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The relationship between economic growth and financial sector development
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Introduction: A safe financial system is central to the development and successful market economy, and an essential condition for growth and stability of the economy as a whole. This system is the basis for mobilizing and distributing savings and facilitates its daily operations. Therefore, it is extremely important to create a sound financial system. After creation of a well established financial system, money and capital markets can develop especially primary and secondary markets of national government securities. The financial system has a significant impact on GDP growth and its main part - the national income on development of enterprises and sectors of the economy, and financial situation of the general population. Currently the financial system of all countries is the subject of discussion and debate. This work will provide a discussion about financial system of the Russian Federation. The Russian financial system is directly linked to the formation, distribution and use of centralized and decentralized funds of state, enterprises, organizations and other entities to perform functions and tasks of the state. Construction of the financial system is the main aim of financial policy of the country. The key purpose of this policy is competent structuring parts of the financial system, the distribution between their tasks and functions, the redistribution of funds between these parts, monitoring their work. This work outlines the main features of Russian financial system in a whole, and describes the main elements with their problems and recommendations. Literature review: Currently, financial system is central to the development and successful market economy and a necessary condition for growth and stability of ... ... middle of paper ... ...tility in U.S. Treasury benchmarks and debt instruments’ Econometric Reviews, 28 (5), pp. 522–554 Hutchinson, M., and Swann, C. (2011) ‘Risk-Free Assets, Undermined’ The New York Times, 27/07/2011, p. B2 [Online] Available from: http://www.nytimes.com/2011/07/27/business/risk-free-assets-undermined.html?_r=3 [Accessed: 28 November 2011] Ma, C., Tchen, T., Smith, T., Macnamara A. (2011) ‘The ‘risky’ risk-free rate: does the downgrade of US sovereign debt change commonly-used valuation approaches?’ pp. 1 – 4 [Online] Available from: http://www.hl.com/email/pdf/FW_Sep2011.pdf [Accessed: 27 November 2011] Nemethy L. (2011) ‘When the risk-free rate is no longer risk-free’ Warsaw Business Journal, 26/07/2011 [Online] Available from: http://www.wbj.pl/blog/Corporate_Finance/post-296-when-the-risk-free-rate-is-no-longer-risk-free.htm [Accessed: 27 November 2011]
The net values of Belarus imported goods and services from other countries exceeded its export of goods and service to other countries creating a large Current Account Deficit. The reason Belarus a former Soviet republic scraped the currency trading restriction is due to the fact its political leadership allowed the Belarus national currency ruble to depreciate as part of a strategy to reduce the current account deficit. The unification of the exchange rates will allow the currency market ability to function as before. The overheated economy under a loose monetary policy created this crisis and the difficulties will be overcome by abolishing the restriction on currency trading. The political promise of 50% increase in wages to the government workers have impacted with no real values other than buying foreign currency and goods. According to Arkhipov and Abelsky (2011), abolishing the currency trading restriction is necessary given the current practice of doin...
The Minister of Finance was Sergei Witte was conscious of the inadequate conditions the people of Russia lived under. As previously stated, there was an agricultural deficit and industrially, Russia was one of the “lowest among European nations and poor transportation and communication caused delays that hurt the economy.” Witte understood that Russia’s industrialization was vital; during Nicholas II’s reign he came up with a number of reforms such as protective tariffs on foreign goods, foreign investments, and also managed to put the Russian currency on the gold standard. Regrettably, the low wages, the high taxes and the agricultural deficit caused an immense opposition towards the
After a generation of portfolio managers and investors profiting from decades of favorable returns on stocks, they believed the modern economy was impervious to major calamities (“Rethinking” 20). As inflation rates fell from record highs in the late 1970s and early 1980s to the record lows that they are today, interest rates followed, enabling Americans to borrow more money from lenders which, in turn, increased housing prices to all-time highs (“Rethinking” 21).
Sergei Witte was the Minister of Finance from 1892 to 1903, his aim was to modernise Russia’s economy to a level on par with other advanced western nations (such as England and France). To do such a great task Witte needed a plan of action, so he took the ideas of Western states and formed several economic policies. These policies are seen to be very successful in Russia’s economic reform, but to what extent.
Russia, a vast country with a wealth of natural resources, a well, educated population, and diverse industrial base, continues to experience, formidable difficulties in moving from its old centrally planned economy to a modern market economy. President Yeltsin's government has made substantial strides in converting to a market economy since launching its economic reform program in January 1992 by freeing nearly all prices, slashing defense spending, eliminating the old centralized distribution system, completing an ambitious voucher privatization program, establishing private financial institutions, and decentralizing trade. Russia, however, has made little progress in a number of key areas that are needed to provide a solid foundation for the transition to a market economy.
