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Student Publications
Author: Jonathan Dodoo
Title:
Money And Capital Market
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INTRODUCTION
The money market is the global financial market for short-term
borrowing and lending. It
provides short-term liquid funding for the global financial system.
The money market is a
sector of the capital market where short-term obligations such as
Treasury bills,
commercial paper and bankers' acceptances are bought and sold.
A money market consists of financial institutions and dealers in
money or credit who
wish to either borrow or lend. Participants borrow and lend for
short periods of time,
typically up to thirteen months. Money market trades in short term
financial instrument
commonly called "paper". This contrasts with the capital market for
longer-term funding,
which is supplied by bonds and equity.
Money is a medium of exchange which ensures the success of exchange
by being the one
item on offer that is ALWAYS acceptable. Money is necessary because
human beings
must exchange to live together in peace, and to prosper. How
important was the
discovery of the idea of money? Look around you.
That covers the concept or idea of money. But an idea, as such, does
not exist as a
physical entity. Money must be a physical entity. Neither the
"electronic" money of today
nor the notes and coin which circulate as cash has any official or
legal connection with
Gold and Silver. But they once did, and most people think that they
still do. As long as
that situation persists, the modern monetary system will function.
Now, how does one go about choosing what is to be used as money?
Simple, one looks
for the most tradable good, the good which is in highest demand, the
good that has begun
to be accepted, not as an end in it, but as a means to an end. Money
is the good that
people do not want to consume, but want to use to make further
exchanges easier. Human
beings have lived together for more than two million years. Money in
its modern form -
coin of fixed weight and denomination - came into use less than
three thousand years ago.
It took a long time to discover the physical good which best serves
the purpose of a
medium of exchange.
Money can be use as direct exchange, or barter, is exactly that - my
good or service for
your good or service. The problem is that I might want what you have
to offer, but you
might not want what I offer in exchange. With no "medium" of
exchange, there is no
deal. Indirect exchange takes place when one party has a "medium"
that is always
acceptable, not for what it is, but for what can be done with it. If
you offer me money, I
will accept it, because I know that I can exchange it for what I
want, whenever I want it.
Money is defined as any asset that is acceptable as a medium of
exchange in payment for
goods and services.
3
INTRODUCTION
Now there is what we called the narrow and broad money which is
defined as M0
(Narrow money) - comprises notes and coins in circulation banks'
operational balances at
the Bank of England. Over 99% of M0 is made up of notes and coins as
cash is used
mainly as a medium of exchange.
Most economists believe that changes in M0 have little effect on
total national output and
inflation. At best M0 is seen as a co-incident indicator of consumer
spending and retail
sales. M0 reflects changes in the economic cycle, but does not cause
them.
M4 (Broad money) includes deposits saved with banks and building
societies and money
created by lending in the form of loans and overdrafts. M4 = M0 plus
sight (current
accounts) and time deposits (savings accounts). When a bank or
another lender grants a
loan to a customer, bank liabilities and assets raise by the same
amount and so does the
money supply.
The capital market (securities market) is the market for securities,
where companies and
the government can raise long-term funds. The capital market
includes the stock market
and the bond market. Financial regulators, such as the U.S.
Securities and Exchange
Commission, oversee the capital markets in their respective
countries to ensure that
investors are protected against fraud. The capital markets consist
of the primary market,
where new issues are distributed to investors, and the secondary
market, where existing
securities are traded.
A security is a fungible, negotiable instrument representing
financial value. Securities are
broadly categorized into debt and equity securities such as bonds
and common stocks,
respectively. The company or other entity issuing the security is
called the issuer. What
specifically qualifies as a security is dependent on the regulatory
structure in a country.
For example private investment pools may have some features of
securities, but they may
not be registered or regulated as such if they meet various
restrictions.
Securities may be represented by a certificate or, more typically,
by an electronic book
entry. Certificates may be bearer, meaning they entitle the holder
to rights under the
security merely by holding the security, or registered, meaning they
entitle the holder to
rights only if he or she appears on a security register maintained
by the issuer or an
intermediary.
They include shares of corporate stock or mutual funds, bonds issued
by corporations or
governmental agencies, stock options or other options, limited
partnership units, and
various other formal investment instruments that are negotiable and
fungible.
4
DISCRIPTION
MONEY
Money is the generally recognized means of payment with which any
goods and services
offered on the market can be acquired. The State declares the
national money to be the
statutory means of payment (currency): everyone is obliged to accept
it as payment for
services. As a unit of account or measure of value money permits
goods to be compared
by price, which is expressed in monetary units.
Money" means a medium of exchange authorized or adopted by a
domestic or foreign
government and includes a monetary unit of account established by an
intergovernmental
organization or by agreement between 2 or more nations 1993, c. 293,
Pt. B, �2 (amd). In
the Shadow World, most advanced cultures use a
gold/silver/bronze/copper/tin coinage,
each coin being worth about 1/10th of the denomination preceding
(e.g., a silver piece is
equal to ten bronze pieces). Each coin weighs around a half-ounce.
As a very rough
comparison, one bronze piece would be about equivalent to a dollar
in terms of buying
power.
A symbolic representation of wealth Used for exchange in place of
actual products or
services, although Satie certainly knew periods of dire poverty, and
was perhaps a little
uncontrollable in his spending, in long periods of his life he had
few worries in this sense.
Although maybe not having much money in his pockets, he was
(certainly from the
second decade of the new century) often invited to expensive
restaurants and to all sorts
of events, and was given financial help, by all sorts of people.
Economists tend to define money as anything readily acceptable as
means of payment.
Usually this means notes, coins and bank deposits. However, one
Authority says it is "an
extremely difficult concept to define with precision." The supply of
money comes under
any number of definitions. M0 is notes and coins in circulation plus
banks' deposits held
in the Reserve Bank. M1 is the total of cash and current account
deposits at any given
time.
Anything that serves as a generally accepted medium of exchange a
standard of value and
a means to save or store purchasing power In the United States,
currency (the bulk of
which is Federal Reserve notes), coin and funds in checking and
similar accounts at
depository institutions are examples of money.
No money was exchanged in the doll games. Dolls scavenged, stole,
and crafted their
own goods in the subsistence economies of pirate ship, outlaw den,
Desert Island and
orphanage. The coins discovered in one of many faux-leather purses
dating from the late
decadent period have, however, led to some speculation that Doll
Games' growing
interest in realism and material goods might eventually have led to
a monetary system,
had the games continued long enough.
5
DISCRIPTION
This is the equivalent of all the goods and services of a collective
Instrument of
capitalisation and mobilisation of value and as instrument of
release of debts and
obligations. The official currency of the Republic of Croatia is the
Kuna, which has 100
Lipa. Foreign currency may be exchanged in banks, exchange offices
and post offices in
accordance with the valid exchange rate. All major credit cards
(American Express,
Diners, Visa, and Eurocard/Mastercard) and Eurocheques (after being
changed in banks)
are accepted.
Money (That's What I Want)" is a 1959 hit single by Barrett Strong
for the Tamla label,
distributed by Anna Records. The song was written by Tamla founder
Berry Gordy and
Janie Bradford, and would become the first hit record for Gordy's
label, soon to be
renamed Motown.
KMFDM's sixth album, Money, was released in 1992. Originally the
album was
supposed to be called apart, as Sascha Konietzko and En Esch would
break up during the
tour with Thrill Kill Kult in 1990. With the budget split in half,
Sascha and En Esch made
five songs each for the album. However, En Esch's half was rejected
by Wax Trax!
Records. The record company gave them more money and Sascha finished
the album by
including new remixes of previously released material.
Money is any marketable good or token used by a society as a store
of value, a medium
of exchange, or a unit of account. Money objects can meet some or
all of these needs.
Since the needs arise naturally, societies organically create a
money object when none
exists. In other cases, a central authority creates a money object;
this is more frequently
the case in modern societies with paper money.
The most common medium of exchange; functions as legal tender; "we
tried to collect
the money he owed us" Wealth reckoned in terms of money; all his
money is in real
estate the official currency issued by a government or national
bank; "he changed his
money into francs.
CPITAL MARKET
The market in which corporate equity and longer-term debt securities
(those maturing in
more than one year) are issued and traded. A financial market in
which long-term debt
obligations and equity securities are bought and sold, and all
financial transactions
between users of funds and suppliers of funds.
A market for medium to long-term financial instruments, financial
instruments traded in
the capital market include shares, and bonds issued by the
Australian Government, State
governments, corporate borrowers and financial institutions.
The capital market is the market for long-term loans and equity
capital. Companies and
the government can raise funds for long-term investments via the
capital market.
6
DISCRIPTION
The capital market includes the stock market, the bond market, and
the primary market.
Securities trading on organized capital markets are monitored by the
government; new
issues are approved by authorities of financial supervision and
monitored by participating
banks.
This market brings together all the providers and users of capital.
Financial products such
as stocks, bonds, mutual funds, and insurance make the transfer of
capital possible.
Financial intermediaries, such as banks, brokerage firms, and
insurance companies
facilitate the transfer of capital.
There are two broad types of securities traded in the capital
market: debt and equity.
Buying stock allows investors to gain an equity interest in the
company and become part
owner. When investors buy bonds, they essentially loan money to the
company or
government that issued the bond and become creditors of that issuer.
A broad term covering the arrangements for financial investment, the
buying and selling
of shares, and the procurement of loans, Such markets may not
necessarily have a
physical presence, although the buying and selling of shares usually
does, e.g. through
the Stock Exchange located in the City of London.
A market for medium to long-term financial instruments, financial
instruments traded in
the capital market include shares, and bonds issued by the
Australian Government, State
governments, corporate borrowers and financial institutions. Capital
market is the broad
term for the market where investment products such as stocks and
bonds are bought and
sold. It includes all the people and organizations which support the
process.
The market where capital funds debts and equity is traded; includes
medium and long
term securities; distinct of money market which is for short term
investments. The market
for long-term funds Instruments are equity and credit market
securities with original
maturity greater than 1 year. Credit market securities consist of
bonds and bank loans.
The various institutions concerned with raising funds and sharing
and insuring risks,
including banks, insurance markets, bond markets, and the stock
market.
