1,721,500 research outputs found
Oil price instability, hedging, and an oil stabilization fund : the case of Venezuela
Full text linkThe Venezuelan government and PDVSA (Venezuela's state oil companies) are both exposed to oil price instability. Given the existing tax structure, PDVSA has a higher exposure than the government, especially when prices drop below $18-20 a barrel. The authors show that the volatility of prices for crude oil is higher (but not significant) than the volatility of prices for refined oil products. And both prices are highly correlated. So, there is not much strength to the argument that Venezuela, being now mainly an exporter of refined products, faces less volatility than when it was exporting mainly crude oil. The basis risk for hedging Venezuelan crude oil was founded to be higher than for other crudes of comparable quality in the region. One explanation could be the pricing policies Venezuela follows, which leads Venezuelan crude oil prices to deviate for long periods from international prices. The basis risk in Venezuelan refined products is much lower and at acceptable levels for risk management. The issue of liquidity is concentrated in contracts for periods of less than a year. For products, the liquidity is concentrated in the nearest 4-5 months. So, for short-term hedges (6-9 months ahead), there is sufficient liquidity for Venezuela to hedge a substantial part of its exports. For longer-term hedges, the over-the-counter market is the more appropriate vehicle. In either case, it will not usually be the case that all production or exports should be hedged. The authors also examined the issue of an oil stabilization fund. For an oil stabilization fund to be effective several preconditions must be met. Most notably: oil prices should not follow a random walk; financial markets are incomplete; and there are large adjustment costs. These conditions do likely apply in Venezuela. Venezuela's best strategy would be to remove as much short-term oil price risk as possible by using short-dated hedging instruments (such as futures, options, or short-dated swaps) and to also do some longer term hedging (using mainly over-the-counter options and long-dated swaps). They also find that an oil stabilization fund should be complemented by using market-based risk management tools. The oil stabilization fund could then be used to manage any remaining interperiod oil price risk to the extent considered necessary.Markets and Market Access,Environmental Economics&Policies,Oil Refining&Gas Industry,Energy and Environment,Energy Demand
A Reader in International Corporate Finance, Volume One
No full textThe Reader in International Corporate
Finance offers an overview of current thinking on six
topics: law and finance, corporate governance, banking,
capital markets, capital structure and financing
constraints, and the political economy of finance. This
collection of 23 of the most influential articles published
in the period 2000-2006 reflects two new trends: 1)
interest in international aspects of corporate finance,
particularly specific to emerging markets, and 2) awareness
of the importance of institutions in explaining global
differences in corporate finance
Competitive implications of cross-border banking
Full text linkThis paper reviews the recent literature on cross-border banking, with a focus on policy implications. Cross-border banking has increased sharply in recent decades, particularly in the form of entry, and has affected the development of financial systems, access to financial services, and stability. Reviewing the empirical literature, the author finds much, although not uniform, evidence that cross-border banking supports the development of an efficient and stable financial system that offers a wide access to quality financial services at low cost. But as better financial systems have more cross-border banking, the relationship between cross-border banking and competitiveness has to be carefully judged. While developing countries have some special conditions, provided a minimum degree of oversight is in place, they experience effects similar to industrial countries. There are some questions, though, on the effects of cross-border banking on lending based on softer information and on stability. Relevant experiences from capital markets show that the degree of cross-border financial activities can affect local market sustainability and there can be path dependency when opening up to cross-border competition. Reviewing the fast changing landscape of financial services provision, the author argues that cross-border banking highlights the increased importance of competition policy in financial services provision. This competition policy cannot be traditional, institutional based, but will need to resemble that used in other network industries. Furthermore, with globalization accelerating, competition policy will need to be global, supported by greater cross-border institutional collaboration and using the General Agreement on Trade in Services (GATS) process and the disciplines of the World Trade Organization. GATS can be of special value to developing countries as it provides a binding, pro-competition framework that has proven more difficult to establish otherwise.Banks&Banking Reform,Economic Theory&Research,Financial Intermediation,Knowledge Economy,Education for the Knowledge Economy
