Internationa

l Financial Market

INTRODUCTION

A financial

Market is

market

in

which

people

and

entities

can trade financial

securities, commodities, and other fungible items of value at low transaction costs and at prices
that reflect supply and demand. Securities include stocks and bonds, and commodities include
precious metals or agricultural goods.
In economics, typically, the term market means the aggregate of possible buyers and sellers of a
certain good or service and the transactions between them.
Trading of currencies and bonds is largely on a bilateral basis, although some bonds trade on a
stock exchange, and people are building electronic systems for these as well, similar to stock
exchanges.

International Financial Market

Introduction
The last two decades have witnessed the emergence of a vast financial market across national
boundaries enabling massive cross-border capital flows from those who have surplus funds and a
search of high returns to those seeking low-cost funding. The degree of mobility of capital, the
global dispersal of the finance industry and the enormous diversity of markets and instruments,
which a firm seeking funds can tap, is something new.
Major OECD (Organization for Economic Co-operation and Development) countries had began
deregulating and liberalizing their financial markets towards the end of seventies. While the
process was far from smooth, the overall trend was in the direction of relaxation of controls,
which till then had compartmentalized the global financial markets. Exchange and capital
controls were gradually removed, non-residents were allowed freer access to national capital
markets and foreign banks and financial institutions were permitted to establish their presence in
the various national markets.
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While opening up of the domestic markets began only around the end of seventies, a truly
international financial market had already been born in the mid-fifties and gradually grown in
size and scope during sixties and seventies. This refers to the Euro currencies Market where
borrower (investor) from country A could raise (place) funds from (with) financial institutions
located in country B, denominated in the currency of country C. During the eighties and nineties,
this market grew further in size, geographical scope and diversity of funding instruments. It is no
more a "euro" market but a part of the general category called offshore markets.
Alongside liberalization, other qualitative changes have been taking place in the global financial
markets. Removal of restrictions has resulted into geographical integration of the major financial
markets in the OECD countries. Gradually this trend is spreading to developing countries many
of which have opened up their markets-at least partially-to non-resident investors, borrowers and
financial institutions.
Another noticeable trend is functional integration. The traditional distinctions between different
financial institutions-commercial banks, investment banks, finance companies, etc.- are giving
way to diversified entities that offer the full range of financial services. The early part of eighties
saw the process of disintermediation get underway. Highly rated issuers began approaching
investors directly rather than going through the bank loan route.
On the other side, debt crisis in the developing countries, adoption of capital adequacy norms
and intense competition, forced commercial banks to realize that their traditional business of
accepting deposits and making loans was not enough to guarantee their long-term survival and
growth. They began looking for new products and markets. Concurrently, the international
financial environment was becoming more volatile- there were fluctuations in interest and
exchange rates. These forces gave rise to innovative forms of funding instruments and
tremendous advances in risk management. The decade saw increasing activity in and
sophistication of the derivatives market, which had begun emerging in the seventies.
Taken together, these developments have given rise to a globally integrated financial marketplace
in which entities in need of short- or long-term funding have a much wider choice than before in
terms of market segment, maturity, currency of denomination, interest rate basis, incorporating
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special features and so forth. The same flexibility is available to investors to structure their
portfolios in line with their risk-return tradeoffs and expectations regarding interest rates,
exchange rates, stock markets and commodity prices.

Types of financial markets

Capital Markets
A capital market is one in which individuals and institutions trade financial securities.
Organizations and institutions in the public and private sectors also often sell securities on the
capital markets in order to raise funds. Thus, this type of market is composed of both the primary
and secondary markets.
Any government or corporation requires capital (funds) to finance its operations and to engage in
its own long-term investments. To do this, a company raises money through the sale of securities
- stocks and bonds in the company's name. These are bought and sold in the capital markets.
Stock Markets
Stock markets allow investors to buy and sell shares in publicly traded companies. They are one
of the most vital areas of a market economy as they provide companies with access to capital and
investors with a slice of ownership in the company and the potential of gains based on the
company's future performance.
This market can be split into two main sections: the primary market and the secondary market.
The primary market is where new issues are first offered, with any subsequent trading going on
in the secondary market.
Bond Markets
A bond is a debt investment in which an investor loans money to an entity (corporate or
governmental), which borrows the funds for a defined period of time at a fixed interest rate.
Bonds are used by companies, municipalities, states and U.S. and foreign governments to finance
a variety of projects and activities. Bonds can be bought and sold by investors on crmarkets
around the world. This market is alternatively referred to as the debt, cror fixed-income market.
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It is much larger in nominal terms that the world's stock markets. The main categories of bonds
are corporate bonds, municipal bonds, and U.S. Treasury bonds, notes and bills, which are
collectively referred to as simply "Treasuries."

