1,721,036 research outputs found
The use of"asset swaps"by institutional investors in South Africa
Get PDFLeading financial economists have proposed the use of international asset swaps (Merton 1990, Bodie and Merton 2002) as a way of efficiently achieving international diversification without eroding the level of foreign exchange reserves and weakening local market development. International asset swaps entail limited foreign currency flows (only net gains or losses need to be exchanged). They protect foreign investors from market manipulation and expropriation risk and have much lower transaction costs than outright investments. But asset swaps are constrained by the attractiveness of local markets to foreign investors, and by various regulatory issues covering counterparty risk and collateral considerations, and accounting, valuation, and reporting rules. Institutional investors are well developed in South Africa. Their total assets corresponded in 2001 to 159 percent of GDP, a level that was surpassed by only four high-income countries. But because of the imposition of exchange controls, they lacked international diversification. In July 1995 South Africa was the first developing country that explicitly allowed its pension funds and other institutional investors to make use of"asset swaps."But the South African authorities did not authorize the use of properly specified swap contracts as described by Bodie and Merton, but rather permitted institutional investorsto"obtain foreign investments by way of swap arrangements."As the author argues in this paper, the asset swap mechanism turned out to be cumbersome and inefficient. However, it did allow institutional investors to attain some level of international diversification. Other developing countries should consider authorizing their institutional investors to engage in international asset swaps. But they should authorize the use of properly designed swap contracts, preferably based on baskets of liquid securities, permit only global investment banks to act as counterparties, require the use of global custodians, properly monitor credit risk, maintain adequate collateral, and adopt market-to-market valuation rules. Asset swaps are clearly a second-best option compared to the lifting of exchange controls. However, they may facilitate risk diversification in the presence of such controls. And they may even have a role to play in their absence.Economic Theory&Research,International Terrorism&Counterterrorism,Settlement of Investment Disputes,Payment Systems&Infrastructure,Fiscal&Monetary Policy,International Terrorism&Counterterrorism,Economic Theory&Research,Settlement of Investment Disputes,Insurance Law,Non Bank Financial Institutions
Pension institutions and annuities in Denmark
Get PDFThis paper considers the overall structure of the Danish pension system, reviews the relative role of different types of pension institutions, and discusses their asset allocation strategies and investment performance. The paper also examines the regulation and supervision of providers of pension services, the growing reliance on risk-based supervision,and the application of the so-called contribution principle. The Danish pension system includes a modest universal social pension with a supplement for low-income pensioners and near universal participation in occupational and personal pensions that are primarily based on defined contribution plans. The annuity market is well developed: 50 percent of annual contributions are allocated to the purchase of deferred annuities, while immediate annuities are also purchased at or even after retirement. However, detailed comprehensive data on the rate of annuitization are lacking. Distinct features of the Danish pension system include the widespread use of profit participating contracts with minimum guaranteed benefits and regular provision of bonuses, covering both the accumulation and payout phases, and extensive use of group deferred annuity contracts. A new traffic light system with periodic stress testing has resulted in greater emphasis on asset liability matching and hedging strategies by pension institutions and a shift in investment policies in favor of foreign bonds and long-term swap contracts.,Debt Markets,Emerging Markets,Pensions&Retirement Systems,Insurance&Risk Mitigation
Unemployment insurance in Algeria : implications for a labor market in transition