Current challenges in financial regulation
Full text linkFinancial intermediation and financial services industries have undergone many changes in the past two decades due to deregulation, globalization, and technological advances. The framework for regulating finance has seen many changes as well, with approaches adapting to new issues arising in specific groups of countries or globally. The objectives of this paper are twofold: to review current international thinking on what regulatory framework is needed to develop a financial sector that is stable, yet efficient, and provides proper access to households and firms; and to review the key experiences regarding international financial architecture initiatives, with a special focus on issues arising for developing countries. The paper outlines a number of areas of current debate: the special role of banks, competition policy, consumer protection, harmonization of rules-across products, within markets, and globally-and the adaptation and legitimacy of international standards to the circumstances facing developing countries. It concludes with some areas where more research would be useful.Banks&Banking Reform,Financial Intermediation,Non Bank Financial Institutions,Economic Theory&Research,ICT Policy and Strategies
Equity portfolio investment in developing countries : a literature survey
Full text linkThe author surveys the literature on equity portfolio investment to develop a research agenda that could help developing countries interested in attracting equity portfolio flows. He finds that a broad literature exists on equity portfolio flows, but that most empirical tests have focused on industrial countries. Although some of the analytical papers may be applicable to developing countries, the author identifies areas of empirical research of specific interest to developing countries: identifying barriers that prevent a free flow of (equity portfolio) capitalbetween industrial and developing countries; quantifying the opportunity costs of these barriers in higher risk-adjusted cost of capital and lower flow of capital; analyzing the optimal amount of portfolio investment and the degree to which investors in industrial countries are currently (under-) invested in developing countries; and analyzing the efficiency of the various stock markets in developing countries, as inefficient stock markets could be a barrier to foreign flows. This research could help policymakers in developing countries make decisions about liberalizing capital accounts, reforming financial markets, and coping with the potential volatility of equity portfolio flows.Economic Theory&Research,International Terrorism&Counterterrorism,Banks&Banking Reform,Financial Intermediation,Markets and Market Access
The effects of barriers on equity investment in developing countries
Full text linkEquity flows to developing countries climbed to an estimated $13 billion in 1992, four times the amount invested three years earlier. Investment increased partly because countries removed restrictions on foreign ownership, liberalized capital account transactions, and generally made foreign access to their markets easier. The authors investigate how stock performance in emerging markets is affected by foreign investors'formal access to stocks (as measured by the International Finance Corporation's index of"investability"). To measure foreigners'access to emerging-market stocks, they use the investability index created by the IFC's Emerging Market Data Base. The IFC indexes should be a good indicator of changes in legal barriers over time or of the relative importance of those barriers across securities in one market at a given point in time, or across markets. Using the Stehle (1977) model, the authors reject the hypothesis that emerging markets are integrated with world capital markets (for most emerging markets). They fail to reject the hypothesis that emerging markets are segmented (for all emerging markets). The authors interpret this as legal and other barriers limiting foreign investors'access to emerging markets. They next investigate the relationship between stock performance and the investability index to determine the importance of legal barriers relative to other barriers. They find a strong relationship between a stock's price-earnings ratio and its investability index, which suggests that formal barriers to foreigners'access has a negative effect on stock prices and thus raises the cost of capital for firms listed. Countries could lower the (risk-adjusted) cost of capital, they contend, by removing legal barriers to foreign investors'access to equity markets.Markets and Market Access,Access to Markets,Economic Theory&Research,Banks&Banking Reform,International Terrorism&Counterterrorism
Deriving developing country repayment capacity from the market prices of sovereign debt