Money Market
The money market is a segment of the financial market in which financial instruments with high
liquidity and very short maturities are traded. The money market is used by participants as a
means for borrowing and lending in the short term, from several days to just under a year. Money
market securities consist of negotiable certificates of deposit (CDs), banker's acceptances, U.S.
Treasury bills, commercial paper, municipal notes, euro dollars, federal funds and repurchase
agreements (repos). Money market investments are also called cash investments because of their
short maturities.
The money market is used by a wide array of participants, from a company raising money by
selling commercial paper into the market to an investor purchasing CDs as a safe place to park
money in the short term. The money market is typically seen as a safe place to put money due the
highly liquid nature of the securities and short maturities. Because they are extremely
conservative, money market securities offer significantly lower returns than most other
securities. However, there are risks in the money market that any investor needs to be aware of,
including the risk of default on securities such as commercial paper.
Cash or Spot Market
Investing in the cash or "spot" market is highly sophisticated, with opportunities for both big
losses and big gains. In the cash market, goods are sold for cash and are delivered immediately.
By the same token, contracts bought and sold on the spot market are immediately effective.
Prices are settled in cash "on the spot" at current market prices. This is notably different from
other markets, in which trades are determined at forward prices.
The cash market is complex and delicate, and generally not suitable for inexperienced traders.
The cash markets tend to be dominated by so-called institutional market players such as hedge
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funds, limited partnerships and corporate investors. The very nature of the products traded
requires access to far-reaching, detailed information and a high level of macroeconomic analysis
and trading skills.
Derivatives Markets
The derivative is named so for a reason: its value is derived from its underlying asset or assets. A
derivative is a contract, but in this case the contract price is determined by the market price of the
core asset. If that sounds complicated, it's because it is. The derivatives market adds yet another
layer of complexity and is therefore not ideal for inexperienced traders looking to speculate.
However, it can be used quite effectively as part of a risk management program.
Examples of common derivatives are forwards, futures, options, swaps andcontracts-fordifference (CFDs). Not only are these instruments complex but so too are the strategies deployed
by this market's participants. There are also many derivatives, structured products and
collateralized obligations available, mainly in the over-the-counter (non-exchange) market, that
professional investors, institutions and hedge fund managers use to varying degrees but that play
an insignificant role in private investing.
Forex and the Interbank Market
The interbank market is the financial system and trading of currencies among banks and financial
institutions, excluding retail investors and smaller trading parties. While some interbank trading
is performed by banks on behalf of large customers, most interbank trading takes place from the
banks' own accounts.
The forex market is where currencies are traded. The forex market is the largest, most liquid
market in the world with an average traded value that exceeds $1.9 trillion per day and includes
all of the currencies in the world. The forex is the largest market in the world in terms of the total
cash value traded, and any person, firm or country may participate in this market.
There is no central marketplace for currency exchange; trade is conducted over the counter. The
forex market is open 24 hours a day, five days a week and currencies are traded worldwide
among the major financial centers of London, New York, Tokyo, Zrich, Frankfurt, Hong Kong,
Singapore, Paris and Sydney.
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Until recently, forex trading in the currency market had largely been the domain of large
financial institutions, corporations, central banks, hedge funds and extremely wealthy
individuals. The emergence of the internet has changed all of this, and now it is possible for
average investors to buy and sell currencies easily with the click of a mouse through online.
Primary Markets vs. Secondary Markets
A primary market issues new securities on an exchange. Companies, governments and other
groups obtain financing through debt or equity based securities. Primary markets, also known as
"new issue markets," are facilitated by underwriting groups, which consist of investment banks
that will set a beginning price range for a given security and then oversee its sale directly to
investors.
The primary markets are where investors have their first chance to participate in a new security
issuance. The issuing company or group receives cash proceeds from the sale, which is then used
to fund operations or expand the business.
The secondary market is where investors purchase securities or assets from other investors,
rather than from issuing companies themselves. The Securities and Exchange Commission (SEC)
registers securities prior to their primary issuance, then they start trading in the secondary
market on the New York Stock Exchange, Nasdaq or other venue where the securities have been
accepted for listing and trading.
The secondary market is where the bulk of exchange trading occurs each day. Primary markets
can see increased volatility over secondary markets because it is difficult to accurately gauge
investor demand for a new security until several days of trading have occurred. In the primary
market, prices are often set beforehand, whereas in the secondary market only basic forces like
supply and demand determine the price of the security.
Secondary markets exist for other securities as well, such as when funds, investment banks or
entities such as Fannie Mae purchase mortgages from issuing lenders. In any secondary market
trade, the cash proceeds go to an investor rather than to the underlying company/entity directly.
The OTC Market
The over-the-counter (OTC) market is a type of secondary market also referred to as a dealer
market. The term "over-the-counter" refers to stocks that are not trading on a stock exchange
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such as the Nasdaq, NYSE or American Stock Exchange (AMEX). This generally means that the
stock trades either on theover-the-counter bulletin board (OTCBB) or the pink sheets. Neither of
these networks is an exchange; in fact, they describe themselves as providers of pricing
information for securities. OTCBB and pink sheet companies have far fewer regulations to
comply with than those that trade shares on a stock exchange. Most securities that trade this way
are penny stocks or are from very small companies.

Third and Fourth Markets

You might also hear the terms "third" and "fourth markets." These don't concern individual
investors because they involve significant volumes of shares to be transacted per trade. These
markets deal with transactions between broker-dealers and large institutions through over-thecounter electronic networks. The third market comprises OTC transactions between brokerdealers and large institutions. The fourth market is made up of transactions that take place
between large institutions. The main reason these third and fourth market transactions occur is to
avoid placing these orders through the main exchange, which could greatly affect the price of the
security. Because access to the third and fourth markets is limited, their activities have little
effect on the average investor. Financial institutions and financial markets help firms raise
money. They can do this by taking out a loan from a bank and repaying it with interest, issuing
bonds to borrow money from investors that will be repaid at a fixed interest rate, or offering
investors partial ownership in the company and a claim on its residual cash flows in the form of
stock.

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GROWTH OF INTERNATIONAL FINANCIAL MARKETS

Since the 1960s, the growth of international financial transactions has been profoundly
influenced by the growth in international trade involving exchange of goods and services. The
value of imports in US dollars for the world as a whole went up in the last five decades by a
multiple of 14 from about $ 590 billion in 1960 to about $ 8000 billion in 2000. While
international trade can exist in the absence of international financing arrangements as under
direct exchange, barter and cash payment in gold, there are no international finance or markets
where no goods and services are exchanged between residents of different countries. There
would be no reason for borrowing, lending or investing between countries since nothing could be
bought with the product of loan or investment.
International financial markets and the transactions therein have however facilitated and helped
the expansion of international trade based on comparative absolute advantage resulting in
welfare benefits in terms of higher income among participant nations. Further, the growth of
international financial markets has facilitated cross-country financial flows which contribute to a
more efficient allocation of resources. Efficiency in use rather than origin of or abundance
governs allocation of resources internationally. This means that potentially high return projects in
countries with low savings will not be neglected in favour of low return projects in high saving
countries simply because of where savings are generated.1 American and British institutional
money is flooding foreign markets

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NATURE AND FUNCTIONS

International financial markets undertake intermediation by transferring purchasing power from lenders
and investors to parties who desire to acquire assets that they expect to yield future benefits. International
financial transactions involve exchange of assets between residents of different financial centers across
national boundaries. International financial centers are reservoirs of savings and transfer them to their
most efficient use irrespective of where the savings are generated. There are three important functions of
financial markets. First, the interactions of buyers and sellers in the markets determine the prices of the
assets traded which is called the price discovery process. Secondly, the financial markets ensure liquidity
by providing a mechanism for an investor to sell a financial asset. Finally, the financial markets reduce
the cost of transactions and information

Role (Financial system and the economy)

One of the important sustainability requisite for the accelerated development of an economy is
the existence of a dynamic financial market. A financial market helps the economy in the
following manner.

Saving mobilization: Obtaining funds from the savers or surplus units such as household
individuals, business firms, public sector units, central government, state governments etc. is
an important role played by financial markets.

Investment: Financial markets play a crucial role in arranging to invest funds thus
collected in those units which are in need of the same.

National Growth: An important role played by financial market is that, they contributed
to a nations growth by ensuring unfettered flow of surplus funds to deficit units. Flow of
funds for productive purposes is also made possible.

