments is a serious problem as regards the introduction of infrastructure bonds in Russia. The author brings forth recommendations for adoption of infrastructure bonds in the Russian financial market. The international experience of using bonds to finance the construction and modernization of transport infrastructure allows us to assert that this channel of attracting investments is the most promising for Russia.

The impact of risk modeling on the market perception of banks’ estimated fair value gains and losses for financial instruments

We examine whether and how measures of market and credit risk modeling identified from banks’ financial reports enhance the returns-relevance of their estimated annual unrealized fair value gains and losses for financial instruments. To capture differences in market liquidity and fair valuation difficulties across types of financial instruments, we distinguish unrealized gains and losses that are recorded in net income versus recorded in other comprehensive income versus calculable using financial statement note disclosures. We predict and generally find that banks’ market (credit) risk modeling enhances the returns-relevance of their unrealized fair value gains and losses, more so for less liquid instruments subject to greater market-risk-related (credit-risk-related) valuation difficulties and during periods for which market (credit) risk is higher. We obtain these findings both for banks’ unadjusted risk modeling measures and for the portions of these measures that we model as attributable to banks’ risk modeling activities, but not for the portions we model as attributable to banks’ disclosure of these activities.

Local Stochastic Volatility Models: Calibration and Pricing

We analyze in detail calibration and pricing performed within the framework of local stochastic volatility LSV models, which have become the industry market standard for FX and equity markets. We present the main arguments for the need of having such models, and address the question whether jumps have to be included. We include a comprehensive literature overview, and focus our exposition on important details related to calibration procedures and option pricing using PDEs or PIDEs derived from LSV models. We describe calibration procedures, with special attention given to usage and solution of corresponding forward Kolmogorov PDE/PIDE, and outline powerful algorithms for estimation of model parameters. Emphasis is placed on presenting practical details regarding the setup and the numerical solution of both forward and backward PDEs/PIDEs obtained from the LSV models. Consequently we discuss specifics (based on our experience and best practices from literature) regarding choice of boundary conditions, construction of nonuniform spatial grids and adaptive temporal grids, selection of efficient and appropriate finite difference schemes (with possible enhancements), etc. We also show how to practically integrate specific features of various types of financial instruments within calibration and pricing settings. We consider all questions and topics identified as most relevant during the selection, calibration and pricing procedures associated with local stochastic volatility models, providing answers (to the best of our knowledge), and present references for deeper understanding and for additional perspectives. In a nutshell, it is our intention to present here an effective roadmap for a successful LSV journey.

Filling the funding gap: university-oriented seed funds in Europe

This study addresses the problem of the funding gap that characterizes technology transfer activities by investigating a particular type of financial instrument, namely, university-oriented seed funds (USFs) that seek to sustain technology transfer and spin-offs from universities and public research centers. In addition to defining and classifying the investment focus and possible linkages and collaborations of universities and research centers, this study offers empirical evidence about these funds in comparison with others and their portfolio companies. Data pertaining seventy-three USFs and a matched control group of two hundred and eight venture capital funds, with one thousand five hundred and twenty-six portfolio companies (six hundred and fifty USF-backed, eight hundred and seventy-six non-USF-backed) shed light on the characteristics of each type of funds and related companies. The results also suggest key implications for practice and avenues for further research.

Integrated Strategic Planning of Global Production Networks and Financial Hedging under Uncertain Demands and Exchange Rates

AbstractIn this paper, we present a multi-stage stochastic programming model that integrates financial hedging decisions into the planning of strategic production networks under uncertain exchange rates and product demands. This model considers the expenses of production plants and the revenues of markets in different currency areas. Financial portfolio planning decisions for two types of financial instruments, forward contracts and options, are represented explicitly by multi-period decision variables and a multi-stage scenario tree. Using an illustrative example, we analyze the impact of exchange-rate and demand volatility, the level of investment expenses and interest rate spreads on capacity location and dimensioning decisions. In particular, we show that, in the illustrative example, the exchange-rate uncertainty cannot be completely eliminated by financial hedging in the presence of demand uncertainty. In this situation, we find that the integrated model can result in better strategic planning decisions for a risk-averse decision maker compared to traditional modeling approaches.

SOCIAL ENTREPRENEURSHIP: CHALLENGE NOT ONLY FOR DEVELOPING COUNTRIES BUT ALSO FOR THE EU

Social enterprises (businesses) represent an emerging sector not only in developing countries but also in the EU. The deepening of social problems associated with high unemployment of graduates, persons at age over 50 years and other vulnerable groups in the labour market brings new impulses for designing public policy and development of cooperation between the different actors (role of NGOs, financial intermediaries, local authorities, etc). The paper focuses on the environment analysis - regulatory approaches, forms and types of support, quality of financial services at European level and states and regions from Western, Central and Northern Europe, involved in the learning Network for Better Future of Social Economy. We can say, the status of the social economy and opportunities are different in each country as a result of reflection of value orientation of society, the quality of the environment. However, it is possible to identify common problems and typical ways to support social economy. It means to overcome lack of co-operation between financial sector, NGOs and public sector inproviding funding for social enterprises, to provide mix of private and public funds in order to solve problem connected with funds insufficiency. It is necessary to set up integrated support schemes allowing the use of various types of financial instruments (grant mechanisms, loans using financial engineering instruments). It is necessary to couple the investment in social enterprises with investment in human capital.