Global Financial System

INTRODUCTION
Financial service refers to the participants of financial services and markets along with the regulatory mechanism. Financial service comprise of assisting in sourcing of funds (intermediation), funding, advising and procedural assistance in deployment of fund.

Global Financial System

The global financial system (GFS) is the financial system consisting of institutions and regulators that act on the international level, as opposed to those that act on a national or regional level.

History
The history of financial institutions must be differentiated from economic history and history of money. In Europe, it may have started with the first commodity exchange, the Bruges Bourse in 1309 and the first financiers and banks in the 15th17th centuries in central and western Europe. The first global financiers the Fuggers (1487) in Germany; the first stock company in England (Russia Company 1553); the first foreign exchange market (The Royal Exchange 1566, England); the first stock exchange (the Amsterdam Stock Exchange 1602). Milestones in the history of financial institutions are the Gold Standard (1871 1932), the founding of the International Monetary Fund (IMF) and World Bank at Bretton Woods 1944, and the abandonment of fixed exchange rates in 1973.

The main players are the global institutions are: Supranational Institutions:

o o o o o

International Monetary Fund Bank for International Settlements World Trade Organization World Bank United Nations Conference on Trade and Development

Regional Cooperation: o South Asian Association for Regional Co-op o Organization of petroleum Exporting Countries o Association of Southeast Asian Nations o South Asian Free Trade Area o North American Free Trade Agreement o European Union

International Monetary Fund

The IMF works to foster global growth and economic stability. It provides policy advice and financing to members in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty. The IMF promotes international monetary cooperation and exchange rate stability, facilitates the balanced growth of international trade, and provides resources to help members in balance of payments difficulties or to assist with poverty reduction. The IMF works with other international organizations to promote growth and poverty reduction. It also interacts with think tanks, civil society, and the media on a daily basis. The IMF, or International Monetary Fund, is an organization of 187 member countries. Their goal is to work with the Fund to stabilize the global economy by cooperating in practices which achieve that aim. Ideally, these countries are willing to forfeit some of their sovereign authority if it is necessary to strengthen the global economy. In return, the IMF helps its members by:

Surveying global economic conditions. Advising member countries on methods to improve their economy.

Providing short-term loans to avoid currency instability. Since the IMF does lend money, it is often confused with the World Bank. The Bank's purpose is to lend money to developing countries for specific projects that will fight poverty. The IMF, on the other hand, only provides loans if it will help prevent a global economic crisis. Its overall goal is to prevent these crises through guidance to, and cooperation among, its members. Importance of the IMF: The importance of the IMF has increased since the onset of the 2008 global financial crisis. In fact, an IMF surveillance report warned about the economic crisis, but was ignored. As a result, the IMF has been called upon more and more to provide global economic surveillance. It's in the best position to do so because its requires members to subject their economic policies to IMF scrutiny. Member countries also committed to pursue policies that are conducive to reasonable price stability, and avoid manipulating exchange for unfair competitive advantage History of the IMF: The International Monetary Fund (IMF), like the World Bank, was conceived at the Bretton Woods conference that sought to rebuild Europe after World War II. Unlike the Bank, its goal was to help countries maintain the value of their currencies without resorting to trade barriers and high interest rates. These were seen as a major cause of the Great Depression.

Membership The IMF has 187 member countries. It is a specialized agency of the United Nations but has its own charter, governing structure, and finances. Its members are represented through a quota system broadly based on their relative size in the global economy. Functions Surveillance over Members Economic Policies Financing Temporary Balance of Payments Needs Dissemination of Information and Research Building Capacity through Technical Assistance and Training

Increasing the Global Supply of International Reserves Strengthening the International Monetary System Mobilizing External Financing Combating Poverty in Low-Income Countries

Our Work The IMF's fundamental mission is to help ensure stability in the international system. It does so in three ways: keeping track of the global economy and the economies of member countries; lending to countries with balance of payments difficulties; and giving practical help to members. Surveillance The IMF oversees the international monetary system and monitors the financial and economic policies of its members. It keeps track of economic developments on a national, regional, and global basis, consulting regularly with member countries and providing them with macroeconomic and financial policy advice. Technical Assistance To assist mainly low- and middle-income countries in effectively managing their economies, the IMF provides practical guidance and training on how to upgrade institutions, and design appropriate macroeconomic, financial, and structural policies. Lending The IMF provides loans to countries that have trouble meeting their international payments and cannot otherwise find sufficient financing on affordable terms. This financial assistance is designed to help countries restore macroeconomic stability by rebuilding their international reserves, stabilizing their currencies, and paying for importsall necessary conditions for re-launching growth. The IMF also provides concessional loans to low-income countries to help them develop their economies and reduce poverty.