Entrepreneurship growth: Financial market contribute to the development of the

entrepreneurial claw by making available the necessary financial resources.

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Industrial development: The different components of financial markets help an

accelerated growth of industrial and economic development of a country, thus contributing to
raising the standard of living and the society of well-being.

Functions of international Financial Markets

Intermediary Functions: The intermediary functions of a financial markets include the

following:

Transfer of Resources: Financial markets facilitate the transfer of real economic

resources from lenders to ultimate borrowers.

Enhancing income: Financial markets allow lenders to earn interest or dividend

on their surplus invisible funds, thus contributing to the enhancement of the individual
and the national income.

Productive usage: Financial markets allow for the productive use of the funds
borrowed. The enhancing the income and the gross national production.

Capital Formation: Financial markets provide a channel through which new

savings flow to aid capital formation of a country.

Price determination: Financial markets allow for the determination of price of

the traded financial assets through the interaction of buyers and sellers. They provide a
sign for the allocation of funds in the economy based on the demand and to the supply
through the mechanism called price discovery process.

Sale Mechanism: Financial markets provide a mechanism for selling of a

financial asset by an investor so as to offer the benefit of marketability and liquidity of
such assets.

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Information: The activities of the participants in the financial market result in the
generation and the consequent dissemination of information to the various segments of
the market. So as to reduce the cost of transaction of financial assets

Financial Functions

Providing the borrower with funds so as to enable them to carry out their
investment plans.

Providing liquidity in the market so as to facilitate trading of funds.

it provides liquidity to commercial bank

it facilitates crcreation

it promotes savings

it promotes investment

INTERNATIONAL FINANCIAL MARKETS

CONCEPTS
1. Distinction between Euro Crand Euro Bond Market
Both Euro bonds and Euro cr(Euro currency) financing have their advantages and disadvantages.
For a given company, under specific circumstances, one method of financing may be preferred to
the other. The major differences are:
1. Cost of borrowing
Euro bonds are issued in both fixed rate and floating rate forms. Fixed rate bonds are an
attractive exposure management tool since the known long-term currency inflows can be offset
by the known long-term outflows in the same currency. In contrast, Euro currency loans carry
variable rates.
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2. Maturity
Euro bonds have longer maturities while the period of borrowing in the Euro currency market
has tended to lengthen over time.
3. Size of the issue
Earlier, the funds available for lending at any time have been much more in the inter-bank
market than in the bond market. But of late, this situation does not hold true. Moreover, although
in the past the flotation costs of a Euro currency loan have been much lower than a Euro bond
(about 0.5 % of the total loan amount versus about 2.25 % of the face value of a Euro bond
issue), compensation has worked to lower Euro bond flotation costs.
4. Flexibility
In a Euro bond issue, the funds must be drawn in one sum on a fixed date and repaid according
to a fixed schedule, unless the borrower pays a substantial prepayment penalty. By contrast, the
drawdown in a floating rate loan can be staggered to suit the borrowers needs and can be repaid
in whole or in part at any time, often without penalty. Moreover, a Euro currency loan with a
multi-currency clause enables the borrower to switch currencies on any roll-over date, whereas
switching the denomination of a Euro bond from currency A to currency B would require a
costly, combined, refunding and reissuing operation.
5. Speed
Funds can be raised by a known borrower very quickly in the Euro currency market. Often, a
period of two to three weeks should suffice. A Euro bond financing generally takes more time,
though the difference is becoming less significant.

2. Euro CrMarket
Euro cror Euro Loans are the loans extended for one year or longer. The market that deals in such
loans is called Euro CrMarket.

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The common maturity for euro cleans is 5 years. Since Euro banks accept short-term deposits
and provide long-term loans, it is likely that asset liability mismatch may arise. To avoid this
Euro banks often extend floating rate euro cleans fixed to some market interest rate. The London
Inter-Bank Offer Rate (LIBOR) is the most commonly used interest rate. It is the rate charged for
loans between Euro Banks.
Participants in Euro crMarket
The major lending banks in the Euro crmarket are Euro banks, American, Japanese, British,
Swiss, French, German and Asian (specially that of Singapore) banks, Chemical Bank, JP
Morgan, Citicorp, Bankers Trust, Chase Manhattan Bank, First National Bank of Chicago,
Barclay's Bank, National Westminster, BNP, etc. Among the borrowers, there are banks,
multinational groups, public utilities, government agencies, local authorities, etc.
Dealing in Euro credits
When a borrower approaches a bank for Euro credit, a formal document is prepared on behalf of
potential borrowers. This document contains the principal terms and conditions of loan,
objectives of loan and details of the borrower.
Before launching syndication, the approached bank decides primarily, in consultation with the
borrower, on a strategy to be adopted, i.e. whether to approach a large market or a restricted
number of banks to form the syndicate. Each of the banks in syndicate lends a part of the loan.
The duration of this operation is normally about 6 to 8 weeks.
Characteristics of Euro credit
A major part (more than 80 %) of the Euro debts is made in US dollars. The second (but far
behind) is Pound Sterling followed by Deutsch mark, Japanese yen, Swiss franc and others.
Most of the syndicated debts are of the order of $50 million. As far as the upper limits are
concerned, amounts involved are of as high magnitude as $5 billion and more. In 1990, Euro
tunnel borrowed $6.8 billion.
On an average, maturity periods are of about five years (in some cases it is about 20 years). The
reimbursement of the loan may take place in one go (bullet) or in several installments.
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The interest rate on Euro debt is calculated with respect to a rate of reference, increased by a
margin (or spread). The rates are available and generally renewable (roll over credit) every six
months, fixed with reference to LIBOR. The LIBOR is the rate of money market applicable to
short-term credits among the banks of London. The reference rate can equally be PIBOR at Paris
and FIBOR at Frankfurt, etc. It is revised regularly.
The margin depends on the supply and demand of the capital as also on the degree of the risk of
these credits and the rating of borrowers. Financial institutions are in vigorous competition.
There is an active secondary market of Euro debts. Numerous techniques allow banks to sell
their titles in this market.
3. Euro Bond Market
Euro Bond issue is one denominated in a particular currency but sold to investors in national
capital markets other than the country that issued the denominating currency. An example is a
Dutch borrower issuing DM-denominated bonds to investors in the UK, Switzerland and the
Netherlands.
The Eurobond market is the largest international bond market, which is said to have originated in
1963 with an issue of Eurodollar bonds by Autostrade, an Italian borrower. The market has since
grown enormously in size and was worth about $ 428 billion in 1994.
Eurobond markets in all currencies except the Japanese Yen are quite free from any regulation by
the respective governments. Straight bonds are priced with reference to a benchmark, typically
treasury issues. Thus a Eurodollar bond will be priced to a yield a YTM (Yield-to-Maturity)
somewhat above the US treasury bonds of similar maturity, the spread depending upon the
borrowers ratings and market conditions.
Floatation costs of the Eurobond are comparatively higher than costs indicated with syndicated
Euro credits.
4. Euro CPs
Commercial paper is a corporate short-term, unsecured promissory note

