Lecture 15 - Devloped And Developing Markets

Question 1

International organisations development tax based on countries level of development by

Answer 1

The International Monetary Fund
United Nations development programme
The world bank
The world trade organisation

Question 2

The IMFs Development taxonomy

Answer 2

Current system

• advanced countries: relatively high incomes levels, well developed financial markets and high degrees of financial intermediation and diversified economic structures with rapidly growing service sectors
• emerging market and developing countries are countries that are not advanced

Question 3

UNDP’s Development Taxonomy

Answer 3

Country classification system is built around the human development index together with the human development in 1990
The HDI is a composite index of three indices: measuring countries achievements in longevity, education and income
Developed countries are countries in the top quartile in the HDI distribution
Developing countries are those in the bottom three quartiles
Drawbacks: it did not provide an explanation for the shift from absolute to thresholds
The UNDP uses equal country weighs to construct the HDI distribution in this distribution, 15% of the world’s population lives in designated developed countries.

Question 4

The WTO’s development taxonomy

Answer 4

164 members since July 2016
Members countries have to announce themselves as developed or developing
Developed: countries of the EU and most members of the OECD
Developing: other countries and the public of Korea, Mexico and Turkey
Developing country status in the WTO brings certain rights
The status of developing country does not guarantee automatic access to developed countries trade presence schemes
WTO recognises the sub-group of Least Developed countries designated as such by UN

Question 5

World economic outlook

Answer 5

Global growth is projected to reach 3.9% in 2018 and 2019
Advanced economy growth is expected to remain above trend at 2.4% in 2018 as economy growth projected
Emerging and developing Asia: growing at 6.5% in 2018-19
Central banks in key emerging economies including India and turkey have raises policy rates responding to inflation and pressures
As of early July 2018, the US dollar has strengthened by over 5% in real effective terms since February, while the euro, Japanese yen, and British pound sterling are broadly unchanged
In contract, some emerging market currencies have depreciated sharply

Question 6

BBVA: Emerging and Growth Leading Economies

Answer 6

EAGLES are defined as economies whose contribution to world economic growth over the next decade or so is expected to exceed the average of the leading industrialised nations, namely the G6
EAGLES countries - China, India, Indonesia, Russia, Brazil, turkey and Mexico
- it is stated to outperform the G6 average threshold of contributing USD490bn to global growth over the next decade
- forecasted to contribute 51% of the world economic growth between 2013 and 2023 compared to 19% for the slow growing G7 countries

Question 7

EAGLES

Answer 7

China and India play in another league, compared to all other countries as they expected to contribute 30% and 11% to global growth between 2013-2023
Turkey will contribute more than Germany and Mexico will add more to global growth than the UK

Question 8

Eagles and nest countries

Answer 8

A watch list of countries with expected incremental GDP in the next ten years to be lower than the G2 average buy higher than the smallest contributor
Forecasted to contribute around 14% of GDP growth over the following decade and may be part of the EAGLES in the future

Question 9

Financial systems

Answer 9

Different types of financial systems exist in different parts of the world.
The same basic structures are in place in them all, but the relative importance of different types of intuition varies
A key distinction is between bank based systems and market based systems
If anything, market based systems are becoming more common

Question 10

Bank based systems

Answer 10

Banks provide the main funding to companies, through equity ownership as well as lending
Each company has a close, long term relationship with a particular bank
Bank is typically represented on the company’s board
If a company is failing and requires restructuring, the bank will be instrumental in making this happen. Hostile takeovers are relatively rare

Question 11

Market based systems

Answer 11

Companies get their financing from public bond and equity markets
Banks facilitate financing rather than providing the finance themselves
Companies are run in shareholders interests, with corporate governance designed to ensure this
There is a market for corporate control.
The UK AND US are examples

Question 12

Ways of categorising financial structure

Bank based vs market based

Answer 12

Conventional wisdom
Euro area and Japan would be bank based, while the UK and the USA would be market based.
Conventional wisdom is rather simplistic

Question 13

Euro area

Answer 13

Small stock market
Lots of bank lending/relatively
Large public bond market

Question 14

UK

Answer 14

Relative large public equity market
Quite a lot of bank lending
Small bond markets

Question 15

US

Answer 15

Little bank lending

Large public equity and debt markets

Question 16

Japan

Answer 16

Government debt has increased significantly

Large public equity and debt markets

Question 17

Asia

Answer 17

Financial structure has not changed despite the Asian crisis

Question 18

London as a Financial centre

Answer 18

History as major trading centre - 200 banks 
Time zone - between US and Asia 
Euromarkets 
Relative political stability 
Network effects 
- English language 
-skilled labour pool 
-geographic proximity