The Federal Reserve System was founded by Congress in 1913 to be the central bank of the United States. The Federal Reserve System was founded to be a safer, more flexible, and more stable monetary financial system. Over the years, the role of the Federal Reserve Board and its influence on banking and the economy has increased. Today, the Federal Reserve System's duties fall into four general categories. Firstly, the FED conducts the nation's monetary policy. The FED controls the monetary policy by influencing credit conditions in the economy. The FED measures its success in accomplishing these goals by judging whether or not the economy is at full employment and whether or not prices are stable. Not only does the FED control monetary policy by influencing credit conditions in the economy, it also supervises and regulates banking institutions to ensure the safety and soundness of the nation's banking and financial system. The FED protects the credit rights of consumers. Thirdly, the FED maintains the stability of the financial system by controlling the risk that may arise in financial markets. Fourthly, it is also the Federal Reserve System's responsibility to provide certain financial services to the U.S. government, to the public, to financial institutions, and to foreign official institutions, including playing a major role in operating the nation's payments system. Before Congress created the Federal Reserve System, periodic financial panics had plagued the nation. These panics had contributed to many bank failures, business bankruptcies, and general economic downturns. A particularly severe crisis in 1907 prompted Congress to establish the National Monetary Commission, which put forth proposals ...
Wright Mills wrote that the main domains of the power elite were political, economic and military spheres. However, as many years have gone since Mills proposed this model, now it has become a little bit outdated. Since Mills lived in the period of consecutive wars, he has decided that military forces played an important role in governing the country. Even though Russia have some political conflicts with Ukraine, recently military service was removed from a “contract” created between the Russian elite. The professor of Political Science Anton Steen argues that the alliances between military-industrial complex and political sector, which were strongly integrated in the Soviet Union system, now have become much weaker. Recently, there are two cooperating systems: CEOs of the large corporations and the governmental officials. As Steen stated financial groups cannot afford a full independence from the Russian political power. On the execute level, these two cooperated groups are comprised by presidential administrators, bankers, CEOs of industrial corporations, local and high-ranked governmental
Disappointment in financial risk management takes various structures, the greater part of which are exemplified in the present emergency. For instance, risk appraisals are regularly taking into account chronicled information, for example, changes in house costs after some time. Yet, fast financial advancement, including securitized subprime contracts, has made such information untrustworthy. Also, a few risks are missed on the grounds that they are covered up in excessively complex reports that leaders cannot get it (Stoian & Stoian, 2016).
U.S. financial markets assume a vital part in helping the wellbeing and productivity of the economy, businesses, and individuals. There is a solid relationship between the soundness of the economy and budgetary business improvement and monetary development, resulting in the slightest change in financial markets greatly affecting the economy, businesses, and individuals. Financial markets influences the increase in capital, removes the risk of subsidiaries, and liquidity in currency markets. When the monetary markets are doing admirably, "firm-level, industry-level, and cross country considers all propose that the level of money related advancement applies an expansive, positive effect on financial development." (MIT, 2001)
If financial markets are instable, it will lead to sharp contraction of economic activity. For example, in this most recent financial crisis, a deterioration in financial institutions’ balance sheets, along with asset price decline and interest rate hikes increased market uncertainty thus, worsening what is called ‘adverse selection and moral hazard’. This is a serious dilemma created before business transactions occur which information is misleading and promotes doing business with the ‘most undesirable’ clients by a financial institution. In turn, these ‘most undesirable’ clients later engage in undesirable behavior. All of this leads to a decline in economic activity, more adverse selection and moral hazards, a banking crisis and further declining in economic activity. Ultimately, the banking crisis came and unanticipated price level increases and even further declines in economic activity.
Keogh, Bryan. "The Trouble with Catastrophe Bonds." Www.businessweek.com. Bloomberg Businessweek Magazine, 21 Apr. 2011. Web. 27 Oct. 2013. .
A strong financial system was formed through agriculture, trading, and the production of art. They share except...
Russian Crime organizations have grown to a high number since the end of the Cold War. The Nuclear Black market is no stranger to the Russian Mafia. Russia may be poised to sell nuclear weapons to the highest bidder as organized crime expands its influence in Russian society (Phinney). Some of the 200 Russian organized crime groups now operate worldwide, including in the United states and gaining the ability to manipulate its banking system and financial markets (Phinney). Roughly two-thirds of Russia’s economy is under sway of crime syndicates, and protection rackets have been the norm since the collapse of communism(Phinney). The Russian Mafia and the antifada
Money supply is the availability of money in the hands of the public (economy) that can be used to purchase goods, services and securities. In macroeconomics, the price of money is equivalent to the rate of interest. There's an inverse relationship between money supply and interest rates. As money supply increases, interest will decrease. On the other hand, interest will increases as money supply decreases. It is very important to understand that the economy works at market equilibrium. There are several factors affecting money supply; and these contributing factors will be the main focus of this paper. Understanding the basic principle on money supply is imperative to have a good grasp on the macroeconomic impact of money supply on business operations.
Banks sector is playing an important role in economies. The banking industry, as the classic and the most influential of financial intermediaries, facilitates economic operations. Financial sector in the worldwide country has been changes over these years by looking the changes of financial structure environment and economic conditions. Thus, banks are a very important point to financial system and play an important role as control and contribute growth to the economic sector.