issued on a discount

to yield basis. Commercial paper maturities generally do not exceed 270 days. Commercial paper
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represents a cheap and flexible source of funds While CPs are negotiable, secondary markets
tend to be not very active since most investors hold the paper to maturity .The emergence of the
Euro Commercial Paper (ECP) is much more recent. It evolved as a natural culmination of the
Note Issuance Facility and developed rapidly in an environment of securitization and
disintermediation of traditional banking. CP has also developed in the domestic segments of
some European countries offering attractive funding opportunities to resident entities.
5. Euro CDs
A Certificate of Deposit (CD) is a negotiable instrument evidencing a deposit with a bank. A CD
is a marketable instrument so that the investor can dispose it off in the secondary market
whenever cash is needed. The final holder is paid the face value on maturity along with the
interest. It is used by the commercial banks as short- term funding instruments. Euro CDs are
mainly issued in London by banks. Interest on CDs with maturity more than a year is paid
annually than semi-annually.
6. International Capital Markets
International Capital Markets have come into existence to cater to the need of international
financing by economies in the form of short, medium or long-term securities or credits. These
markets also called Euro markets, are the markets on which Euro currencies, Euro bonds, Euro
shares and Euro bills are traded/exchanged. Over the years, there has been a phenomenal growth
both in volume and types of financial instruments transacted in these markets. Euro currency
deposits are the deposits made in a bank, situated outside the territory of the origin of currency.
For example, Euro dollar is a deposit made in US dollars in a bank located outside the USA;
likewise, Euro banks are the banks in which Euro currencies are deposited. They have term
deposits in Euro currencies and offer credits in a currency other than that of the country in which
they are located.
A distinctive feature of the financial strategy of multinational companies is the wide range of
external services of funds that they use on an ongoing basis. British Telecommunication offers
stock in London, New York and Tokyo, while Swiss Bank Corporation-, aided by Italian,

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Belgian, Canadian and German banks- helps corporations sell Swiss franc bonds in Europe and
then swap the proceeds back into US dollars.
Firms have three general sources of funds available: (i) internally generated cash, (ii) short-term
external funds, and (iii) long-term external funds. External investment comes in the form of debt
or equity, which are generally negotiable (tradable) instruments. The pattern of financing varies
from country to country. Companies in the UK get an average of 60-70% of their funds from
internal sources. German companies get about 40-50% of their funds from external suppliers. In
1975, Japanese companies got more than 70% of their money from outside sources, but this
pattern has since reversed; major chunks of finances come from internal sources.
Another significant aspect of financing behaviour is that debt accounts for the overwhelming
share of external finance. Industry sources of external finance also differ widely from country to
country. German and Japanese companies have relied heavily on bank borrowing, while the US
and British industry raised much more money directly from financial markets by the sale of
securities. However, in all countries, bank borrowing is on a decline. There is a growing
tendency for corporate borrowing to take the form of negotiable securities issued in the public
capital markets rather than in the form of commercial bank loans. This process known as
securitisation is most pronounced among the Japanese companies.
7. Petro Dollar
During the oil crises of 1973, the Capital markets have played a very important role. They
accepted the dollar deposits from oil exporters and channeled the funds to the borrowers in other
countries. This is called recycling the petrodollars.

8. Junk Bonds

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A junk bond is issued by a corporation or municipality with a bad crrating. In exchange for the
risk of lending money to a bond issuer with bad credit, the issuer pays the investor a higher
interest rate. "High-yield bond" is a nicer name for junk bond The crrating of a high yield bond is
considered "speculative" grade or below "investment grade". This means that the chance of
default with high yield bonds is higher than for other bonds. Their higher credit risk means that
"junk" bond yields are higher than bonds of better crquality. Studies have demonstrated that
portfolios of high yield bonds have higher returns than other bond portfolios, suggesting that the
higher yields more than compensate for their additional default risk.
Junk bonds became a common means for raising business capital in the 1980s, when they were
used to help finance the purchase of companies, especially by leveraged buyouts, the sale of junk
bonds continued to be used in the 1990s to generate capital

9. Samurai Bonds
They are publicly issued yen denominated bonds. They are issued by non-Japanese entities.
The Japanese Ministry of Finance lays down the eligibility guidelines for potential foreign
borrowers. These specify the minimum rating, size of issue, maturity and so forth. Floatation
costs tend to be high. Pricing is done with respect to Long-term Prime Rate.
Shibosai Bonds
They are private placement bonds with distribution limited to banks and institutions. The
eligibility criteria are less stringent but the MOF still maintains control.
Shogun / Geisha Bonds
They are publicly floated bonds in a foreign currency while Geisha are their private counterparts.

10. Yankee Bonds

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These are dollar denominated bonds issued by foreign borrowers. It is the largest and most active
market in the world but potential borrowers must meet very stringent disclosure, dual rating and
other listing requirements, options like call and put can be incorporated and there are no
restrictions on size of the issue, maturity and so forth.
Yankee bonds can be offered under rule 144a of Sec. These issues are exempt from elaborate
registration and disclosure requirements but rating, while not mandatory is helpful. Finally low
rated or unrated borrowers can make private placements. Higher yields have to be offered and
the secondary market is very limited.