CHARACTERISTICS OF MONEY
1. Scarcity, money should be scarce enough to have some value
but not so scarce to
be unavailable, Pebbles, which meet some of the other criteria,
would not work
well as money because they are widely available and too much money
in
circulation increases prices, that's inflation. Government control
the scarcity of
money by limiting the quantity of money produced.
2. Durability, any item used as money must be durable, a
perishable item such as
banana becomes useless as money when it spoils.
7
DISCRIPTION
Even early societies used durable forms of money, such as metal
coins and paper money
that lasted for a long time.
3. Portability, money must be portable and easily to be moved
around, large or
bulky items such as boulders or heavy gold bars, cannot be
transported easily
from place to place.
4. Divisibility, money must be capable of being divided into
smaller parts and the
divisible forms of money help make possible transactions of all
sizes and amount.
FUNCTIONS OF MONEY
a.
Medium of Exchange is an intermediary used in trade to avoid the
inconveniences of a pure barter system. In a barter system, there
must be a coincidence of
wants before two people can trade - they must want exactly what the
other has to offer,
when and where it is offered, so that the exchange can occur. A
medium of exchange
permits the value of a good to be assessed and rendered in terms of
the intermediary,
most often, a form of money widely accepted to buy any other good.
Money is also a
form of transportability, divisibility, high market value in
relation to volume and weight,
recognizability and resistance to counterfeiting
A medium of exchange makes transaction easier; having a common form
of payment in
each country is much less complicated than having a barter system
where goods and
service are exchange for other goods and service. Money allows the
exchange of products
to be a simple process
b.
A unit of account is a standard monetary unit of measurement of the
market
value/cost of goods, services, or assets. It is one of three
well-known functions of money.
It lends meaning to profits, losses, liability, or assets. The
accounting monetary unit of
account suffers from the pitfall of not being necessarily a stable
unit of account over time.
A standard unit of account allows meaningful interpretation of
prices, costs, and profits,
so that an entity can monitor its own performance and its
shareholders can make sense of
its past performance and have an idea of its future profitability.
In modern economies,
money in the form of currency usually serves the role of the
standard unit of account. The
use of money, under conditions of price stability, vastly improves
the efficiency of
market economies. The use of a unit of account in financial
accounting allows investors
to invest capital into those companies that provide the highest
rates of return. The use of a
unit of account in managerial accounting enables firms to choose
between activities that
yield the highest profit.
8
DISCRIPTION
In economics, a standard unit of account is used for statistical
purposes to describe
economic activity. Indexes such as GDP and the CPI are so broad in
their scope that
compiling them would be impossible without a standard unit of
account. After being
compiled, these figures are often used to guide governmental policy;
especially monetary
and fiscal policy.
In calculating the opportunity cost of a policy, a standard unit of
account allows for the
creation of a composite good. A composite good is a theoretical
abstraction that
represents an aggregation of all other opportunities that are not
realized by the first good.
It allows an economic decision's benefits to be weighed against the
costs of all other
possible goods in that society, without having to refer to any
directly. Often, this is most
easily accomplished with money.
c.
To act as a store of value, a commodity, a form of money or
financial capital must
be able to be reliably saved, stored, and retrieved - and be
predictably useful when it is so
retrieved. This is distinct from the standard of deferred payment
function which requires
acceptability to parties one owes a debt to, or the unit of account
function which requires
fungibility so accounts in any amount can be readily settled. It is
also distinct from the
medium of exchange function which requires durability when used in
trade, and a
minimum of opportunity to cheat others.
When currency is stable, money can serve all four functions. When it
isn't, such as during
times of hyperinflation or when complex and volatile forms of
financial capital are
involved, it becomes important to identify alternative stores of
value, of which common
ones are real estate actual deeds in protectible land, gold once the
basis of the gold
standard, silver once the basis of the silver standard , precious
stones, and precious
metals, gold backed currencies, e.g. Swiss franc, collectibles, e.g.
original art by a famous
artist or antiques and livestock .
While these items may be inconvenient to trade daily or store, and
may vary in value
quite significantly, they rarely or never lose all value. This is
the point of any store of
value, to impose a natural risk management simply due to inherent
stable demand for the
underlying asset. It need not be a capital asset at all, merely have
economic value that is
not known to disappear even in the worst situation. In principle,
this could be true of any
industrial commodity, but gold and precious metals are generally
favored because of their
demand and rarity in nature, which reduces the risk of devaluation
associated with
increased production and supply.
Money act as a store of value which is used to hold wealth, it
retains its value over time
someone who owns money can keep it for future use rather than
exchange it today for
other types of assets.
9
DISCRIPTION
d.
Market liquidity is a business, economics or investment term that
refers to an
asset's ability to be easily converted through an act of buying or
selling without causing a
significant movement in the price and with minimum loss of value. An
act of exchange of
a less liquid asset with a more liquid asset is called liquidation.
Liquidity also refers both
to that quality of a business which enables it to meet its payment
obligations, in terms of
possessing sufficient liquid assets; and to such assets themselves.
A liquid asset has some or more of the following features. It can be
sold rapidly, with
minimum loss of value, anytime within market hours. The essential
characteristic of a
liquid market is that there are ready and willing buyers and
sellers at all times. An elegant
definition of liquidity is also the probability that the next trade
is executed at a price equal
to the last one. A market may be considered deeply liquid if
there are ready and willing
buyers and sellers in large quantities. This is related to a market
depth, where sometimes
orders cannot strongly influence prices.
The liquidity of a product can be measured as how often it is bought
and sold; this is
known as volume. Often investments in liquid markets such as the
stock exchange or
futures markets are considered to be more liquid than investments
such as real estate,
based on their ability to be converted quickly. Some assets with
liquid secondary markets
may be more advantageous to own, are willing to pay a higher price
for the asset than for
comparable assets without a liquid secondary market. The
liquidity discount is the
reduced promised yield or expected return for such assets, like the
difference between
newly issued U.S. Treasury bonds compared to off-the-run Treasuries
with the same term
remaining until maturity. Buyers know that other investors are not
willing to buy off-the-
run so the newly issued bonds have a lower yield and higher price.
Speculators and
market makers are key contributors to the liquidity of a market, or
asset. Speculators and
market makers are individuals or institutions that seek to profit
from anticipated increases
or decreases in a particular market price. By doing this, they
provide the capital needed to
facilitate the liquidity. The risk of illiquidity need not apply
only to individual
investments: whole portfolios are subject to market risk. Financial
institutions and asset
managers that oversee portfolios are subject to what is called
"structural" and
"contingent" liquidity risk. Structural liquidity risk, sometimes
called funding liquidity
risk, is the risk associated with funding asset portfolios in the
normal course of business.
Contingent liquidity risk is the risk associated with finding
additional funds or replacing
maturing liabilities under potential, future stressed market
conditions. When a central
bank tries to influence the liquidity supply of money, this process
is known as open
market operations.
e. Also money can be seen as the standard of value which as a
form of money whose
value is accepted by all, goods and services can be priced in
standard units. This makes it
easy to measure the value of products and allows transactions to be
recorded in consistent
terms.
10
DISCRIPTION
g.
A standard of deferred payment is the accepted way in a given market
to settle a
debt. For example, while the gold standard reigned, gold or any
currency convertible to
gold at a fixed rate constituted such a standard. As of 2003, the US
dollar and the Euro
are the most generally accepted standards for international
settlements.
However, for certain kinds of transactions such as for illegal goods
like narcotics or
weapons, gold or diamonds may be preferred as the medium of exchange
there being no
recourse in case of counterfeit currency being used and there is
rarely any deferral of
payment: if there is, it will most likely be stated in dollars.
This is distinct from the store of value function which relates to
the saving, storing, and
retrieval of value, and from the unit of account function which
requires fungibility so
accounts in any amount can be readily settled. It is also distinct
from the medium of
exchange function which requires durability when used in trade, and
a minimum of
opportunity to cheat others as the diamond or gold example makes
obvious.
When currency is stable, money can serve all four functions. When it
isn't, or when
complex and volatile forms of financial capital are involved, it
becomes important to
identify a single standard of deferred payment to avoid cheating by
selecting a
denominator of debt that one knows is dropping in value.
Historically, there have been
many times when creditors have had to hide from debtors to avoid
being paid off in near
worthless currency. Time-based currency such as Ithaca Hours
establishes fixed amounts
of human labour as the only standard of deferred payment.
The capital markets can aid clients by devising financial products
to raise capital and
hedge using interest rate or currency swaps. At many firms, the
capital markets group is a
liaison function between investment banking and fixed income
trading.
The term equity is quite broad but in general refers to the sales
and trading functions
which cover the following product lines: listed equities, both
domestic and international,
on the New York Stock Exchange, American Stock Exchange, regional
stock exchanges
and NASDAQ. Other securities which fall under the equities category
are convertible
debt securities, warrants, ADR's (American depository receipts),
preferred stock,
warrants, and equity derivatives.
The term Fixed Income is also quite broad but in general refers to
the sales and trading
functions which cover the following product lines: U.S. Treasury
government bonds,
International Government Bonds, Corporate Securities for example,
medium term notes,
high yield bonds below investment grade, money market instruments
these bonds have
maturities of usually less than one year, like commercial paper,
mortgage and asset
backed securities, municipal securities, fixed income listed futures
and options e.g. T-
bond futures, over-the-counter swaps and options caps, floors and
swaptions. The sales
and trading responsibilities are similar to the equities section. In
each discipline, the
degree of the professional's specialization varies across different
firms.
11
DISCRIPTION
For instance, some firms may adopt the fixed income generalist
approach where the
salesperson sells all product types, from corporate bonds to
mortgages. Other firms will
have specialists servicing clients for only mortgages or corporate
bonds. Financial capital
is money used by entrepreneurs and businesses to buy what they need
to make their
products or provide their services.
Financial capital refers to the funds provided by lenders and
investors to businesses to
purchase real capital like equipment for producing goods/services.
Real capital may
include shovels for gravediggers, sewing machines for tailors or
machinery for
manufacturing firms. Financial capital is provided by lenders for a
price: interest. Also
see time value of money for a more detailed description of how
financial capital may be
analyzed. Financial capital, or economic capital, is any liquid
medium or mechanism that
represents wealth, or other styles of capital. It is, however,
usually purchasing power in
the form of money available for the production or purchasing of
goods, etcetera. Capital
can also be obtained by producing more than what is immediately
required and saving the
surplus.
