INTERNATIONAL MONETARY INSTITUTIONS
There is little exaggeration in saying that international monetary developments affect all individuals as workers, consumers, travelers, businessmen producing goods for domestic or foreign markets, and investors at home or abroad. The channels which transmit the impact of monetary events to people in their various roles in society are numerous.
Employment opportunities for some workers are improved when exports thrive and are weakened for other workers when foreign products compete effectively in price or quality with domestic output.
A movement in the exchange rate may benefit an individual in one of his roles but leave him worse off in another. The individual as a consumer may have a different view of and a different interest in what happens in the international monetary sphere from that of the individual as a worker.
Business activity is heavily influenced by international monetary conditions affecting prices, exchange rates, interest rates, imposition of controls on exports or imports or on capital movements.
Interdependence among nations has intensified lately, thus there is great interest in the functioning of the international monetary system.
The international monetary system is a set of arrangements, rules, practices, and institutions under which payments are made and received for transactions carried out across national boundaries. The international system is concerned not only with the supply of international money but with the relationships among the hundred or so currencies of individual countries and with the pattern of balance-of-payments relationships and the manner in which they are adjusted and settled.
International monetary relations are governed by rules of the Articles of Agreement of the International Monetary Fund1 and also by agreements and consultations among nations through other international institutions: the General Agreement on Tariffs and Trade (GATT), the Organization for Economic Cooperation and Development (OECD), the Bank for International Settlements (BIS), the United Nations Conference on Trade and Development (UNCTAD), the World Bank Group2 and other organizations.
The international monetary system is afflicted with problems. The main reason is that the nations that participate in it are politically independent but economically and financially interdependent.
This discrepancy determines the functions of the international monetary system; at its best, the system acts to reconcile the conflicting economic policies of its politically independent members.
In order to perform this reconciling function, the system is concerned, first, with how nations act to influence their balance-of-payments positions, with their policies that affect exchange rates.
The system is concerned, second, with how nations settle their accounts with one another. Third, the system is concerned with the amount and form of international money.
In broad terms, the international monetary system involves the management, in one way or another, of three processes:
1) the adjustment of balance-of-payments positions, including the establishments and alteration of exchange rates.
2) the financing of payments imbalances among countries by the use of credit or reserves;
3) the provision of international money.
STOCK MARKETS
Stock Markets are the means through which securities are bought and sold. The origin of stock markets goes back to medieval Italy1. During the 17th and 18th centuries Amsterdam was the principal centre for securities trading in the world. The appearance of formal stock markets and professional intermediation resulted from the supply of, demand for and turnover in transferable securities. The 19th century saw a great expansion in issues2 of transferable securities.
The popularity of transferable instruments as a means of finance continued to grow and at the beginning of the 20th century there was an increasing demand for the facilities provided by stock exchanges, with both new ones appearing around the world and old ones becoming larger, more organized and increasingly sophisticated.
The largest, most active and best organized markets were established in Western Europe and the United States. Despite their common European origins there was no single model which every country copied.
Members of stock exchanges drew up rules to protect their own interests and to facilitate the business to be done by creating an orderly and regulated marketplace.
Investors were interested in a far wider range of securities3 than those issued by local enterprises. Increasingly, these local exchanges were integrated into local markets.
The rapid development of communications allowed stock exchanges to attract orders more easily from all over the country and later the barriers than had preserved the independence and isolation of national exchanges were progressively removed, leading to the creation of a world market for securities. The 1980s saw the growing internationalization of the world securities markets, forcing stock exchanges to compete with each other. Cross-border trading of international equities expanded.
Although many securities were of interest to only a small and localized group, others came to attract investors throughout the world. Increasingly, arbitrage between different stock exchanges ensured that the same security commanded the same price4 on whatever market it was traded. London, Paris, New York became dominant stock exchanges.
Stock exchanges emerged as central elements in the financial systems of all advanced countries.
Potential investors, insurance companies, pension funds, governments and corporate enterprises see securities as a cheap and convenient means of finance.
An investor who purchases new securities is participating in a primary financial market. An investor who resells existing securities is participating in a secondary financial market.
There are two basic types of stock markets – (1) organized exchanges, like the New York Stock Exchange (NYSE) or the London Stock Exchange (LSE), and (2) the less formal over-the-counter markets.
The organized security exchanges are tangible physical entities, which have specially designated members5 and elected governing bodies – boards of governors.
In contrast to be organized security exchanges, the over-the-counter market is an intangible organization. It is a network of security dealers who buy and sell securities from each other, either for their own account or for their retail clients. The over-the-counter market is normally conducted by telephone and computer reporting of price quotations between brokerage firms that “make a market”: that is, agree to buy and sell a particular security. Securities that are not listed on exchanges are traded “over-the-counter”. In general these include stocks, preferred stocks, corporate bonds, and other securities.
Investors need complete and reliable information about stocks and markets. In addition to the listings, the financial pages of newspapers in all countries contain price quotations and share indexes which give a broad indication of how the stock market, or a segment of the stock market, performed during a particular day.