Development of international capital markets

The financial revolution has been characterized by both a tremendous quantitative expansion and
an extraordinary qualitative transformation in the institutions, instruments and regulatory
structures.
Global financial markets are a relatively recent phenomenon. Prior to 1980, national markets
were largely independent of each other and financial intermediaries in each country operated
principally in that country. The foreign exchange market and the Eurocurrency and Eurobond
markets based in London were the only markets that were truly global in their operations.
Financial markets everywhere serve to facilitate transfer of resources from surplus units (savers)
to deficit units (borrowers), the former attempting to maximize the return on their savings while
the latter looking to minimize their borrowing costs. An efficient financial market thus achieves
an optimal allocation of surplus funds between alternative uses. Healthy financial markets also
offer the savers a range of instruments enabling them to diversify their portfolios.
Globalization of financial markets during the eighties has been driven by two underlying forces.
Growing (and continually shifting) imbalance between savings and investment within individual
countries, reflected in their current account balances, has necessitated massive cross-border
financial flows. For instance, during the late seventies, the massive surpluses of the OPEC
countries had to be recycled, i.e. fed back into the economies of oil importing nations. During the
eighties, the large current account deficits of the US had to be financed primarily from the
mounting surpluses in Japan and Germany. During the nineties, developing countries as a group
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have experienced huge current account deficits and have also had to resort to international
financial markets to bridge the gap between incomes and expenditures, as the volume of
concessional aid from official bilateral and multilateral sources has fallen far short of their
perceived needs.
The other motive force is the increasing preference on the part of investors for international
diversification of their asset portfolios. This would result in gross cross-border financial flows.
Investigators have established that significant risk reduction is possible via global diversification
of portfolios.
These demand-side forces accompanied by liberalization and geographical integration of
financial markets has led to enormous growth in cross-border financial transactions. In virtually
all major industrial economies, significant deregulation of the financial markets has already been
effected or is under way. Functional and geographic restrictions on financial institutions,
restrictions on the kind of securities they can issue and hold in their portfolios, interest rate
ceilings, barriers to foreign entities accessing national markets as borrowers and lenders and to
foreign financial intermediaries offering various types of financial services have been already
dismantled or are being gradually eased away. Finally, the markets themselves have proved to be
highly innovative, responding rapidly to changing investor preferences and increasingly complex
needs of the borrowers by designing new instruments and highly flexible risk management
products.
The result of these processes has been the emergence of a vast, seamless global financial market
transcending national boundaries. But control and government intervention have not entirely
disappeared. E.g. South East Asia- Korea, Taiwan, etc- permit only limited access to foreign
investors. However, despite these reservations, the dominant trend is towards globalization of
financial markets.
International financial markets can develop anywhere, provided that local regulations permit the
market and potential users are attracted to it. The most important international financial centers
are London, Tokyo and New York. All the major industrial countries have important domestic
financial markets as well but only some such as Germany and France are also important
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international financial centers. On the other hand, even though some countries have relatively
unimportant domestic financial markets, they are important world financial centers such as
Switzerland, Luxembourg, Singapore and Hong Kong.
International Capital Markets, also called Euro markets, are the markets on which Euro
currencies; Euro bonds, Euro equity and Euro bills are exchanged. International financing in the
form of short-, medium- or long-term securities or credits has become necessary for the
international economy. Financing techniques have diversified, volumes dealt have increased and
the process is continuing to grow.
Notable developments in international capital markets can be traced to the end of 1950s. There
are several reasons for their growth. The significant ones are:
Transfer of assets of erstwhile Soviet Union to Europe. In the 1950s and early 1960s, the
former Soviet Union and Soviet-bloc countries sold gold and commodities to raise hard currency.
Because of anti-Soviet sentiment, these Communist countries were afraid of depositing their US
dollars in US banks for fear that the deposits could be frozen or taken. Instead they deposited
their dollars in a French Bank whose telex address was Euro-Bank. Since that time, dollar
deposits outside the US have been called Eurodollars and banks accepting Eurocurrency deposits
have been called Euro banks. International capital markets subsequently came to be known as
Euro markets.
Restrictive measures taken by the administration. Several regulatory measures (initiated
particularly in the USA) also contributed (in an indirect manner) to the development of
International capital markets. The important ones are as follows:

Regulation 'Q'. In 1960, Regulation 'Q' in the USA fixed a ceiling on interest rates offered by
American banks on term deposits and prohibited them to remunerate the deposits whose term
was less than 30 days. Besides, at the end of the 1960s, the Federal Reserve reduced the growth
of total monetary mass. The money market rate went up. American banks borrowed on the Euro
dollar market, which resulted in:
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The increase of indebtedness of these banks on the Euro dollar market;

The flight of American Capital, attracted by the interest rate on Euro market.
Tax of interest equalization. In 1963, tax was imposed on the purchase of foreign securities
(portfolio investments) by American residents. The objective was to reduce the deficit of BOP of
the USA and to establish equilibrium in international structure of interest rates. In fact, in order
to avoid tax payment, some companies launched the issue of dollar bonds outside the USA. This
contributed to the growth of Euro dollar market. Realizing its adverse effects, subsequently, the
tax was withdrawn in 1974.
Program of voluntary restrictions on investments. The USA initiated/imposed various restrictions
on its financial system to tackle BOP problems. For instance, banks were directed not to lend or
invest in foreign operations beyond the limits of the previous year(s). As a result, the business
community felt a scarcity of funds. This in turn led them to take recourse to the Euro dollar
market.
Differential of American lending and borrowing rates. The interest rate paid by American
banks was low, vis--vis, the expected rate from borrowers. European banks availed of this
opportunity; they offered higher rates of interest at the cost of contenting themselves with
smaller margins than those offered by American banks, to attract investors. They could do so by
operating on Euro dollar markets, which were not subject to interest-rate and other regulations.
For instance, banks were neither constrained to respect a certain compulsory reserve ratio on
their deposits in Euro dollars nor constrained to maintain their interest rates below a certain
ceiling. There may be other reasons as well for development of Euro dollars. Globalization of big
multinationals has further boosted this development. The financing system practiced hitherto also
was not able to respond to capital needs of the international economy.

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Eurobond market
What is a bond-A bond is a loan and you are the lender. The borrower is usually the
government, a state, a local municipality or a big company like General Motors. All of these
entities need money to operate -- to fund the federal deficit, for instance, or to build roads and
finance factories -- so they borrow capital from the public by issuing bonds.
When a bond is issued, the price you pay is known as its "face value." Once you buy it, the issuer
promises to pay you back on a particular day -- the "maturity date" -- at a predetermined rate of
interest -- the "coupon." Say, for instance, you buy a bond with a $1,000 face value, a 5% coupon
and a 10-year maturity. You would collect interest payments totaling $50 in each of those 10
years. When the decade was up, you'd get back your $1,000 and walk away.
A key difference between stocks and bonds is that stocks make no promises about dividends or
returns. General Electric's dividend may be as regular as a heartbeat, but the company is under no
obligation to pay it. And while GE stock spends most of its time moving upward, it has been
known to spend months -- even years -- going the other way.
When GE issues a bond, however, the company guarantees to pay back your principal (the face
value) plus interest. If you buy the bond and hold it to maturity, you know exactly how much
you're going to get back (in most cases, anyway). That's why bonds are also known as "fixedincome" investments -- they assure you a steady payout or yearly income. And although they can
carry plenty of risk, this regular income is what makes them inherently less volatile than stocks.
Euro Bond: issue is one denominated in a particular currency but sold to investors in national
capital markets other than the country that issued the denominating currency. An example is a
Dutch borrower issuing DM-denominated bonds to investors in the UK, Switzerland and the
Netherlands.
The Eurobond market is the largest international bond market, which is said to have originated in
1963 with an issue of Eurodollar bonds by Autostrade, an Italian borrower. The market has since
grown enormously in size and was worth about $ 428 billion in 1994.