Liquidity requirements of these vary significantly leading to a
diversity of contracts and
financial markets to trade them on. When all four functions are
served by one instrument,
this is called money, which does not need to be traded on financial
markets since the risk
of loss of value of money is uniform across the whole society. Where
no one forms of
money is agreed to have reliable value, and barter is undesirable,
less liquid or more
diverse instruments have served the four functions. This article
focuses mostly on
financial instruments which are not uniformly affected by native
currency inflation and
which are not guaranteed by a state.
12
GENERAL ANALYSIS
Money originated very largely from non-economic causes from tribute
as well as from
trade, from blood money and bride money as well as from barter, from
ceremonial and
religious rites as well as from commerce, from ostentatious
ornamentation as well as
from acting as the common drudge between economic men.
One of the most important improvements over the simplest forms of
early barter was the
tendency to select one or two items in preference to others so that
the preferred items
became partly accepted because of their qualities in acting as media
of exchange.
Commodities were chosen as preferred barter items for a number of
reasons some
because they were conveniently and easily stored, some because they
had high value
densities and were easily portable and some because they were
durable.
These commodities, being widely desired, would be easy to exchange
for others and
therefore they came to be accepted as money. To the extent that the
disadvantages of
barter provided an impetus for the development of money that impetus
was purely
economic but archaeological, literary and linguistic evidence of the
ancient world and the
tangible evidence of actual types of primitive money from many
countries demonstrate
that barter was not the main factor in the origins and
earliest development of money.
Many societies had laws requiring compensation in some form for
crimes of violence,
instead of the Old Testament approach of an eye for an eye. The
author notes that the
word to pay is derived from the Latin pacare meaning originally to
pacify, appease, or
make peace with through the appropriate unit of value customarily
acceptable to both
sides. A similarly widespread custom was payment for brides in order
to compensate the
head of the family for the loss of a daughter's services. Rulers
have since very ancient
times imposed taxes on or exacted tribute from their subjects.
Religious obligations might
also entail payment of tribute or sacrifices of some kind.
Thus in many societies there was a requirement for a means of
payment for blood-money,
bride-money, tax or tribute and this gave a great impetus to the
spread of money. Objects
originally accepted for one purpose were often found to be useful
for other non-economic
purposes and, because of their growing acceptability began to be
used for general trading
also, supplementing or replacing barter.
Thus the use of money evolved out of deeply rooted customs; the
clumsiness of barter
provided an economic impulse but that was not the primary factor. It
evolved
independently in different parts of the world. About the only
civilization that functioned
without money was that of the Incas. The invention of banking
preceded that of coinage.
Banking originated in Ancient Mesopotamia where the royal palaces
and temples
provided secure places for the safe keeping of grain and other
commodities. Receipts
came to be used for transfers not only to the original depositors
but also to third parties.
13
GENERAL ANALYSIS
Eventually private houses in Mesopotamia also got involved in these
banking operations
and laws regulating them were included in the code of Hammurabi. In
Egypt too the
centralization of harvests in state warehouses also led to the
development of a system of
banking. Written orders for the withdrawal of separate lots of grain
by owners whose
crops had been deposited there for safety and convenience, or which
had been
compulsorily deposited to the credit of the king, soon became used
as a more general
method of payment of debts to other persons including tax gatherers,
priests and traders.
Even after the introduction of coinage these Egyptian grain banks
served to reduce the
need for precious metals which tended to be reserved for foreign
purchases, particularly
in connection with military activities. Precious metals, in weighed
quantities, were a
common form of money in ancient times. The transition to quantities
that could be
counted rather than weighed came gradually. A History of Money Glyn
Davies points out
that the words spend, expenditure, and pound as in the main British
monetary unit all
comes from the Latin expendere" meaning to weigh.
The basic unit of weight in the Greek speaking world was the
"drachma" or "handful" of
grain, but the precise weight taken to represent this varied
considerably, for example
from less than 3 grams in Corinth to more than 6 grams in Aegina.
Throughout much of
the ancient world the basic unit of money was the stater, meaning
literally "balancer" or
weigher. The talent is a monetary unit with which we are familiar
with from the Parable
of the Talents in the Bible. The talent was also a Greek unit of
weight, about 60 pounds.
Many primitive forms of money were counted just like coins. Cowrie
shells, obtained
from some islands in the Indian Ocean, were a very widely used
primitive form of money
- in fact they were still in use in some parts of the world such as
Nigeria within living
memory. So important a role did the cowrie play as money in ancient
China that its
pictograph was adopted in their written language for money. Thus it
is not surprising that
among the earliest countable metallic money or "coins" were
"cowries" made of bronze
or copper, in China.
In addition to these metal cowries the Chinese also produced coins
in the form of other
objects that had long been accepted in their society as money e.g.
spades, hoes, and
knives. Although there is some dispute over exactly when these
developments first took
place, the Chinese tool currencies were in general use at about the
same time as the
earliest European coins and there have been claims that their
origins may have been much
earlier, possibly as early as the end of the second millennium BC.
The use of tool coins
developed presumably independently in the West. The ancient Greeks
used iron nails as
coins, while Julius Caesar regarded the fact that the ancient
Britons used sword blades as
coins as a sign of their backwardness. However the Britons did also
mint true coins
before they were conquered by the Romans.
14
GENERAL ANALYSIS
These quasi coins were all easy to counterfeit and, being made of
base metals, of low
intrinsic worth and thus not convenient for expensive purchases.
True coinage developed
in Asia Minor as a result of the practice of the Lydians, of
stamping small round pieces of
precious metals as a guarantee of their purity. Later, when their
metallurgical skills
improved and these pieces became more regular in form and weight the
seals served as a
symbol of both purity and weight. The first real coins were probably
minted some time in
the period 640 - 630 BC. Afterwards the use of coins spread quickly
from Lydia to Ionia,
mainland Greece, and Persia.
Strictly speaking, the institutional investors are professional
money managers, such as
mutual funds, hedge funds, banks, money management firms, pension
funds, insurance
companies. Generally, a salesperson will cover a number of these
companies and will be
responsible for relaying information related to the markets to their
clients. Most large and
regional investment banks (or broker-dealers) will have an
established network; the
investment bank earns commissions for the trades entered into with
or on behalf of their
clients.
Many investment banks do not have an established retail investor
base. Merrill Lynch,
Smith Barney, and Paine Webber are three examples of firms with
extensive retail
distribution outlets. The clients consist of private individuals who
wish to purchase
securities for themselves. Again, the investment bank receives a
commission for the
transactions conducted for their clients. A number of firms cater
only to high net worth
individuals (e.g. over $2 million in assets for management). These
divisions, in firms like
Goldman Sachs and J.P. Morgan, are called "Private Client Services"
or "PCS". PCS is
discussed in another section.
The trading professionals are responsible for making markets in
certain securities,
obtaining securities to facilitate the clients' trades and for
providing liquidity within the
market. Traders often maintain inventory positions overnight and are
responsible for the
profit and loss associated with holding the inventory. Thus, many
times, the trader will
engage in overnight hedging to avoid undesired market movements
against him/her.
An equity derivative is a catchall phrase for a number of
equity-related products. They
either structured equity products designed to meet a specific
objective (an option on a
portfolio of stocks designed to mimic a specific industry's
performance), an over-the-
counter option on a specific stock or a listed option or future
(e.g. an option on the S&P
500). This division can also develop portfolio hedges, aid the asset
allocation process,
and create synthetic equity instruments using other financial
products.
Although paper money obviously had no intrinsic value its
acceptability originally
depended on it's being backed by some commodity, normally precious
metals.
15
GENERAL ANALYSIS
During the Napoleonic Wars convertibility of Bank of England notes
was suspended and
there was some inflation which, although quite mild compared to that
which has occurred
in other wars, was worrying to contemporary observers who were used
to stable prices
and, in accordance with the recommendations of an official enquiry
Britain adopted the
gold standard for the pound in 1816. For centuries earlier silver
had been the standard of
value. The pound was originally an amount of silver weighing a
pound. France and the
United States were in favour of a bimetallic standard and in 1867 an
international
conference was held in Paris to try and widen the area of common
currencies based on
coins with standard weights of gold and silver.
However when the various German states merged into a single country
in 1871 they
chose the gold standard. The Scandinavian countries adopted the gold
standard shortly
afterwards. France made the switch from bimetallism to gold in 1878
and Japan, which
had been on a silver standard, changed in 1897. Finally, in 1900,
the United States
officially adopted the gold standard. With the outbreak of the First
World War in 1914
Britain decided to withdraw gold from internal circulation and other
countries also broke
the link with gold. Germany returned to the gold standard in 1924
when it introduced a
new currency, the Reichsmark and Britain did the following year, and
France in 1928.
However the British government had fixed the value of sterling at an
unsustainably high
rate and in the worldwide economic crisis in 1931 Britain, followed
by most of the
Commonwealth (except Canada) Ireland, Scandinavia, Iraq, Portugal,
Thailand, and some
South American countries abandoned gold.
The United States kept the link to gold and after the Second World
War the US dollar
replaced the pound sterling as the key global currency. Other
countries fixed their
exchange rates against the dollar, the value of which remained
defined in terms of gold.
In the early 1970s the system of fixed exchange rates started to
break down as a result of
growing international inflation and the United States abandoned the
link with gold in
1973.
16
ACTUALISATION
Those who believe that money is an important source of economic
disturbance emphasize
that money enters into all transactions. When people purchase goods,
they are selling
money, and when merchants sell goods, they are buying money. The
Circular Flow
diagram illustrates that all purchases and sales involve money. The
flow of goods,
services, and resources moving clockwise is matched by a flow of
money circulating
counterclockwise.
The flow of money resembles the flow of a river, the amount of water
past a point on the
bank depends on the amount of water in a cross-section of the river
multiplied by the
velocity at which that cross section flows. In a similar way,
spending in the circular flow
can be found as: (1) Amount of Money x Velocity of Circulation =
Total Spending
Equation 1 is called the equation of exchange and is always true by
definition. If an
economy had $5.00 of money, and each dollar was spent four times a
month, total
monthly spending must be $20.00.1
The equation of exchange is a foundation on which the quantity
theory of money is built.