Full text linkThe market prices of developing countries'debts are imperfect indicators of the countries'payment capacity for three reasons: the concave shape of the debt's payoff structure, the presence of third-party guarantees, and the differences in the terms of various debt claims. Claessens and Pennacchi derive an improved indicator of payment capacityby developing a pricing model - using option valuation techniques - that takes these three factors into account. Applying the model to bonds issued recently by Mexico and Venezuela, they find that the estimated indicator of payment capacity often behaves differently from the raw bond prices themselves, confirming the importance of cleaning the raw prices for these three factors. In order of importance, the benefits of cleaning raw prices come first from correcting for the effects of different terms (such as fixed versus floating interest rates), followed by the value of third-party enhancements and then by the concavity of the payoff structure. They find some evidence that the new indicator of repayment capacity conforms better than the raw prices themselves to generally held beliefs about which variables drive a country's repayment capacity. In particular, they find that variables that are often assumed to be related to payment capacity - such as oil prices and the countries'stock market prices - are more closely (and with the right sign) associated with the new estimated measure of payment capacity than are the secondary market prices of the bonds.Economic Theory&Research,Environmental Economics&Policies,Banks&Banking Reform,Strategic Debt Management,Settlement of Investment Disputes
Access to financial services: a review of the issues and public policy objectives
Full text linkThis paper reviews the evidence on the importance of finance for economic well-being, provides data on the degree of use of basic financial services by households and firms across a sample of countries, assesses the desirability of more universal access, and overviews the macroeconomic, legal, and regulatory obstacles to access using general evidence and case studies. Although access to finance can be very beneficial, the data show that universal use is far from prevalent in many countries, especially developing countries. At the same time, universal access has generally not been a public policy objective and is surely not easily achievable in most countries. Countries can, however, undertake many actions to facilitate access to financial services, including through strengthening their institutional infrastructures, liberalizing and opening up their markets and facilitating greater competition, and encouraging innovative use of know-how and technology. Government attempts and interventions to directly broaden the provision of access to finance, however, are fraught with risks and costs, among others, the risk of missing the targeted groups. The author concludes with possible global actions aimed at improving data on access and use, and areas for further analysis to help identify the constraints to broadening access.Banks&Banking Reform,Governance Indicators,Financial Intermediation,Poverty Assessment,Health Economics&Finance
The internationalization of financial services in Asia
Full text linkThe internationalization of financial services -- eliminating discrimination between the treatment of foreign and domestic providers of financial services and removing barriers to the cross-border provision of financial services -- is of global interest, especially in Asia. Most of Asia limits the entry of foreign financial firms much more than otherwise comparable countries do. Empirical evidence for Asia and elsewhere suggests that this slows down institutional development and that, as a result, it costs more to provide financial services. Asian countries could benefit from accelerating the opening of the financial services sector, in conjunction with the further liberalization of capital accounts and domestic deregulation of financial markets. Apart from other benefits, internationalization helps build more robust, efficient financial systems by introducing international practices and standards; by improving the quality, efficiency, and breadth of financial services; and by allowing more stable sources of funds. The ongoing WTO (World Trade Organization) negotiation of financial services under GATS (General Agreement on Trade in Services) gives countries the opportunity to commit to opening their financial sectors. Safeguards can be built into the process, and the liberalization can be phased in gradually.Banks&Banking Reform,Decentralization,Fiscal&Monetary Policy,Payment Systems&Infrastructure,Economic Theory&Research,Banks&Banking Reform,Financial Economics,National Governance,Economic Theory&Research,Health Economics&Finance
Offshore Financial Centers: Parasites or Symbionts?
Full text linkThis paper analyzes the causes and consequences of offshore financial centers (OFCs). Since OFCs are likely to be tax havens and money launderers, they encourage bad behavior in source countries. Nevertheless, OFCs may also have unintended positive consequences for their neighbors, since they act as a competitive fringe for the domestic banking sector. We derive and simulate a model of a home country monopoly bank facing a representative competitive OFC which offers tax advantages attained by moving assets offshore at a cost that is increasing in distance between the OFC and the source. Our model predicts that proximity to an OFC is likely to have pro-competitive implications for the domestic banking sector, although the overall effect on welfare is ambiguous. We test and confirm the predictions empirically. OFC proximity is associated with a more competitive domestic banking system and greater overall financial depth.
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