Get PDFTo predict how Algeria's unemployment crisis will evolve, the author evaluates the Algerian unemployment insurance system's ability to finance itself, to affect employment decisions, and promote enterprise restructuring. The main conclusion is that industrial restructuring has serious and persistent implications for the labor market. In an environment where many equilibria are possible, there is a real danger of reaching a high unemployment equilibrium. The big-bang experience of structural adjustment in Central and Eastern Europe transition economies resulted in large-scale unemployment. Despite considerable restructuring progress, structural rigidities still exist in the labor market, and long-term unemployment has persisted. One advantage of the big-bang approach is adjustment speed, but the resulting unemployment may be too costly for Algeria's economy, especially if it persists. A more modern mixed bang approach would incorporate active employment measures to mitigate entrenched unemployment. The policies will maintain or enhance human capital through work, so idle workers don't lose their skills. Flex-time arrangements would help workers maintain an attachment to the labor force. However minor, such work would help workers avoid the traps of long-term unemployment. Two striking conclusions emerge from the Central and Eastern European experience: a) unemployment is not essential to enterprise restructuring and labor market adjustment;and b) growing long-term unemployment is self-fulfilling and results in higher and persistence unemployment. Although active employment measures are costly and have relatively low rates of return in the short run, they can be marginally effective as part of a long-term strategy.Health Economics&Finance,Labor Policies,Environmental Economics&Policies,Labor Markets,Economic Theory&Research,Environmental Economics&Policies,Labor Markets,Economic Theory&Research,Health Economics&Finance,Banks&Banking Reform
Risk-based supervision of pension institutions in Denmark
Get PDFThis paper examines the move towards risk-based supervision of pension institutions in Denmark. Although Denmark has not adopted a comprehensive model to assess risk it has developed a number of building blocks which it uses for risk-based assessment. The motivations for improving risk assessment include a desire to identify emerging problems, and concerns about the solvency of pension institutions. In Denmark there is extensive use of guaranteed minimum returns in both the accumulation and payout phases which create substantial obligations on pension institutions, and focus attention on the integrity and solvency of the institutions which provide them. In conjunction with freeing up investment restrictions and moving towards market valuation of assets, the supervisor has introduced a'traffic light'stress test model which calculates the effect of several market scenarios - the red test which is the more plausible and the yellow test which is possible but less likely. In addition to the use of the traffic light system, there has been a growing emphasis on the adequacy of internal risk control systems and greater reliance on market discipline. Pension institutions have sought to reduce their exposure to market volatility by better matching of assets and liabilities. There is a much better understanding of the risks inherent in the pension institutions'portfolios, and there has been a substantial increase in the use of hedging instruments.Debt Markets,,Emerging Markets,Insurance&Risk Mitigation,Banks&Banking Reform
Finance for Growth: Policy Choices in a Volatile World
Get PDFUnderstanding just how finance contributes to development—and how good policy can help guarantee its contribution—has been the focus of a major research effort in recent years. This research has included systematic case-study analyses of the experiences of specific countries, as well as more recent econometric analyses of extensive cross-country data sets. Finance for Growth draws on this research and uses it to develop an integrated view of how financial sector policy can be used to foster growth, maintain stability and bring about poverty reduction.Financial sector development; financial regulation; globalization of finance; finance in developing countries
Uncertainty and the price for crude oil reserves
Get PDFInnovations in futures, options, and derivative instruments permit active trading, speculating and hedging - linking markets for physical petroleum products with financial markets. These derivative markets continuously value petroleum delivered today and for future dates, providing a market price for inventories. Underground petroleum reserves are also an inventory defined by exploration surveys and development drilling. Thus, observable market information can be used to value these reserves. Option - valuation models can be used to price reserves using observable markets, but are dependent on unexplained convenience yields revealed by the term structure of futures prices. The authors apply a general inventory pricing model to petroleum inventories and generate an empirical model of the returns to storage for petroleum markets. They examine the determinants of the crude oil convenience yield using a stochastic control model. They specify optimal production and inventory conditions using a third-order cost function and estimate them using monthly observations. Their inventory arbitrage condition embodies the Hotelling principle and Kaldor's convenience yield, and includes a premium on the dispersion in crude oil prices. The empirical results suggest that returns to storage contain both a cost-reducing component and often sizable premiums associated with the dispersion of petroleum prices. Their findings suggest that crude oil markets differentiated by quality and location provide similar premiums. The premiums associated with the dispersion of petroleum prices may account for persistent backwardation in crude oil prices. This finding may also explain the wide discrepancies between Hotelling values and transaction prices found in previous studies.Economic Theory&Research,Environmental Economics&Policies,Markets and Market Access,Labor Policies,Payment Systems&Infrastructure,Oil Refining&Gas Industry,Environmental Economics&Policies,Access to Markets,Markets and Market Access,Economic Theory&Research