The quantity theory of money is a theory of the price level. It
argues that inflation is
caused by rapid increases in the quantity or money in circulation,
and that deflation is
caused by decreases or very slow increases in the quantity of money
in circulation.
The equation of exchange and the quantity theory are not identical.
The equation of
exchange holds by definition. We get the quantity theory only by
adding certain
assumptions about what is cause and what is effect. The process of
making assumptions
began in the 16th century with the argument that the inflow of gold
and silver from the
Americas was causing inflation in Europe.
17
ACTUALISATION
The conquistadors who followed Columbus to the Americas sent back to
Spain large
amounts of gold and silver that they obtained from plundering the
Aztec and Incan
empires and from mining. As this metal was coined, the amount of
money in circulation
rose, and at the same time prices began a slow, century long rise.
Intellectuals such as John Locke and David Hume refined the quantity
theory, but the
best early statement comes from an English banker, Henry Thornton,
in 1802. In the early
20th century the American economist Irving Fisher popularized the
equation of exchange
in its mathematical form (though in his version, Fisher separated
currency from checking
account money, a distinction that no one makes any more). After some
years of neglect,
basic ideas of the quantity theory saw new life in the 1950s and
1960s under the name
monetarism and re-entered mainstream economics.
To make the quantity theory work as a theory of price level, one
must clearly distinguish
between what happens in the long run or in equilibrium, and what can
happen in the short
run or in the adjustment process. The quantity theory in its
original form ignores all
adjustment problems, which is a legitimate way to proceed if only
the long run is of
interest.
Writing in 1802, Henry Thornton clearly states the central tenet of
what the quantity
theory suggests for equilibrium. An increase in the amount of money,
he says, will
neither be held idle nor greatly increase the amount of production.
Thus There remains no
other mode of accounting for the uses to which the additional supply
of it can be turned,
than that of supposing it to be occupied in carrying on the sales of
the same, or nearly the
same, quantity of articles as before, at an advanced price the cost
of goods being made to
bear the same, or nearly the same, proportion to their former cost,
which the total quantity
of paper at the one period bears to the total quantity at the other.
Thornton implies that total spending is made up of two parts, a
price part and a quantity
part. One hundred dollars of spending can buy either 25 units of
output at $4.00 each, or
50 units of output at $2.00 each. In terms of the equation of
exchange, this is usually
written as: (2) MV = Spending = PT where P is a price level and T is
the number of
transactions. If the amount of money in circulation doubles, the
quantity theory predicts
that, once in equilibrium, the price level will also double (or
close to it), and that if the
amount of money in circulation is cut in half, the price level will
be (about) one half its
former value after all adjustments have taken place. An alternative
way of viewing this is
to recognize that as prices go up, the value of money goes down, or
since it takes more
dollars to buy things, money is worth less (not worthless, however)
than it used to be.
The quantity theory states that an increase in the amount of money
relative to goods
decreases its value, and a decrease in the amount of money relative
to goods will increase
its value.
18
ACTUALISATION
Money is thus like any other commodity: increases in supply decrease
marginal value.
GSE All-Share Index
Closing
819.14
31 May 99
Level
Previous
819.14
28 May 99
close
12 month
1201.08
6 May 98
high
12 month
818.17
7 May 99
low
All-time
1201.08
6 May 98
high
All-time low
55.49
17 May 91
19
ACTUALISATION
Major movements 1999
Guinness
16.9%
Ghana Ltd
Fan Milk
13.6%
Ltd
Ghana
Commercial
-23.1%
Bank
Accra
Brewery
-23.5%
Ltd
SSB Ltd
-26.0%
The Exchange has so far performed remarkably well. Even though it is
relatively much
younger than most of the other African Stock Exchanges it seems to
enjoy increasingly
more attention and interest. There has been coverage by most of the
major electronic and
printed media interested in global financial news.
In terms of index performance, the Ghana Stock Exchange was the 6th
best performing
emerging stock market with capital appreciation modestly put at 116%
for 1993. Then in
1994, the Exchange was the best index performing stock market among
all the emerging
markets gaining 124.3% in its index level. However, in 1995, the
index increased by a
meager 6.3% due mainly to high levels of inflation and interest
rates prevailing in the
country during the period. This year there has however, been an
improvement.
As at 30th August, 1996, the index has risen by 20% and inflation is
falling. The average
rate of capital appreciation of 70% per annum since 1990 easily
exceeds the annual rate
of inflation in Ghana's economy for the period. Steady improvements
are being recorded
continuously in trade volumes and values. From 1990 to 1992, only 4
million shares at
about C350m were traded on the Exchange. However in 1994, alone, 93
million shares
worth C73b changed hands. 55 million shares worth C27 billion were
traded in 1995.
This year, so far 24.2 million shares worth C22 billion have been
sold in secondary
trading.
Primary market activities too, have been on the ascendancy. Over
Cl24 billion had been
raised through the Exchange as at August 1996. The simultaneous
listing of Ashanti
Goldfields Co. Ltd. (AGC) on the Ghana Stock Exchange and on the
London Stock
Exchange and the subsequent listing on New York, Toronto and
Zimbabwe Stock
Exchanges have given the Exchange a whole new international
dimension and stature.
ACTUALISATION
20
With its current market capitalization of some US$2 billion, the
Ghana Stock Exchange,
in terms of market capitalization, has become one of the largest
sub-Saharan Stock
Exchanges. Significant developments have also taken place since the
Exchange began its
operations. The opening of the market to non-resident Ghanaians and
foreigners in June
1993 was a big boost to the development of the market. Exchange
Control permission
was given to foreigners and non-resident Ghanaians to invest through
the Exchange
without prior approval. This has attracted a number of top-rated
foreign institutional
buyers.
The Government has also used the Exchange to privatise some state
owned enterprises
and banks. Notably amongst them were the Government's off-loading of
its shares in
Ashanti Goldfelds Company Ltd. (one of the largest mining companies
in the world) and
Ghana Commercial Bank one of the largest Banks in sub-Saharan
Africa). A long term
debt market is being developed to enable the Government and
corporate bodies to issue
long term debt instruments. A comprehensive educational programme
has been
developed to upgrade the skills of professionals in the securities
market.
The Exchange expects the Government to divest more State Owned
Enterprises and
Banks through the Exchange. The Exchange also expects more listings
from the private
sector. The forthcoming issues include National Investment Bank,
Aluworks Ltd. and
Home Finance Company Ltd. Housing Bonds. Some corporate and
government bonds are
also expected to be issued and listed as part of the capital
market's ongoing long term
debt development programme. Work on an automated Trading, Clearing
and Settlement
system is to commence soon. It is aimed at enhancing the efficiency
of the trading,
clearing and settlement system. As at now, the Exchange operates a
centralised manual
clearing and settlement system. Plans are also underway to develop
some new financial
products such as pooled funds, commodity futures and other
derivatives.
Apart from the above prospective developments, various measures are
also being adopted
to develop the markets and they include: improving the
legal/regulatory framework;
improving market surveillance, conflict resolution and enforcement
mechanisms and
otherwise enhancing investor protection within the Exchange; and
enhancing the skills
and professionalism of the Exchange's personnel as well as those of
all market operators
at all levels; expanding the coverage of the Exchange's promotional
activities within
Ghana and abroad as well as market-related professional education
and training
programmes. The Government, on its part, continues to pursue
measures in the areas of
taxation, macroeconomic policy, institutional and legal reforms as
well as improvement
in the infrastructure, among others, to enhance the investment
environment. All these
measures
ACTUALISATION
21
A quote from www.microsoft.com/office
Barclays Bank promised and delivered shareholders cost reductions of
�1 billion and
needed to find new ways of streamlining business processes and
increasing efficiency to
meet this target. As part of this exercise, the bank chose to
standardise its desktops on
Microsoft software, and adopt the Microsoft Office System, such as
Microsoft Office
SharePoint Portal Server 2003. Barclays chose Microsoft technology,
over the
alternatives, for its high-security, integrated, and
easy-to-maintain infrastructure in order
to manage its vast network of over 41,000 internal users. Enhanced
tools enable
employees to safely collaborate on business-critical documents
regardless of location and
speed up the decision-making processes. In addition, improved
information access will
speed up response times and improve customer service. Barclays Bank
expects to see
significant financial returns through increased productivity,
helping it to quickly achieve
further cost-savings targets.
Like most large enterprises, banks are increasingly being held
accountable to customers
and shareholders. With business processes under scrutiny and
mounting pressure to
reduce operational costs, it is no longer enough to rely on
individual technology
implementations at different sites. Organisations such as Barclays
Bank are starting to see
the value in standardising technologies across the entire
organisation and rolling out new
collaboration tools that help workers deliver services that keep the
competition at bay.
One of the world's largest financial institutions, Barclays Bank,
provides multi-channel
services, such as online, telephone, and branch banking to its
retail and wholesale
commercial banking customers across the UK, Europe, and Africa. Of
the 55,000 staff
Barclays employs, over 41,000 operate from the UK. These employees
provide customer
services to around 14 million personal customers from distributed
sites and offices.
New cost-cutting targets to meet shareholder demands prompted
Barclays to improve
productivity and deliver an improved, more responsive service to
customers. Kevin
Lloyd, Chief Technology Officer, Barclays Bank, says: "We announced
to the market
four years ago that we would cut �1 billion out of our cost base and
commit double
economic profit for our shareholders every four years."
Historically, a business unit determined its own technology
deployments, within certain
parameters, which allowed for levels of autonomy. But Barclays Bank
realised that this
model restricted collaboration between staff across the
organisation. It was concerned
that consequent delays in business processes would slow
time-to-market for new
products, which could impact customer loyalty and acquisition. "The
simplest things
were difficult, such as keeping track of document versions, and we
wanted to improve
control over access and tracking," says Lloyd. More important was
the need to find a
software solution that could meet all the requirements of a business
of Barclays' scale,
and one that could free up communications without compromising the
large quantities of
highly-sensitive information processed daily.