The Top the Agenda:

Reinforcing multilateralism Rethinking macroeconomic principles Stepping up crisis lending Strengthening the international monetary system Supporting low-income countries

World Trade Organization

The International trade is based on multilateral trading system. It is a system involving trade amongst various countries. It is therefore, necessary that the rules and regulation of such system are properly defined. In the year 1947, an attempt was made by 23 countries in the world to define the basic norms for conduct of international trade. The trade negotiation amongst these 23 countries in multilateral treaty called General Agreement on Traffic and Trade (GATT) in the year 1948. The GATT was established to secure the conduct of international trade based on the principles of non-discrimination, transparency and liberalization. The GATT 1994 is being implemented with effect from 1 of January 1995 when the very first agreement regarding the establishment of world trade organization (WTO) was established. Thus the World Trade Organization (WTO) held its last round of international trade negotiation at Doha in July 2006. At present 151 countries are member of World Trade Organization (WTO). The World Trade Organization (WTO), established on 1 January 1995, is the legal and institutional foundation of the multilateral trading system. It provides the principal contractual obligations determining how governments frame and implement domestic trade legislation and regulations. And it is the platform on which trade relations among countries evolve through collective debate, negotiation and adjudication. The WTO is the embodiment of the results of the Uruguay Round trade negotiations and the successor to the General Agreement on Tariffs and Trade (GATT)

Objective of World Trade Organization (WTO) * To ensure the conduct the international trade on non-discrimination basis. * To raise standard of living and income, ensuring full employment. * To expend production and trade

* Protecting environment * Ensuring better share for developing countries. Function of World Trade Organization (WTO) * Administering World Trade Organization (WTO) trade agreement * Forum the trade negotiation * Handling trade disputes * Monitoring national trade policy * Technical assistance and training for developing countries * Co-operation with other international organization (like help from World Bank and IMF) Legal framework of World Trade Organization (WTO) * Protection through import traffic * Reduction in traffic and binding against further increase * Conduct of trade according to M.F.N. clauses * Commitment to national treatment rule.

Key Principles Trade without discrimination. Under the "most-favoured nation" (MFN) clause, members are bound to grant to the products of other members no less favourable treatment than that accorded to the products of any other country. The provision on "national treatment" requires that once goods have entered a market, they must be treated no less favourably than the equivalent domestically-produced good. Predictable and growing access to markets. While quotas are generally outlawed, tariffs or customs duties are legal in the WTO. Tariff reductions made by over 120 countries in the Uruguay Round are contained in some 22,500 pages of national tariff schedules which are considered an integral part of the WTO. Tariff reductions, for the most part phased in over five years, will result in a 40 per cent cut in industrial countries' tariffs in industrial products from an average of 6.3 per cent to 3.8 per cent. The Round also increased the percentage of bound product lines to nearly 100 per cent for developed nations and countries in transition and to 73 per cent for developing countries. Members have also undertaken an initial set of

commitments covering national regulations affecting various services activities. These commitments are, like those for tariffs, contained in binding national schedules. Promoting fair competition. The WTO extends and clarifies previous GATT rules that laid down the basis on which governments could impose compensating duties on two forms of "unfair" competition: dumping and subsidies. The WTO Agreement on agriculture is designed to provide increased fairness in farm trade. That on intellectual property will improve conditions of competition where ideas and inventions are involved, and another will do the same thing for trade in services. Encouraging development and economic reform. GATT provisions intended to favour developing countries are maintained in the WTO, in particular those encouraging industrial countries to assist trade of developing nations. Developing countries are given transition periods to adjust to the more difficult WTO provisions. Least-developed countries are given even more flexibility and benefit from accelerated implementation of market access concessions for their goods.