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Eurobond markets in all currencies except the Japanese Yen are quite free from any regulation by
the respective governments.
Straight bonds are priced with reference to a benchmark, typically treasury issues. Thus a
Eurodollar bond will be priced to a yield a YTM (Yield-to-Maturity) somewhat above the US
treasury bonds of similar maturity, the spread depending upon the borrowers ratings and market
conditions.
Floatation costs of the Eurobond are comparatively higher than costs indicated with syndicated
Euro credits.
Primary market: A borrower desiring to raise funds by issuing Euro bonds to the investing
public will contact an investment banker and ask it to serve as lead manager of an underwriting
syndicate that will bring the bonds to market. The underwriting syndicate is a group of
investment banks, merchant banks, and the merchant banking arms of commercial banks that
specialize in some phase of public issuance. The lead manager will usually invite co managers to
form a managing group to help negotiate terms with the borrower, ascertain market conditions
and manage the issuance.
The managing group along with other banks, will serve as underwriters for the issue, that is, they
will commit their own capital to buy the issue from the borrower at a discount from the issue
price, if they are unable to place the bonds with investors. The discount or the underwriting
spread is typically in the 2 or 2.5% range. Most of the underwriters along with other banks will
be a part of the placement or selling group that sells the bonds to the investing public.
The total elapsed time from the decision date of the borrower to issue Eurobonds until net
proceeds from the sale are received is typically 5 to 6 weeks.
The lead manager prepares a preliminary prospectus focusing on economic and financial
characteristics of the project and financial standing of the borrower.
After having consulted a certain number of banks, the lead manager decides on the interest rate.
Subsequently, the issue price is fixed. Clauses of reimbursement before maturity are provided
for. After, the issue advertising is done in International Press in the form of tombstone. This

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tombstone indicates the lead manager, co-lead managers and members of the guarantee
syndicate.
Secondary Market: Eurobonds purchased in the primary market can be resold before their
maturities in the secondary market. The secondary market is an over the counter market with
principal trading in London. However, important trading is also done in other major European
cities. The bonds are quoted in percentage of their value, without taking into account the coupon
already running.
The secondary market comprises of market makers and brokers. Market makers stand ready to
buy or sell for their own account by quoting a two way bid and ask prices. Market traders trade
directly with one another, through a broker, or with retail customers. The bid-ask is their only
profit. Brokers accept buy or sell orders from market makers and then attempt to find a matching
party for the other side of the trade; they may also trade for their own account. Brokers charge a
small commission to the market makers that engaged them. They do not deal directly with retail
clients.
Global Bond: They have a minimum value of $1 billion and are effected simultaneously in
Europe, America and Asia. The salient features of these bonds are that they permit to raise very
high amounts. They offer very high liquidity since they are quoted on several exchanges while
secondary market functions round the clock, with uniform price all over the world. They are
especially used by governments, public enterprises, international organizations and private
financial institutions.
External Bond Market: The external bond market refers to bond trading activity wherein the
bonds are underwritten by an international syndicate, are offered in several countries
simultaneously, are issued outside any country's jurisdiction, and are not registered. The
Eurobond market is a major external bond market. The external bond market combined with the
internal bond market comprises the global bond market. Examples of an external bond are the
"global bond," issued by the World Bank, and Eurodollar bonds.
Internal Bond Market: The internal bond market refers to all bond trading activity in a given
country and is comprised of both a domestic bond market and a foreign bond market. Also
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referred to as the "national bond market." The internal and external bond markets comprise the
global bond market
Bulldog Bonds: A sterling denominated foreign bond, priced with reference to the UK gilts.
Rembrandt Bond: Denominated in the Dutch guilder.

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Risk in international financial markets
Foreign investment risk
Risk

of

rapid

and

extreme

changes

in

value

due

to:

smaller

markets;

differing accounting, reporting,or auditing standards;nationalization, expropriation or

confiscatory taxation; economic conflict; or political or diplomatic changes. Valuation, liquidity,
and regulatory issues may also add to foreign investment risk.
Liquidity risk
This is the risk that a given security or asset cannot be traded quickly enough in the market to
prevent a loss (or make the required profit). There are two types of liquidity risk:

Asset liquidity - An asset cannot be sold due to lack of liquidity in the market essentially a sub-set of market risk. This can be accounted for by:

Widening bid-offer spread

Making explicit liquidity reserves

Lengthening holding period for VaR calculations

Funding liquidity - Risk that liabilities:

Cannot be met when they fall due

Can only be met at an uneconomic price

Can be name-specific or systemic

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Market risk
The four standard market risk factors are equity risk, interest rate risk, currency risk, and
commodity risk:

Equity risk is the risk that stock prices in general (not related to a particular company or
industry) or the implied volatility will change.

Interest rate risk is the risk that interest rates or the implied volatility will change.

Currency risk is the risk that foreign exchange rates or the implied volatility will change,
which affects, for example, the value of an asset held in that currency.

Commodity risk is the risk that commodity prices (e.g. corn, copper, crude oil) or implied
volatility will change.