ACTUALISATION
22
As you can imagine, controlling and managing collaboration services
and desktop
productivity in an organisation of this size is expensive, says
Lloyd. The bank was also
keen to consolidate its desktops on a standard platform that would
enable better
collaboration and that could be managed centrally to cut maintenance
costs. But until
recently, Barclays was unable to find a solution that performed on
all levels. In February
2005, 5,000 Barclays Bank staff are due to move into a new head
office in Canary Wharf,
London, from a number of London offices. The bank intends to
implement a
standard Information Technology infrastructure here first, before
rolling it out to the
remaining users across the UK.
Barclays chose to implement a desktop and collaboration environment
based on
Microsoft� technologies. "For some time we have relied upon services
in the UNIX and
Java area, but we were extremely impressed by the high level of
integration and world-
class collaboration products that Microsoft offers. We were
convinced by the elegant way
that Microsoft technologies work together, combining portals,
workflow, and
collaboration solutions in a way that will enable us to standardise
desktops and improve
customer service while reducing costs," says Lloyd. Even more
important to Barclays
was that the solution scales to meet the needs of an organisation of
over 41,000 users.
"Our relationship with Microsoft has grown as we've seen it develop
into the enterprise
space. Microsoft's experience is very obvious--it can speak in a
corporate language and
its products perform and deliver at scale. It will be the first time
we have had a
demonstrable flagship head office that is modern and fully equipped
for effective
enterprise collaboration," says Lloyd.
A partnership between Microsoft, service provider EDS, and HP forms
the basis of the
Barclays Bank implementation. EDS will provide hosting and support
for Microsoft
technologies in a seven-year contract, Microsoft provides the
desktop and server
software, and HP will provide the servers to support the hosted
activities. To support its
standardised desktop environment, Barclays chose to implement
Microsoft Windows
ServerTM 2003 Enterprise Edition operating system. Part of the
Windows Server
SystemTM integrated server software, it supports the network
infrastructure and
incorporates the benefits of Microsoft .NET connection software for
connecting
information, people and systems, such as the bank's existing legacy
applications, across
the enterprise.
The bank will also deploy Microsoft Windows� XP Professional
operating system on the
desktop and the Microsoft Office System, an integrated system of
applications including
Microsoft Office Word 2003, Microsoft Office PowerPoint� 2003
presentation graphics
program and Microsoft Office Outlook� 2003 messaging and
collaboration client. Core
programs in the Microsoft Office System also integrate with
Microsoft SharePoint�
Products and Technologies to help employees work together without
leaving their
desktop applications.
ACTUALISATION
23
For Lloyd, the selection of Microsoft Office SharePoint Portal
Server 2003 was
fundamental to support the bank's demanding collaboration needs. It
is a secure enterprise
portal server that provides a single point of access to the
organisation's applications from
a single Web page portal. It connects users and teams, enabling them
to efficiently
manage business-critical information. Combined, these technologies
deliver enhanced
communications across the organisation. Tools that enable IT
administrators to centrally
control information access and document security ensure the bank has
greater control
over sensitive documents without sacrificing employees' ability to
share data.
The new features will enable us to get a grip on where information
is going and who's
accessing or editing it," says Lloyd. For users, enhanced
collaboration tools such as
document workspaces enable teams to edit and discuss documents and
track previous
versions, while an alerts feature keeps them informed of any changes
or updates. Benefits
Fast Return on Investment It was imperative that Barclays Bank could
foresee significant
returns soon after the technology implementation to remain on target
to meet its promise
to shareholders. The bank intends to use its investment in
technology to support its
competitive edge. By streamlining business processes, employees can
spend more time
developing important services for customers.
The bank will carefully measure cost benefits as the project
progresses, but Lloyd
predicts that Barclays will see early returns. In fact, he says he
is confident that they will
be bigger than anticipated. "All of our products undergo a strict
value-based management
assessment. But we are absolutely certain that from what we can see
and measure today,
the return on investment will be sizeable. Passing Benefits on to
Customers Seamless
integration with the bank's back-end enterprise services ensures
that Microsoft
technologies support its customer-facing services. Staff in call
centres and branches will
have immediate access to critical customer data via intuitive
interfaces. This ensures that
employees can respond quickly and efficiently to customer requests,
and potentially help
more customers each day.
Barclays expects employees to see numerous improvements in their
day-to-day work
with better control over vast amounts of information. Improved
collaboration on data and
documents will enable users to manage tasks more effectively, keep
important
discussions flowing, and ultimately speed up business decisions.
Best practices and ideas
are available to relevant staff regardless of location, and they can
efficiently search for
and share documents, confident that they are the seeing most recent
versions. "We will
have the ability to manage, index, and secure our data, and be
confident of how it's used.
Groups of employees across the enterprise can come together to
significantly improve
worker productivity, something that we have not been able to achieve
in the past," says
Lloyd.
Lloyd believes that collaborative tools are becoming essential for
working on business-
critical documents, such as value propositions, in a large
enterprise.
ACTUALISATION
24
If you put a proposition together, it's going to transcend a number
of distinct business
units or input groups. The portal makes the information sources easy
to access and
collaborate on in a structured way, where everyone can find relevant
resources in one
place. It's much easier than trying to point everyone to different
Internet pages, for
example. The bank expects that standardising the server environment
and desktops on
Windows technologies, combined with enhanced applications and
products, will
eliminate what has been a large source of service complaints and
frustration among staff.
As we relocate and take stock of corporate strategy, the desktop
environment is one of the
most important single areas we will tackle in terms of productivity
improvement, cost
control, and service-level satisfaction," says Lloyd. User-friendly
tools, which provide
easy access to applications and databases, and integrated
collaboration features help,
ensure that users get the most out of IT, with minimal training. The
reliable platform will
minimise downtime and ensure workers have constant access to the
services they need,
while centralised management tools take the strain off IT teams.
The information portal will bring people together quickly by
broadening the methods of
collaboration. Workers will no longer waste time on searching for
information or
contacting colleagues, and urgent matters can be dealt with almost
instantly. "SharePoint
Portal Server 2003 is now part of our business strategy and supports
our business drivers
in an unrivaled way," says Lloyd. Barclays Bank is confident that
users will be able to
operate the new tools and applications quickly and easily. "Staff
are comfortable using
Microsoft products at home, so they are already familiar with the
technology. As a result,
we believe they will be able to intuitively use the new features and
functions at enterprise
scale," says Lloyd.
Lloyd expects that the savings achieved through integration will
further contribute to the
cost reduction targets at Barclays Bank, while training and
education can be kept to a
minimum. "We expect our users to adopt the corporate applications
and services that
we're planning to deliver with ease. We will also educate them in
skills such as quick
manipulation of data for our servicing channels and in our
face-to-face branch activities."
With a great deal of security issues surrounding financial
institutions, Barclays was well
aware of the need for a system that ensured data protection in all
aspects of the operation.
But Lloyd is confident that a Microsoft solution adequately provides
the necessary levels
of security. He says:
The Microsoft commitment to security is reflected in the features of
Windows Server
2003 and SharePoint Portal 2003. We wouldn't have invested in these
technologies if we
weren't convinced that the releases are well engineered and the
mechanisms used to
authenticate and police the software are reliable. Barclays Bank
sees this implementation
as the beginning of a new era of technology rollouts inside the
organisation.
ACTUALISATION
25
As Web services and World Wide Web penetration starts to dictate to
us what we deliver
and how we react to customer requests, my view is we will have to
increasingly adopt
Microsoft products to support these drivers and requirements.
Barclays Bank promised and delivered shareholders cost reductions of
�1 billion and
needed to find new ways of streamlining business processes and
increasing efficiency to
meet this target. As part of this exercise, the bank chose to
standardise its desktops on
Microsoft software, and adopt the Microsoft Office System, such as
Microsoft Office
SharePoint Portal Server 2003. Barclays chose Microsoft technology,
over the
alternatives, for its high-security, integrated, and
easy-to-maintain infrastructure in order
to manage its vast network of over 41,000 internal users. Enhanced
tools enable
employees to safely collaborate on business-critical documents
regardless of location and
speed up the decision-making processes. In addition, improved
information access will
speed up response times and improve customer service. Barclays Bank
expects to see
significant financial returns through increased productivity,
helping it to quickly achieve
further cost-savings targets.
Like most large enterprises, banks are increasingly being held
accountable to customers
and shareholders. With business processes under scrutiny and
mounting pressure to
reduce operational costs, it is no longer enough to rely on
individual technology
implementations at different sites. Organisations such as Barclays
Bank are starting to see
the value in standardising technologies across the entire
organisation and rolling out new
collaboration tools that help workers deliver services that keep the
competition at bay.
One of the world's largest financial institutions, Barclays Bank,
provides multi-channel
services, such as online, telephone, and branch banking to its
retail and wholesale
commercial banking customers across the UK, Europe, and Africa. Of
the 55,000 staff
Barclays employs, over 41,000 operate from the UK. These employees
provide customer
services to around 14 million personal customers from distributed
sites and offices.
New cost-cutting targets to meet shareholder demands prompted
Barclays to improve
productivity and deliver an improved, more responsive service to
customers. Kevin
Lloyd, Chief Technology Officer, Barclays Bank, says: "We announced
to the market
four years ago that we would cut �1 billion out of our cost base and
commit double
economic profit for our shareholders every four years."
Historically, a business unit determined its own technology
deployments, within certain
parameters, which allowed for levels of autonomy. But Barclays Bank
realised that this
model restricted collaboration between staff across the
organisation. It was concerned
that consequent delays in business processes would slow
time-to-market for new
products, which could impact customer loyalty and acquisition. "The
simplest things
were difficult, such as keeping track of document versions, and we
wanted to improve
control over access and tracking," says Lloyd.
ACTUALISATION
26
More important was the need to find a software solution that could
meet all the
requirements of a business of Barclays' scale, and one that could
free up communications
without compromising the large quantities of highly-sensitive
information processed
daily. "As you can imagine, controlling and managing collaboration
services and desktop
productivity in an organisation of this size is expensive," says
Lloyd. The bank was also
keen to consolidate its desktops on a standard platform that would
enable better
collaboration and that could be managed centrally to cut maintenance
costs. But until
recently, Barclays was unable to find a solution that performed on
all levels.