World Bank
Introduction The World Bank provides financial and technical assistance to emerging market countries. The World Bank is not actually a bank in the common sense. Instead, it consists of two development institutions -- the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA)-- owned by 186 member countries. The Bank is closely affiliated with three other organizations --the International Finance Corporation (IFC), the Multilateral Guarantee Agency (MIGA), and the International Centre for the Settlement of Investment Disputes (ICSID) -- that support its goal of reducing worldwide poverty. The five organizations make up the World Bank Group. Purpose of the World Bank The World Bank provides low-interest loans, interest-free credits and grants to developing countries. In the past, this usually occurred when they were in danger of sovereign debt default, itself often a result of overspending and extensive

borrowing. Many countries then devalued their currencies, which resulted in hyperinflation. To combat this, the Bank often required austerity measures, where the country must agree to cut back on spending and support its currency. The World Bank loans are usually to invest in education, health, and infrastructure. The loans can also be used to modernize a country's financial sector, agriculture, and natural resources management. The Bank's goal is to "bridge the economic divide between poor and rich countries, to turn rich country resources into poor country growth and to achieve sustainable poverty reduction." To achieve this goal, the Bank focuses on six areas: 1. Overcome poverty by spurring growth in the poorest countries, focusing on Africa. 2. Offer reconstruction to poor countries emerging from war, a major contributing factor to extreme poverty. 3. Provide a customized development solution to help those middle-income countries overcome problems that could throw them back into poverty. 4. Spur governments to act on preventing climate change, controlling communicable diseases, (especially HIV/AIDS and malaria), managing international financial crises, and promoting free trade. 5. Work with the League of Arab States to improve education, build infrastructure and provide micro-loans to small businesses in the Arab world. 6. Share its expertise with developing countries, and its knowledge with anyone via reports and its interactive online database. History The World Bank was created at Bretton Woods in 1944 to lend to European countries to help them rebuild after World War II. It was the world's first multilateral development bank, and was funded through the sale of World Bonds. Its first loans were to France and other European countries, but soon lent money to Chile, Mexico and India to build power plants and railways. By 1975, the Bank also lent money to countries to help with family planning, pollution control and environmentalism. Statistics and Reports The World Bank provides a wealth a downloadable data for more than 200 countries. In 2010, the Bank launched a new Open Data website. It provides free access to 298 major indicators, including Climate change, the environment and energy,

Health, such as life expectancy, Urban development and infrastructure, Labor, income and education, Government, economic policy and sovereign debt, Demographics such as poverty, gender and aid effectiveness, Business, agriculture and financial areas. The Bank also does in-depth analyses of development issues, including the annual World Development Report. A variety of research reports examine global trends in trade, financial flows, and commodity prices, and their impacts on developing countries. Other reports include the World Development Indicators, Global Development Finance, Little Data Book, Little Green Data Book and The World Bank Atlas.

Organization of the Petroleum Exporting Countries, OPEC

The Organization of the Petroleum Exporting Countries (OPEC) is a permanent intergovernmental organization, currently consisting of 12 oil producing and exporting countries, spread across three continents America, Asia and Africa. The members are Algeria, Angola, Ecuador, the Islamic Republic of Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates & Venezuela. These countries have a population of more than 408 million and for nearly all of them; oil is the main marketable commodity and foreign exchange earner. Thus, for these countries, oil is the vital key to development economic, social and political. Their oil revenues are used not only to expand their economic and industrial base, but also to provide their people with jobs, education, health care and a decent standard of living. The organizations principal objectives are: 1. To co-ordinate and unify the petroleum policies of the Member Countries and to determine the best means for safeguarding their individual and collective interests; 2. To seek ways and means of ensuring the stabilization of prices in international oil markets, with a view to eliminating harmful and unnecessary fluctuations; and 3. To provide an efficient economic and regular supply of petroleum to consuming nations and a fair return on capital to those investing in the petroleum industry.

