Section 8 - handout 12 - Financial Integration

Question 1

What is meant by Financial Integration?

Answer 1

A market is financially integrated IF:

1) All participants decides on a set of rules about when to use which instrument or service
2) Have equal access
3) Are treated equally in the market

Question 2

Why do we need Financial Development?

Answer 2

1) Reduce Asymmetric Information
2) Increase completeness & contracting possibilities
3) Reduce transaction costs
4) Increase competition

Question 3

What are the Rationales of Financial Integration?

Answer 3

1) To IMPROVE CHANNELING of funds from surplus to deficit agents
2) Better DIVERSIFICATION and risk-sharing
3) Deeper and more LIQUID markets
4) Increase in COMPETITION and INNOVATION

Question 4

Describe the evolution of the EU in short

Answer 4

1) 1951: It began with an European Coal and Steel Community
2) 1954: The European community of Defence ( failed)
3) 1957: The EEC Treaty - Based upon 4 freedoms
4) Early 1980’s:
- The French Paradox - IMP, FER, FCM
- The French Left wing enabled capital
5) 1986 - the Single Act - mutual recognition and harmonization - Cassis de Dijon
6) 1992 - 1999: A monetary Union

Question 5

What are the Objectives of the Financial Services Action Plan?

Answer 5

1. To promote a single WHOLESALE financial market
2. To make RETAIL financial services markets more open and secure
3. To improve the PRUDENTIAL framework

Question 6

What is the Lamfalussy framework a response to and what does it constitute?

Answer 6

1) A response on lack of efficency on the finacial markets in the EU

2)
Level 1. EU Commission, EU Parliament and Council
Level 2: EU Commission and Regulators’ (Treasuries) Committees
Level 3: Committees of Supervisors
Level 4: Commission actions to strengthen the enforcement of EU laws

Question 7

What is the role of ESA’s?

Answer 7

1) To WORK TOGETHER in a network
2) INTERACT with supervisory authorities
3) Ensure financial SOUNDNESS
4) SUPERVISE companies at a national level

Question 8

What is the triangle of Common Markets?

Answer 8

Competition Policy, Liberalization, Regulation and we can only choose two of the three.

Question 9

What are the Objectives of the ECMU?

Answer 9

1) No BARRIERS to international investment into the EU or investment cross border
2) ACCESSIBLE information about investment opportunities and risks especially for SMEs
3) PROPORTIONATE regulatory burdens and similar costs of investing across the Union
4) making INVESTORS able to understand risk better

Question 10

To which extent are some sectors of the financial markets integrated more than others?

Answer 10

1) Interest rate derivatives - fully integrated
2) Short term securities in money market - least integrated
3) Government bonds - very high
4) Corporate bond market - relatively integrated
5) Equity markets - fairly fragmented
6) Banking Markets - fairly Integrated