In February 2005, 5,000 Barclays Bank staff are due to move into a
new head office in
Canary Wharf, London, from a number of London offices. The bank
intends to
implement a standard Information Technology infrastructure here
first, before rolling it
out to the remaining users across the UK. Barclays chose to
implement a desktop and
collaboration environment based on Microsoft� technologies. "For
some time we have
relied upon services in the UNIX and Java area, but we were
extremely impressed by the
high level of integration and world-class collaboration products
that Microsoft offers.
We were convinced by the elegant way that Microsoft technologies
work together,
combining portals, workflow, and collaboration solutions in a way
that will enable us to
standardise desktops and improve customer service while reducing
costs," says Lloyd.
Even more important to Barclays was that the solution scales to meet
the needs of an
organisation of over 41,000 users. "Our relationship with Microsoft
has grown as we've
seen it develop into the enterprise space. Microsoft's experience is
very obvious--it can
speak in a corporate language and its products perform and deliver
at scale. It will be the
first time we have had a demonstrable flagship head office that is
modern and fully
equipped for effective enterprise collaboration," says Lloyd.
A partnership between Microsoft, service provider EDS, and HP forms
the basis of the
Barclays Bank implementation. EDS will provide hosting and support
for Microsoft
technologies in a seven-year contract, Microsoft provides the
desktop and server
software, and HP will provide the servers to support the hosted
activities. To support its
standardised desktop environment, Barclays chose to implement
Microsoft Windows
ServerTM 2003 Enterprise Edition operating system. Part of the
Windows Server
SystemTM integrated server software, it supports the network
infrastructure and
incorporates the benefits of Microsoft .NET connection software for
connecting
information, people and systems, such as the bank's existing legacy
applications, across
the enterprise.
The bank will also deploy Microsoft Windows� XP Professional
operating system on the
desktop and the Microsoft Office System, an integrated system of
applications including
Microsoft Office Word 2003, Microsoft Office PowerPoint� 2003
presentation graphics
program and Microsoft Office Outlook� 2003 messaging and
collaboration client. Core
programs in the Microsoft Office System also integrate with
Microsoft SharePoint�
Products and Technologies to help employees work together without
leaving their
desktop applications.
ACTUALISATION
27
For Lloyd, the selection of Microsoft Office SharePoint Portal
Server 2003 was
fundamental to support the bank's demanding collaboration needs. It
is a secure enterprise
portal server that provides a single point of access to the
organisation's applications from
a single Web page portal. It connects users and teams, enabling them
to efficiently
manage business-critical information. Combined, these technologies
deliver enhanced
communications across the organisation. Tools that enable IT
administrators to centrally
control information access and document security ensure the bank has
greater control
over sensitive documents without sacrificing employees' ability to
share data. "The new
features will enable us to get a grip on where information is going
and who's accessing or
editing it," says Lloyd. For users, enhanced collaboration tools
such as document
workspaces enable teams to edit and discuss documents and track
previous versions,
while an alerts feature keeps them informed of any changes or
updates.
It was imperative that Barclays Bank could foresee significant
returns soon after the
technology implementation to remain on target to meet its promise to
shareholders. The
bank intends to use its investment in technology to support its
competitive edge. By
streamlining business processes, employees can spend more time
developing important
services for customers.
The bank will carefully measure cost benefits as the project
progresses, but Lloyd
predicts that Barclays will see early returns. In fact, he says he
is confident that they will
be bigger than anticipated. "All of our products undergo a strict
value-based management
assessment. But we are absolutely certain that from what we can see
and measure today,
the return on investment will be sizeable. Seamless integration with
the bank's back-end
enterprise services ensures that Microsoft technologies support its
customer-facing
services. Staff in call centres and branches will have immediate
access to critical
customer data via intuitive interfaces. This ensures that employees
can respond quickly
and efficiently to customer requests, and potentially help more
customers each day.
Barclays expects employees to see numerous improvements in their
day-to-day work
with better control over vast amounts of information. Improved
collaboration on data and
documents will enable users to manage tasks more effectively, keep
important
discussions flowing, and ultimately speed up business decisions.
Best practices and ideas
are available to relevant staff regardless of location, and they can
efficiently search for
and share documents, confident that they are the seeing most recent
versions. "We will
have the ability to manage, index, and secure our data, and be
confident of how it's used.
Groups of employees across the enterprise can come together to
significantly improve
worker productivity, something that we have not been able to achieve
in the past," says
Lloyd.
Lloyd believes that collaborative tools are becoming essential for
working on business-
critical documents, such as value propositions, in a large
enterprise.
ACTUALISATION
28
If you put a proposition together, it's going to transcend a number
of distinct business
units or input groups. The portal makes the information sources easy
to access and
collaborate on in a structured way, where everyone can find relevant
resources in one
place. It's much easier than trying to point everyone to different
Internet pages, for
example.
The bank expects that standardising the server environment and
desktops on Windows
technologies, combined with enhanced applications and products, will
eliminate what has
been a large source of service complaints and frustration among
staff.
As we relocate and take stock of corporate strategy, the desktop
environment is one of the
most important single areas we will tackle in terms of productivity
improvement, cost
control, and service-level satisfaction," says Lloyd. User-friendly
tools, which provide
easy access to applications and databases, and integrated
collaboration features help,
ensure that users get the most out of IT, with minimal training. The
reliable platform will
minimise downtime and ensure workers have constant access to the
services they need,
while centralised management tools take the strain off IT teams.
The information portal will bring people together quickly by
broadening the methods of
collaboration. Workers will no longer waste time on searching for
information or
contacting colleagues, and urgent matters can be dealt with almost
instantly. "SharePoint
Portal Server 2003 is now part of our business strategy and supports
our business drivers
in an unrivaled way," says Lloyd.
Barclays Bank is confident that users will be able to operate the
new tools and
applications quickly and easily. "Staff are comfortable using
Microsoft products at home,
so they are already familiar with the technology. As a result, we
believe they will be able
to intuitively use the new features and functions at enterprise
scale," says Lloyd.
Lloyd expects that the savings achieved through integration will
further contribute to the
cost reduction targets at Barclays Bank, while training and
education can be kept to a
minimum. "We expect our users to adopt the corporate applications
and services that
we're planning to deliver with ease. We will also educate them in
skills such as quick
manipulation of data for our servicing channels and in our
face-to-face branch activities."
With a great deal of security issues surrounding financial
institutions, Barclays was well
aware of the need for a system that ensured data protection in all
aspects of the operation.
But Lloyd is confident that a Microsoft solution adequately provides
the necessary levels
of security. He says: "The Microsoft commitment to security is
reflected in the features of
Windows Server 2003 and SharePoint Portal 2003. We wouldn't have
invested in these
technologies if we weren't convinced that the releases are well
engineered and the
mechanisms used to authenticate and police the software are
reliable."
ACTUALISATION
29
Barclays Bank sees this implementation as the beginning of a new era
of technology
rollouts inside the organisation. "As Web services and World Wide
Web penetration
starts to dictate to us what we deliver and how we react to customer
requests, my view is
we will have to increasingly adopt Microsoft products to support
these drivers and
requirements.
Barclays Bank promised and delivered shareholders cost reductions of
�1 billion and
needed to find new ways of streamlining business processes and
increasing efficiency to
meet this target. As part of this exercise, the bank chose to
standardise its desktops on
Microsoft software, and adopt the Microsoft Office System, such as
Microsoft Office
SharePoint Portal Server 2003. Barclays chose Microsoft technology,
over the
alternatives, for its high-security, integrated, and
easy-to-maintain infrastructure in order
to manage its vast network of over 41,000 internal users. Enhanced
tools enable
employees to safely collaborate on business-critical documents
regardless of location and
speed up the decision-making processes. In addition, improved
information access will
speed up response times and improve customer service. Barclays Bank
expects to see
significant financial returns through increased productivity,
helping it to quickly achieve
further cost-savings targets.
Like most large enterprises, banks are increasingly being held
accountable to customers
and shareholders. With business processes under scrutiny and
mounting pressure to
reduce operational costs, it is no longer enough to rely on
individual technology
implementations at different sites. Organisations such as Barclays
Bank are starting to see
the value in standardising technologies across the entire
organisation and rolling out new
collaboration tools that help workers deliver services that keep the
competition at bay.
One of the world's largest financial institutions, Barclays Bank,
provides multi-channel
services, such as online, telephone, and branch banking to its
retail and wholesale
commercial banking customers across the UK, Europe, and Africa. Of
the 55,000 staff
Barclays employs, over 41,000 operate from the UK.
These employees provide customer services to around 14 million
personal customers
from distributed sites and offices. New cost-cutting targets to meet
shareholder demands
prompted Barclays to improve productivity and deliver an improved,
more responsive
service to customers. Kevin Lloyd, Chief Technology Officer,
Barclays Bank, says: "We
announced to the market four years ago that we would cut �1 billion
out of our cost base
and commit double economic profit for our shareholders every four
years. Historically, a
business unit determined its own technology deployments, within
certain parameters,
which allowed for levels of autonomy. But Barclays Bank realised
that this model
restricted collaboration between staff across the organisation. It
was concerned that
consequent delays in business processes would slow time-to-market
for new products,
which could impact customer loyalty and acquisition. "The simplest
things were difficult,
such as keeping track of document versions, and we wanted to improve
control over
access and tracking," says Lloyd.
ACTUALISATION
30
More important was the need to find a software solution that could
meet all the
requirements of a business of Barclays' scale, and one that could
free up communications
without compromising the large quantities of highly-sensitive
information processed
daily. "As you can imagine, controlling and managing collaboration
services and desktop
productivity in an organisation of this size is expensive," says
Lloyd. The bank was also
keen to consolidate its desktops on a standard platform that would
enable better
collaboration and that could be managed centrally to cut maintenance
costs. But until
recently, Barclays was unable to find a solution that performed on
all levels.
In February 2005, 5,000 Barclays Bank staff are due to move into a
new head office in
Canary Wharf, London, from a number of London offices. The bank
intends to
implement a standard Information Technology infrastructure here
first, before rolling it
out to the remaining users across the UK. Barclays chose to
implement a desktop and
collaboration environment based on Microsoft� technologies. "For
some time we have
relied upon services in the UNIX and Java area, but we were
extremely impressed by the
high level of integration and world-class collaboration products
that Microsoft offers. We
were convinced by the elegant way that Microsoft technologies work
together, combining
portals, workflow, and collaboration solutions in a way that will
enable us to standardise
desktops and improve customer service while reducing costs," says
Lloyd.