Since oil revenues are so vital for the economic development of these nations, they aim to bring stability and harmony to the oil market by adjusting their oil output to help ensure a balance between supply and demand. Twice a year, or more frequently if required, the Oil and Energy Ministers of the OPEC Members meet to decide on the Organization's output level, and consider whether any action to adjust output is necessary in the light of recent and anticipated oil market developments. OPEC's eleven Members collectively supply about 40 per cent of the world's oil output, and possess more than three-quarters of the world's total proven crude oil reserves. OPEC was formed at a meeting held on September 14, 1960 in Baghdad, Iraq, by five Founder Members: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. OPEC was registered with the United Nations Secretariat on November 6, 1962 (UN Resolution No 6363). OPEC Member Countries:
Country Algeria Angola Ecuador ** IR Iran * Iraq * Kuwait * Libya Nigeria Qatar Joined OPEC 1969 2007 rejoined 2007 1960 1960 1960 1962 1971 1961 Location Africa Africa South America Middle East Middle East Middle East Africa Africa Middle East

Saudi Arabia * United Arab Emirates Venezuela*

1960 1967 1960

Middle East Middle East South America

* founder Members ** Ecuador joined OPEC in 1973, suspended its membership from Dec. 1992Oct. 2007 Functions: Representatives of OPEC Member Countries (Heads of Delegation) meet at the OPEC Conference to co-ordinate and unify their petroleum policies in order to promote stability and harmony in the oil market. They are supported in this by the OPEC Secretariat, directed by the Board of Governors and run by the Secretary General, and by various bodies including the Economic Commission and the Ministerial Monitoring Committee. The Member Countries consider the current situation and forecasts of market fundamentals, such as economic growth rates and petroleum demand and supply scenarios. They then consider what, if any, changes they might make in their petroleum policies. For example, in previous Conferences the Member Countries have decided variously to raise or lower their collective oil production in order to maintain stable prices and steady supplies to consumers in the short, medium and longer term. OPEC-1973 oil crisis The 1973 oil crisis started in October 1973, when the members of OPEC plus Egypt, Syria and Tunisia) proclaimed an oil embargo. This was "in response to the U.S. decision to re-supply the Israeli military" during the Yom Kippur war. the Arab members of OPEC, led by Saudi Arabia, decided to reduce oil production by 5% per month on October 17. It lasted until March 1974. On October 19, President Nixon authorized a major allocation of arms supplies and $2.2 billion in appropriations for Israel. In response, Saudi Arabia declared an embargo against the United States, later joined by other oil exporters and extended against the Netherlands and other states, causing the 1973 energy crisis.

South Asian Association for Regional Cooperation (SAARC)

-AFGANISTAN NEPAL BANGLADESH MALDIVES BHUTAN INDIA

PAKISTAN

SRI LANKA

is an organization of South Asian nations Dedicated to economic, technological, social, and cultural development emphasizing collective self-reliance Its seven founding members are Sri Lanka, Bhutan, India, the Maldives, Nepal, Pakistan, and Bangladesh. Afghanistan joined the organization in 2005. Meetings of heads of state are usually scheduled annually; meetings of foreign secretaries, twice annually. It is headquartered in Kathmandu, Nepal. Objectives The objectives of the Association as defined in the Charter are ;

to promote the welfare of the people of South Asia and to improve their quality of life; to accelerate economic growth, social progress and cultural development in the region and to provide all individuals the opportunity to live in dignity and to realize their full potential; to promote and strengthen selective self-reliance among the countries of South Asia; to contribute to mutual trust, understanding and appreciation of one another's problems; to promote active collaboration and mutual assistance in the economic, social, cultural, technical and scientific fields; to strengthen cooperation with other developing countries;

to strengthen cooperation among themselves in international forums on matters of common interest; and to cooperate with international and regional organizations with similar aims and purposes.

Principles The principles are:

Respect for sovereignty, territorial integrity, political equality and independence of all members states Non-interference in the internal matters is one of its objectives Cooperation for mutual benefit All decisions to be taken unanimously and need a quorum of all eight members All bilateral issues to be kept aside and only multilateral(involving many countries) issues to be discussed without being prejudiced by bilateral issues

South Asian Free Trade Area Over the years, the SAARC members have expressed their unwillingness on signing a free trade agreement. Though India has several trade pacts with Maldives, Nepal, Bhutan and Sri Lanka, similar trade agreements with Pakistan and Bangladesh have been stalled due to political and economic concerns on both sides. In 1993, SAARC countries signed an agreement to gradually lower tariffs within the region, in Dhaka. Eleven years later, at the 12th SAARC Summit at Islamabad, SAARC countries devised the South Asia Free Trade Agreement which created a framework for the establishment of a free trade area covering 1.6 billion people. This agreement went into force on January 1, 2006. Under this agreement, SAARC members will bring their duties down to 20 per cent by 2009.