Cr.risk
Cr.risk, also called default risk, is the risk associated with a borrower going into default (not
making payments as promised). Investor losses include lost principal and interest, decreased cash
flow, and increased collection costs. An investor can also assume credit risk through direct or
indirect use of leverage. For example, an investor may purchase an investment using margin. Or
an investment may directly or indirectly use or rely on repo, forward commitment,
or derivative instruments.
Asset-backed risk
Risk that the changes in one or more assets that support an asset-backed security will
significantly impact the value of the supported security. Risks include interest rate, term
modification, and prepayment risk.
Other risk

Reputational risk
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Legal risk

IT risk etc

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CASE STUDY201415 Russian financial crisis

The 201415 Russian Financial Crisis and the associated shrinking of the Russian economy is
the result of the collapse of the Russian ruble beginning in the second half of 2014. A decline in
confidence in the Russian economy caused investors to sell off their Russian assets, which led to
a decline in the value of the Russian ruble and sparked fears of a Russian financial crisis. The
lack of confidence in the Russian economy stemmed from at least two major sources. The first is
the fall in the price of oil in 2014. Crude oil, a major export of Russia, declined in price by nearly
50% between its yearly high in June 2014 and 16 December 2014. The second is the result
of international economic sanctions imposed on Russia following Russia's annexation of
Crimea and Russian military intervention in Ukraine. Russian President Vladimir Putin accused
the Western nations of engineering the Russian economic crisis. He has also said, "Our (Western)
partners have not stopped. They decided that they are winners, they are an empire now and the
rest are vassals and they have to be driven into a corner."
The crisis has affected the Russian economy, both consumers and companies, and regional
financial markets, as well as Putin's ambitions regarding the Eurasian Economic Union. The
Russian stock market in particular has experienced large declines, with a 30% drop in the RTS
Index from the beginning of December through 16 December.
Fall in Oil Prices
The price of oil fell from $100 per barrel in June 2014 to $60 per barrel in December 2014.The
drop in the oil prices was caused by a drop in the demand for oil across the world, as well as
increased oil production in the United States. This fall in oil prices hit Russia hard, as roughly
half of the Russian Federation's governmental revenue comes from the sale of oil and
gas. Russia's economy suffers from Dutch disease, a term economists use to describe a situation
in which a country focuses on developing its natural resources to the detriment of other
economic activity. In 2014, Russia needed an oil price of $100 per barrel to have a balanced
budget. As the price of oil falls, Russia continues to sell its oil at operational capacity, without
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the ability to dramatically increase oil production to compensate for the lower price and thus
reduced profit from selling oil, the government has substantially less income. Russia is not alone
in

feeling

the

ill

effects

of

falling

oil

prices,

as

several

other

countries,

including Venezuela, Nigeria, and Kazakhstan, also faced reduced revenues and economic
activity.
Economic Sanction
Any international aid to Russia is considered unlikely as a result of the 201415 Russian military
intervention in Ukraine. Officials in the U.S. government have also said, despite the financial
crisis, that the United States and the European Union will not ease economic sanctions imposed
on Russia due to Russia's annexation of Crimea and Russian assistance to Novorossiya militants
fighting Ukraine in the War in Donbas. The U.S. believes the sanctions have negatively affected
the Russian economy so far and also expects the economic sanctions to lead to the further decline
of the Russian economy.
Economic sanctions have also contributed to the decline of the ruble since Russian companies
have been prevented from rolling debt, forcing companies to exchange their rubles for U.S.
dollars or other foreign currencies on the open market to meet their interest payment obligations
on their existing debt.
Financial and Economic Impact
Impact in Russia
Currency exchanger in Moscow. The majority of banks in Russia have tables only with four
digits, while in December 2014 some banks set exchange rates that needed five-digit tables.
On 16 December 2014, the RTS Index, denominated in U.S. dollars, declined 12%, the most on
any given day since the midst of the global financial crisis in November 2008, and
the Micex index declined 8.1% at one point before ending the day higher. This increased the
decline of RTS Index, up until 16 December, of nearly 30% during the month of December. In
response to rising interest rates and bank runs, the interest rate on Russian three-month interbank
loans rose to 28.3%, higher than at any point in 2008.
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To get rid of their rapidly declining Russian rubles, many Russians have chosen to
purchase durable goods, such as washing machines, televisions, furniture, and jewelry, and to
change their pensions and savings from being in rubles to US dollars or euros. Several currency
exchangers offered cash only at much greater exchange rates: USD up to 99.8 RUB (official rate
was 61.15) and EUR up to 120150 RUB (official rate was 76.15).Some foreign companies have
halted their business activities in Russia, including Volvo car dealerships and the online stores
of Apple and Steam, due to the high volatility and decline of the Russian ruble.
Additionally, Ikea temporarily suspended sales of certain goods in Russia, in part due to the
volatility and in part due to a lack of adequate supply, as numerous Russians bought Ikea
furniture.
Many Western financial institutions, including Goldman Sachs, have started cutting the flow of
cash

to

Russian

companies

since

they

have

restricted

some

longer-term

ruble-

denominated repurchase agreements (repos). These actions are intended to protect the Western
firms from the high volatility of the ruble. Repos had allowed Russian companies to exchange
securities for cash with Western financial institutions, so the restrictions are likely to add
pressure to the Russian financial system.
Russia may also be excluded from the MSCI Emerging Markets Index, composed of 26
countries' indices, if capital controls or currency controls are implemented by Russia, since such
measures would make it more difficult for foreign entities to access Russian securities markets.
Russia would be reclassified as a standalone market in that event.
The 20 December print edition of The Economist predicted that Russia would face the "lethal
combination" of a major recession and high inflation in 2015.Others predicted that the crisis
would spread to the banking sector. On the other hand, President Putin has argued that Russia
was not in crisis, and that cheaper oil prices would lead to a global economic boom that would
push up the price of oil, which would in turn help the Russian economy.

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Yearly inflation in Russia since 2008

On the week of December 15, the Russian reserves on gold and foreign currencies were reduced
by "US$15.7 billion to below US$400 billion for the first time since August 2009 and down from
[more than] $510 billion at the start of the year. Within December 1525, annual inflation has
climbed to more than ten percent. Prices of goods, including beef and fish, rose forty to fifty
percent within a few months before the end of the year due to Russia's ban on Western imports.
Car sales in Russia went down 12 percent from previous year, 2013. The largest Russian oil
company Rosneft, whose large shares are owned by the British oil company BP, lost U.S. and
European assets and 86 percent of profits in the third quarter 2014. Rosneft pinned the decline on
falling oil prices and ruble devaluation.
The crisis threatened the continued existence of the Continental Hockey League, and several
teams missed or delayed payments to their players.
Russian President Vladimir Putin ordered cabinet ministers to not take their day off on New
Year's Day because of the crisis.
As of December 2014, prices of meat, fish, and grain were inflated by ruble devaluation,
affecting Chinese-run businesses in Vladivostok. Some businesses were closed down, especially
due to future rising lease fees.]