Even more important to Barclays was that the solution scales to meet
the needs of an
organisation of over 41,000 users. "Our relationship with Microsoft
has grown as we've
seen it develop into the enterprise space. Microsoft's experience is
very obvious--it can
speak in a corporate language and its products perform and deliver
at scale. It will be the
first time we have had a demonstrable flagship head office that is
modern and fully
equipped for effective enterprise collaboration," says Lloyd. A
partnership between
Microsoft, service provider EDS, and HP forms the basis of the
Barclays Bank
implementation. EDS will provide hosting and support for Microsoft
technologies in a
seven-year contract, Microsoft provides the desktop and server
software, and HP will
provide the servers to support the hosted activities.
To support its standardised desktop environment, Barclays chose to
implement Microsoft
Windows ServerTM 2003 Enterprise Edition operating system. Part of
the Windows
Server SystemTM integrated server software, it supports the network
infrastructure and
incorporates the benefits of Microsoft .NET connection software for
connecting
information, people and systems, such as the bank's existing legacy
applications, across
the enterprise. The bank will also deploy Microsoft Windows� XP
Professional
operating system on the desktop and the Microsoft Office System, an
integrated system
of applications including Microsoft Office Word 2003, Microsoft
Office PowerPoint�
2003 presentation graphics program and Microsoft Office Outlook�
2003 messaging and
collaboration client. Core programs in the Microsoft Office System
also integrate with
Microsoft SharePoint� Products and Technologies to help employees
work together
without leaving their desktop applications.
ACTUALISATION
31
For Lloyd, the selection of Microsoft Office SharePoint Portal
Server 2003 was
fundamental to support the bank's demanding collaboration needs. It
is a secure enterprise
portal server that provides a single point of access to the
organisation's applications from
a single Web page portal. It connects users and teams, enabling them
to efficiently
manage business-critical information.
Combined, these technologies deliver enhanced communications across
the organisation.
Tools that enable IT administrators to centrally control information
access and document
security ensure the bank has greater control over sensitive
documents without sacrificing
employees' ability to share data. "The new features will enable us
to get a grip on where
information is going and who's accessing or editing it," says Lloyd.
For users, enhanced
collaboration tools such as document workspaces enable teams to edit
and discuss
documents and track previous versions, while an alerts feature keeps
them informed of
any changes or updates.
It was imperative that Barclays Bank could foresee significant
returns soon after the
technology implementation to remain on target to meet its promise to
shareholders. The
bank intends to use its investment in technology to support its
competitive edge. By
streamlining business processes, employees can spend more time
developing important
services for customers. The bank will carefully measure cost
benefits as the project
progresses, but Lloyd predicts that Barclays will see early returns.
In fact, he says he is
confident that they will be bigger than anticipated.
"All of our products undergo a strict value-based management
assessment. But we are
absolutely certain that from what we can see and measure today, the
return on investment
will be sizeable.
Seamless integration with the bank's back-end enterprise services
ensures that Microsoft
technologies support its customer-facing services. Staff in call
centres and branches will
have immediate access to critical customer data via intuitive
interfaces. This ensures that
employees can respond quickly and efficiently to customer requests,
and potentially help
more customers each day.
Efficient Team Collaboration
Barclays expects employees to see numerous improvements in their
day-to-day work
with better control over vast amounts of information. Improved
collaboration on data and
documents will enable users to manage tasks more effectively, keep
important
discussions flowing, and ultimately speed up business decisions.
Best practices and ideas
are available to relevant staff regardless of location, and they can
efficiently search for
and share documents, confident that they are the seeing most recent
versions.
"We will have the ability to manage, index, and secure our data, and
be confident of how
it's used. Groups of employees across the enterprise can come
together to significantly
improve worker productivity, something that we have not been able to
achieve in the
past," says Lloyd.
Lloyd believes that collaborative tools are becoming essential for
working on business-
critical documents, such as value propositions, in a large
enterprise.
ACTUALISATION
32
If you put a proposition together, it's going to transcend a number
of distinct business
units or input groups. The portal makes the information sources easy
to access and
collaborate on in a structured way, where everyone can find relevant
resources in one
place. It's much easier than trying to point everyone to different
Internet pages, for
example.
The bank expects that standardising the server environment and
desktops on Windows
technologies, combined with enhanced applications and products, will
eliminate what has
been a large source of service complaints and frustration among
staff. As we relocate and
take stock of corporate strategy, the desktop environment is one of
the most important
single areas we will tackle in terms of productivity improvement,
cost control, and
service-level satisfaction, says Lloyd.
User-friendly tools, which provide easy access to applications and
databases, and
integrated collaboration features help, ensure that users get the
most out of IT, with
minimal training. The reliable platform will minimise downtime and
ensure workers have
constant access to the services they need, while centralised
management tools take the.
The information portal will bring people together quickly by
broadening the methods of
collaboration. Workers will no longer waste time on searching for
information or
contacting colleagues, and urgent matters can be dealt with almost
instantly. "SharePoint
Portal Server 2003 is now part of our business strategy and supports
our business drivers
in an unrivaled way," says Lloyd. Barclays Bank is confident that
users will be able to
operate the new tools and applications quickly and easily. "Staff
are comfortable using
Microsoft products at home, so they are already familiar with the
technology. As a result,
we believe they will be able to intuitively use the new features and
functions at enterprise
scale," says Lloyd.
Lloyd expects that the savings achieved through integration will
further contribute to the
cost reduction targets at Barclays Bank, while training and
education can be kept to a
minimum. "We expect our users to adopt the corporate applications
and services that
we're planning to deliver with ease. We will also educate them in
skills such as quick
manipulation of data for our servicing channels and in our
face-to-face branch activities."
With a great deal of security issues surrounding financial
institutions, Barclays was well
aware of the need for a system that ensured data protection in all
aspects of the operation.
But Lloyd is confident that a Microsoft solution adequately provides
the necessary levels
of security. He says: "The Microsoft commitment to security is
reflected in the features of
Windows Server 2003 and SharePoint Portal 2003.
ACTUALISATION
33
We wouldn't have invested in these technologies if we weren't
convinced that the releases
are well engineered and the mechanisms used to authenticate and
police the software are
reliable. Barclays Bank sees this implementation as the beginning of
a new era of
technology rollouts inside the organisation. "As Web services and
World Wide Web
penetration starts to dictate to us what we deliver and how we react
to customer requests,
my view is we will have to increasingly adopt Microsoft products to
support these drivers
and requirements."
GENERAL RECOMMENDATION
34
Arguably, the role of a capital market is to link the funding needs
of firms and
households with the needs of investors, and thus realize efficient
fund allocation. While I
used the term 'efficient fund allocation,' it is by no means the
mere process of quantitative
allocation. Interest rates, which are the price of funds, are
determined by supply and
demand in the market. As a market expands, various participants
enter and the market
and prices are formed more efficiently, resulting in more efficient
fund allocation.
Through such a process is the basis for economic development formed.
This is the significance of developing capital markets, in the
household sector, the
accumulation of financial assets and aging have led to an increase
in assets such as
pension and insurance funds, and the demands of institutional
investors for long-term
investment vehicles have been increasing. A challenge for the
capital markets is thus to
provide various long-term financial products in response to such
heightened needs.
In the meantime, many firms have actively been making efforts to
innovate their
management style under a rapidly changing industrial structure. In
the process, firms
have come to face increasingly complicated and diversified risks.
One role for the capital
markets is to provide a variety of risk-hedge methods against such
diversified risks as
price volatility pertaining to interest rates, foreign exchange
rates, stock prices, and
property prices.
Banks should naturally also play a role in efficient fund
allocation. As we all know, they
play a financial intermediary function between fund-raisers and
depositors by accepting
deposits and extending loans, in other words, taking certain risks
themselves using their
own balance sheets. There is no point in discussing the relative
importance of banks and
capital markets, as they ought to complement each other to support a
nation's financial
and economic system. In fact, there have been several instances in
the US when capital
markets substituted for the flow of funds through banks when they
were in trouble, and,
to the contrary, banks expanded fund provision to firms instead of
the capital markets
when they contracted due to certain shocks. For example, when the
large hedge-fund
Long-term Capital Management collapsed in autumn 1998, capital
markets contracted
rapidly and corporate bond issuance declined.
However, smooth fund provision to firms was preserved thanks to a
substantial increase
in bank lending, successfully replacing fund provision via capital
markets.
As such, it is desirable to see banks and capital markets develop
together by being closely
connected and influencing each other, and supporting Japan's economy
from the financial
front. Since banks are currently saddled with non-performing loans,
NPLs, the role of
capital markets has become especially important.
GENERAL RECOMMENDATION
35
A report entitled "Japan's Non-performing Loan Problem," published
by the Bank of
Japan in October, advocated comprehensive measures were inevitable
in order to
overcome the NPL problem, including a prompt grasp of the economic
value of such
loans, the promotion of their prompt disposal, and improvement in
the earning power of
both borrowing firms and banks. Subsequently, the Financial Services
Agency
formulated its Program for Financial Revival and, on November 29,
announced a
timetable.
Taking into account such developments with respect to the NPL
problem, banks have
been vigorously striving to strengthen their management base by
focusing on the prompt
disposal of NPLs and an improvement in earning power. Under such an
environment, the
significance of developing capital markets is manifold. Firstly, it
is important to take
advantage of capital market functions in order to maintain smooth
corporate finance.
In the process of banks pursuing ways to strengthen themselves, it
is likely they will aim
at adjusting the composition of their portfolio to strike an
appropriate balance with their
net worth while reducing their assets to some extent.
While this might be seen as implying a reduction in new loans, the
reality is that banks
have so far adjusted their portfolios through measures such as the
securitization of
existing loan assets, a reduction in foreign assets, and selling
their securities holdings. In
the long run, such moves are necessary if an efficient financial
intermediary function is to
be restored on the part of banks, but we have to be vigilant as to
what effect it will have
on corporate financing.