NAFTA, capital mobility, and Mexico's financial system
Get PDFTypically the impact of the North American Free Trade Agreement (NAFTA) is analyzed from a macroeconomic perspective, to examine the implications for capital market flows or for the aggregate degree of financial integration. This analysis often involves examining whether certain conditions of arbitrage or efficiency tend to hold, given greater integration of financial markets. Alternatively, other work examines only the effects of greater financial integration for the efficiency with which financial services are provided microeconomically. The two approaches are rarely combined, nor are the effects of integration considered within such a combined framework. The authors combine the two approaches to examine how NAFTA will affect capital flows and the efficiency with which financial services are provided in Mexico. They also call attention to domestic financial systems and monetary and exchange rate policy issues that Mexico must address if greater financial integration is not to result in increased risk for the domestic financial system or greater macroeconomic instability.Payment Systems&Infrastructure,Banks&Banking Reform,Financial Intermediation,Economic Theory&Research,International Terrorism&Counterterrorism,Macroeconomic Management,Banks&Banking Reform,Financial Intermediation,Economic Theory&Research,Environmental Economics&Policies
Book Reviews
No full text Reforming Financial Systems: Historical Implications for Policy. Edited by Gerard Caprio Jr. and Dimitri Vittas. Cambridge; New York and Melbourne: Cambridge University Press, 1997. Pp. x, 222. $49.95. ISBN 0–521–58115–X. JEL 98–0654 </jats:p
Post trade liberalization policy and institutional challenges in Latin America and the Caribbean
Get PDFArgentina, Chile, Colombia, Jamaica, Trinidad and Tobago, and Uruguay undertook extensive trade reform at a time of crisis, at which time institutional reform was difficult to undertake. Many of the countries had become members of the General Agreement on Tariffs and Trade (GATT) in the late 1980s and anticipated institutional reform. Only later did they reform trade policymaking institutions to bring them somewhat in line with trade policy regimes and GATT rules. These countries have all used reference prices and antidumping provisions of GATT, rather than safeguards, to provide relief from import surges. They have all tried to centralize trade policy by moving it from different agencies into a single agency. Despite liberalization, some sectors -- including automobiles, textiles and agriculture -- remain protected. Lessons the author draws from experience in these coutries: 1) the deteriorating macroeconomic situations are the main challenge to maintaining open trade policy; 2) trade policymaking must be constantly reviewed to prevent reversals, and the costs of protection must be communicated to the public at large; 3) There must be short-run measures to help domestic activities adjust to short-run price movements and alleviate pressure for protection. The danger -- such measures (unrelated to long-run price trends) can become permanent. 4) external commitments (through WTO or customs unions) can be used to discourage a return to protection; 5) extending reform (to labor and capital markets and the regulatory framework) will help maintain and extend trade liberalization. Allowing factors of production to move smoothly from one activity to another could help prevent the buildup of pressures that lead to protection; 6) an institution to consider exceptional protection should be advisory (independent of day-to-day trade policymaking), so that it works steadily, free from administrative pressures and exigencies. Requests for protection must be handled openly and transparently, with the findings subject to public scrutiny. Procedures for granting relief through safeguards and similar mechanisms must reflect all interests, including those of consumers, exporters, and users of the product; and 7) the analysis to establish injury must conform to high technical standards. The criteria to consider trade policies must reflect national interests, not those of any particular sector.Economic Theory&Research,Common Carriers Industry,Trade Policy,Environmental Economics&Policies,Payment Systems&Infrastructure,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Economic Theory&Research,Trade Policy,Environmental Economics&Policies,Transport and Trade Logistics
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