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Because of currency devaluation, costs of developing solar power were reported in February
2015 to have increased, including photovoltaics mostly made in China, Germany, the United
States, and Japan.
Global Financial Markets
The financial crisis in Russia has affected other global financial markets. U.S. financial markets
declined, with the Dow Jones Industrial Average down nearly 3% in 3 business days, in part due
to the Russian financial crisis. The crisis drew comparisons to the 1998 Russian financial
crisis that affected global markets. Economist Olivier Blanchard of the IMFnoted that the
uncertainty caused by Russia's economic crisis could lead to greater worldwide risk aversion in a
manner similar to the Financial crisis of 200708However, the 2014 international sanctions on
Russia decreased Russia's financial connections with the broader financial world, which in turn
lowered the risk that an ailing Russian economy would affect the worldwide economy. Since
1998, Russia and many other countries have adopted a floating exchange rate, which could also
help to prevent Russian financial woes from affecting the rest of the world.
Foreign exchange trading service FXCM said on 16 December it would restrict U.S. dollar-ruble
trading starting 17 December, due to the volatility of the ruble. They also said that most Western
banks have stopped reporting the exchange rate of the U.S. dollar for rubles
(USD/RUB). Liquidity in the U.S. dollar-ruble market has also declined sharply

Capital outflow from Russia, billions of USD

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Financial institutions that hold relatively high amounts of Russian debt or other assets have been
affected by the Russian financial crisis. The PIMCO Emerging Markets Bond Fund also had 21%
of its holdings in Russian corporate and sovereign debt as of the end of September 2014, which
has declined about 7.9% from about 16 November 2014 to 16 December 2014.
Companies from North America and Europe that heavily relied on Russian economy have been
affected by the crisis. American car company Ford Motor Companyexperienced a 40-percent
decline on car sales in JanuaryNovember 2014, according to Association of European
Businesses, and terminated "about 950 jobs at its Russia joint in April [2014]." German car
company Volkswagen experienced a 20-percent decline in the same period. American oil
company ExxonMobil alongside Rosneft were unable to continue an Arctic project after the
discovery of oil there due to sanctions over the crises in the Ukraine. British oil company BP lost
17 percent of market shares. French energy company Total S.A. shelved joint shale exploration
plans with Russian oil company Lukoil due to sanctions
German engineering company Siemens lost 14 percent of Russian revenue in 2014. German
sportswear company Adidasclosed down stores and suspended development plans in Russia.
Danish beer company Carlsberg Group lost more than 20 percent of Russian shares. American
fast food company McDonald's lost twelve stores, which were closed down by Russian officials
due to "sanitary violations". French food conglomerate Danone experienced loss of operating
margins in the first half of 2014 due to rising milk prices
Many of Israel's 1 million immigrants from the former Soviet Union are estimated to have
business ties with Russia and are estimated to be effected by the Russian crisis.
In January 2015, ratings agency Standard & Poor's lowered Russia's crrating to junk status and
economic rating from BBB- to BB+. Moody's followed this decision in February 2015.

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Impact on former Soviet states

The devaluation of the Russian ruble affected the currencies of many post-Soviet stateswhich are
tied through trade and remittances by migrant workers in Russia. For many post-Soviet states,
trade with Russia represents over 5% of their GDP.
In Armenia, the dram depreciated from being traded at around .41015 against the dollar in
late November to a record low of 575 to the dollar on 16 December. By mid-December inflation
reached 15% to 20%. Parliament Vice-Speaker admitted panic in the country. The dram
recovered significantly and stabilizedon 1819 December to around 46080. However, inflation
remained high, reaching 40% for some products.
In Azerbaijan, low oil prices have battered its oil-dependent economy. However, it looks
impervious to economic turmoil as the government has maintained in reserve a large stabilization
fund which has kept the manat afloat against the dollar within its usual band. Most of the
country's

trade

is

done

with Turkey On

February

21,

2015

the Central

Bank

of

Azerbaijan devalued the manat by 33.5% to the dollar.

The Belarusian ruble plummeted to its weakest since 1998 by 15 December.
In Estonia, which abandoned the kroon on 31 December 2010 and adopted the euro on 1 January
2011, the economic growth forecast was cut from 3.6 percent to 2.0 percent in April 2014 due to
sanctions on Russia. As of April 2014, 11 percent of Estonia's exports had gone to Russia, and
100 percent of their natural gas had been imported from Russia.
In Georgia, the lari had collapsed to its lowest level versus the dollar in more than a decade by 5
December. By 11 December the lari plunged from the pre-crisis average of 1.75 to the dollar
to 1.921.98.
In Kazakhstan, the tenge was devalued nearly 1920 percent in February 2014. However, the
more significant devaluation of the ruble is making Kazakh goods less affordable to Russian
citizens which reduces sales and manufacturing growth.
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In Kyrgyzstan, remittance rates had dropped to 29 percent as of October 2014 for the first time
since

2009The

Kyrgyzstani

some was

devalued

15

percent

on

12

December. Some Kyrgyz migrants returned from Russia to Kyrgyzstan due to the crisis.
In Latvia, which abandoned the lats on 31 December 2013 and adopted the euro on 1 January
2014, Russia's ban on EU imports since 2014 has affected the Latvian economy, which has been
heavily dependent on economic trade with Russia.
In Lithuania, before it abandoned the litas on 31 December 2014 and adopted the euro on 1
January 2015, the crisis prompted some Lithuanians to emigrate from the country. Sanctions
hitting Russia and/or the EU affect Lithuania's dairy and transportation industries
Moldova also faced devaluation of currency
In Tajikistan, remittance rates dropped to 49 percent as of October 2014 for the first time since
2009 The someone was devalued 5.5 percent on 12 December.
In Uzbekistan, the some was devalued 9 percent on 12 December. According to Daniel Kilo, who
runs Fergana.ru:
There are 2.4 million Uzbek migrants in Russia, and those are just the official figures. These
people and their families are all surviving because of money made in Russia. Essentially Russia
has saved Uzbekistan and Tajikistan from revolution, and if all these people return, it will cause a
social explosion.

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CONCLUSION

While growth is returning, the recovery is uneven and fragile, unemployment in many countries
remains at unacceptable levels and the social impact of the crisis is still widely felt.
Strengthening the recovery is key. To sustain recovery, we need to follow through on delivering
existing stimulus plans, while working to create the conditions for robust private demand. At the
same time, recent events highlight the importance of sustainable public finances and the need for
our countries to put in place credible, properly phased and growth-friendly plans to deliver fiscal
sustainability,

differentiated

for

and

tailored to

national

circumstances.

Those countries with serious fiscal challenges need to accelerate the pace of consolidation. This
should be combined with efforts to rebalance global demand to help ensure global growth
continues on a sustainable path. Further progress is also required on financial repair and reform
to increase the transparency and strengthen the balance sheets of our financial institutions, and
support credit availability and rapid growth, including in the real economy.

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