In order to ensure smooth corporate financing, firms need to devise
ways from various
angles. One such angle is utilization of the capital market. As
previously mentioned,
banks and capital markets are complementary, and capital markets are
expected to
substitute for the role of banks in the event banks are faced with
problems. In fact, in
addition to direct funding measures such as corporate debentures and
CP, recent
developments in financial technology have facilitated the
securitization and liquidation of
loan assets into forms in line with investor needs. These
developments cannot resolve all
problems attaching to corporate finance, but I believe that, in
order to ensure smooth
corporate finance, firms should not leave the capital market
function unutilized.
Secondly, and from a slightly different perspective, it can be
pointed out that the more
efficient pricing in capital markets becomes, the more favorable
effects will emerge with
respect to the disposal of NPLs and an improvement in earning power.
In disposing of
NPLs, banks are required to make efforts to remove such loans from
their balance sheets
upon setting aside appropriate provisions.
GENERAL RECOMMENDATION
36
Such off-balancing could be realized through the secondary market
for loan assets, and,
the mere existence of a market with various investors makes it
easier for banks to find
investors who have a strong willingness and know how for reviving
troubled firms, and
thus the path for business revival might become more visible. In
addition, through such a
process, prices for securitized loan assets will be formed at levels
which are acceptable or
borrowers and lenders have no choice but to accept, and banks would
be able to more
smoothly promote the disposal of NPLs by making reference to those
prices in the
secondary market.
In the future, when the disposal of NPLs and corporate
rehabilitation is conducted
through the Resolution and Collection Corporation and the Corporate
Rehabilitation
Organization, if there is a secondary market for loan assets, and
market prices are formed
transparently for various loan assets, such prices could be used
effectively as a clue to
evaluate individual corporate value. In addition, from the viewpoint
of strengthening
earning power, banks have to endeavor to set more appropriate
lending rates which
correspond to the risks. In so doing, if there are developed
secondary markets for loan
assets, then banks can judge the appropriateness of their lending
rates by using such
market prices as a reference together with their own risk evaluation
methods.
As such, the process of strengthening bank management encourages the
expansion of
capital markets, and banks can strengthen their own management if
capital markets
function effectively. Strengthening bank management can trigger the
development of
capital markets, and efforts should be made to this end.
In macroeconomics, money supply monetary aggregates, money stock is
the quantity of
currency and money in bank accounts in the hands of the non-bank
public available
within the economy to purchase goods, services, and securities. The
rate of interest is the
price of money. The two are related inversely, such that, as money
supply increases
interest rates will fall. When the interest rate equates the
quantity of money demanded
with the quantity of money supply, the economy is working at the
money market
equilibrium.
CONCLUSION
37
The money demand market uses the same tools of analysis as to other
markets: supply
and demand result in an equilibrium price, where the free market or
long term interest
rate plus the quantity of real money available balance the demand
for money. Short term
rates are artificially manipulated by the Federal Reserve in the
open market.
When thinking about the "supply" of money, it is natural to think of
the total of
banknotes and coins in an economy. That, however, is vastly
incomplete. In the United
States, coins are minted by the United States Mint, part of the
Department of the
Treasury, outside of the Federal Reserve. Banknotes are printed by
the Bureau of
Engraving & Printing on behalf of the Federal Reserve System. The
Federal Reserve can
also create book-keeping credits in the reserve accounts of its
member banks, on the same
terms as it can issue paper banknotes by pledging collateral,
usually in the form of US
Treasury securities. As it always stands ready to exchange these
book-keeping credits for
paper banknotes, they are functionally equivalent.
In this respect, all paper banknotes in existence are systematically
linked to the expansion
of the electronic, credit-based money supply. Coinage can be
increased or decreased
outside this system by Legal Mandate or Legislative Acts. However,
at present the coin
base is held in check and used as a complementary system rather than
a competitive
system with private bank issue of electronic, credit-based money.
The common practice
is to include printed and minted money supply in the same metric.
The more accurate starting point for the concept of money supply is
the total of all
electronic, credit-based deposit balances in bank (and other
financial) accounts (for more
precise definitions, see below) plus all the minted coins and
printed paper. The M1
money supply is M0, plus the total of (non-paper or coin) deposit
balances without any
withdrawal restrictions (restricted accounts that you can't write
checks on are put in the
next level of liquidity, M2).
The relationship between the M0 and M1 money supplies is the money
multiplier
basically, the ratio of cash and coin in people's wallets and bank
vaults and ATMs to total
balances in their financial accounts. The gap and lag between the
two M0 and M1 M0
occurs because of the system of fractional-reserve banking.
Because in principle money is anything that can be used in
settlement of a debt, there are
varying measures of money supply. The narrowest (i.e., most
restrictive) measures count
only those forms of money available for immediate transactions,
while broader measures
include money held as a store of value
CONCLUSION
38
Components of US money supply (M1, M2, and M3) since 1959
The most common measures are named M0 (narrowest), M1, M2, and M3.
In the United
States they are defined by the Federal Reserve as follows, M0,
The total of all physical
currency, plus accounts at the central bank that can be exchanged
for physical currency.
M1 M0 those portions of M0 held as reserves or vault cash the amount
in demand
accounts ("checking" or "current" accounts). M2 M1 most savings
accounts, money
market accounts, and small denomination time deposits certificates
of deposit of under
$100,000).
M3 M2 + all other CDs deposits of Eurodollars and repurchase
agreements, as of March
23, 2006, information regarding M3 will no longer be published by
the Federal Reserve,
ostensibly because it costs a lot to collect the data but doesn't
provide significantly useful
data. The other three money supply measures will continue to be
provided in detail. In an
effort to reverse this change, Congressman Ron Paul introduced the
now expired
H.R.4892 on March 7th, 2006, and subsequently sponsored H.R.2754 on
June 15th, 2007
which has been referred to the House Committee on Financial
Services.
There are just two official UK measures. M0 is referred to as the
"wide monetary base or
narrow money" and M4 is referred to as "broad money" or simply the
money supply. M0
Cash outside Bank of England + Banks' operational deposits with Bank
of England. M4
Cash outside banks i.e. in circulation with the public and non-bank
firm's private-sector
retail bank and building society deposits Private-sector wholesale
bank and building
society deposits and Certificate of Deposit.
CONCLUSION
39
It is my great pleasure to address the Capital Markets Research
Institute today. I would
like to share my thoughts with you on the challenges in regard to
the development of
Japan's capital markets and the role of market participants. Since
adopting the so-called
quantitative easing framework in March 2001, the Bank of Japan has
substantially
increased its liquidity provision to the market. To illustrate the
extent of fund provision
by the Bank, let me quote some figures with respect to the size of
the Bank's assets. As
shown in Figure 1 in the handout, they were 139 trillion yen as of
end-fiscal 2001. In
comparison, in yen terms the assets of the European Central Bank
were 95 trillion yen
and those of the US Federal Reserve System 86 trillion yen. In terms
of asset size, the
Bank of Japan is the largest central bank in the world. Of note is
that the ratio of the Bank
of Japan's assets to nominal GDP increased substantially from 16% at
end-fiscal 1998 to
28% at end-fiscal 2001.
While fund provision from the Bank has increased dramatically,
commercial bank
lending has been declining since 1997, showing a year-on-year
decline of 3% adjusting
for special factors such as write-offs. At present, firms still
carry excess debt, and they
are pursuing such debt restructuring as allotting improved cash
flows to repaying
borrowings from banks. On the other hand, banks need to promote the
disposal of non-
performing loans (NPLs) and improve their earning power. In the
process, there will be
forces holding down bank lending from both banks themselves and
firms.
Banks will view corporate fund demand as being low while firms for
their part will feel
that the lending attitude of banks is severe. What is important here
is whether other
developed channels of fund raising are available. If such channels
are in place, firms can
satisfy their needs by obtaining funding through them, thus leading
to economic
development. The capital markets are one such fund-raising channel.
Let me start by giving an overview of Japan's financial and capital
markets using Figures
2 and 3 in the handout. As shown in Figure 2, in Japan the most
rapidly developing
financial and capital market is the primary market for Japanese
government bonds
(JGBs), whose issue amount outstanding already exceeds 500 trillion
yen. While we will
have to tackle the difficult problem of reimbursing the massive
increase in government
bonds in the future, the JGB markets, including the primary and
secondary markets, as
well as payment and settlement system, have developed substantially.
In terms of corporate sector funding shown in Figure 3, while the
outstanding loan
amount extended by commercial banks is some 300 trillion yen, the
outstanding balance
of corporate bonds and CP issued remains at 80 trillion yen. The
size of the corporate
bond and CP markets relative to the loan market is quite small in
Japan compared with
the US. In addition, unlike the US where even BBB-rated firms
actively issue corporate
bonds, only firms with a relatively high credit rating can issue
bonds and thus it cannot be
denied that the market lacks depth in Japan.
CONCLUSION
40
Although not shown in the handout, the outstanding balance of
securitized products, such
as asset-backed securities (ABS), is also small in Japan, being a
little below 20 trillion
yen in Japan, compared with more than 600 trillion yen, in yen
terms, in the US. Since
financial and capital markets reflect the history and economic
structure of an individual
country, Japanese markets do not necessarily need to have the same
structure as those of
US markets. Given the current financial and economic situation in
Japan where the NPL
problem is a big burden, it is important to effectively utilize the
capital markets, which
are an alternative credit intermediary channel.
There are two types of capital markets: stock markets (equity
markets) and the markets
which deal with such corporate debt obligations as corporate bonds
and CP, the so-called
debt markets. While both markets are equally important, I have the
impression that,
except among experts such as today's audience, stock markets tend to
attract more
discussion relative to debt markets, and also that there seems to be
substantial room for
improving debt markets.
The following is the outline of my speech with particular emphasis
on debt markets: first,
why it is important to develop capital markets; second, what are the
necessary conditions
for capital market development; third, what are the recent changes
in capital markets; and
fourth, how the Bank of Japan is trying to improve capital markets.
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41
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BIBLIOGRAPHIES
42
Masaru Hayami, Governor, Bank of Japan, at the Capital Markets
Research Institute
on December 9, 2002
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www.tutor2u.net
www.QuickMBA.com
www.microsoft.com/office
www.hussmanfunds.com
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www.citigroup.com
www.federalreserve.gov
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