Group 1
Presentation
group members
NAME
SURNAME
REG NUMBER
BRIGHTON
MUDEYE
B1645893
FARISI
KANDIMIRI
B1851269
ANDREW
MAKWIRAMITI
B1851197
NYASHA
CHIPOKOSHA
B1851728
GODKNOWS
CHITSA
B1851499
LLOYD
CHIHAKA
B1851411
YOLLANDA
CHARAMBA
B1851699
AUDREY
MAVURA
B1851729
KARAKADZAI
SITHOLE
B1852656
TRYMORE
KASUSO
B1851325
question
Explain the role of the following participants in International finance
i.IMF
ii.Arbitragers
iii.World Bank
iv.Speculators
v.International Finance Corporation
vi.Brokers
vii.Hedgers
i) IMF
• Its an abreviation for International Monetary Fund which is an international
organization that promotes global economic growth and financial stability,
encourages international trade, and reduces poverty.
• The IMF was originally created in 1945 as part of the Bretton Woods
agreement, which attempted to encourage international financial cooperation
by introducing a system of convertible currencies at fixed exchange rates.
IMF roles
•
•
•
•
Surveillance
Capacity Building and development
Loans to countries with a financial crisis.
Conditional loans/structural adjustment
Surveillance
• The IMF collects massive amounts of data on national economies,
international trade, and the global economy in aggregate.
• The organization also provides regularly updated economic forecasts at the
national and international levels.
• These forecasts, published in the World Economic Outlook, are accompanied
by lengthy discussions on the effect of fiscal, monetary, and trade policies on
growth prospects and financial stability.
Capacity Building and development
• The IMF provides technical assistance, training, and policy advice
to member countries through its capacity building programs.
• These programs include training in data collection and analysis,
which feed into the IMF's project of monitoring national and global
economies.
• The group provides member nations with technical assistance in
the development of fiscal policy, monetary and exchange rate
policies,banking and financial system supervision and regulation
and statistics
cont’
• The organization aims to strengthen human and
institutional capacity.
• This is very important for countries with previous policy
failures, weak institutions, or scarce resources.
• Through capacity development, member nations can help
strengthen and improve growth in their economies and
create jobs.
Loans to countries in financial crises
• The IMF lends money to nurture the economies of member countries with
balance of payments problems instead of lending to fund individual projects.
• The IMF expects the countries to pay back the loans.
• Lending through the IMF takes two forms which are, lending at nonconcessional interest rates, concessional terms.
• The latter is advanced to countries with low income, and bears very low or no
interest rates at all.
• The IMF has $300 billion of loanable funds and this comes from member
countries who deposit a certain amount on joining
• In 2010/11 the IMF played a major role in the bailout to the Greek economy,
which involved a total loan of up to $110 billion.
Conditional loans/structural adjustment
• When giving loans, the IMF usually insist on certain
criteria being met and these can include policies to:
Reduce inflation (tightening of monetary policy)
Deficit-reducing policies (higher tax)
Supply-side policies, such as privatisation, deregulation
and improved tax collection.
Removing price controls
Free trade – removing tariff barriers
Devaluation of currency to reduce current account deficit.
ii.Arbitragers
• Is a type of investor who attempts to profit from market
inefficiencies.
• These inefficiencies can relate to any aspect of the
markets, whether it is price, dividends, or regulation and
the the most common form of arbitrage is price.
• According to Cheridito (2003), arbitrageurs exploit price
inefficiencies by making simultaneous trades that offset
each other to capture risk-free profits.
roles
• By taking advantage of market inefficiencies, arbitrageurs help the financial
system by causing prices to equalize through a system of supply and
demand.
• When an arbitrageur buys an asset from cheaper markets and sells the same
asset in more expensive markets, the demand for the asset in the cheaper
market will increase, causing prices to go up.
• In contrast, the more expensive market will see an increase in supply,
causing prices to decrease.
• If enough arbitrage trades are conducted, the prices of assets between the
two markets will equalize and maximize overall efficiency.
• When market prices are equalized with no potential for arbitrage, it is known
as an arbitrage equilibrium.
cont’
• In the course of making a profit, arbitrage traders enhance the
efficiency of the financial markets.
• As they buy and sell, the price differences between identical or
similar assets narrow.
• The lower-priced assets are bid up while the higher-priced assets
are sold off.
• In this manner, arbitrage resolves inefficiencies in the market’s
pricing and adds liquidity to the market.
iii.World Bank
• Is an international organization that provides financing,
advice, and research to developing nations to help
advance their economies.
• The World Bank and International Monetary Fund (IMF)
were founded simultaneously under the Bretton Woods
Agreement both seek to serve international governments.
• The World Bank has expanded to become known as the
World Bank Group with five cooperative organizations,
sometimes known as the World Banks.
World Bank roles
• The World Bank's Human Capital Project seeks to help
nations invest in and develop their human capital to
produce a better society and economy.
• It helps the war-devasted countries by granting them
loans for reconstruction.
• Thus, they provide extensive experience and the financial
resources of the bank help the poor countries increase
their economic growth, reducing poverty and a better
standard of living.
cont’
• Also, it helps the underdeveloped countries by granting
development loans.
• It also provides loans to various governments for irrigation,
agriculture, water supply, health, education, etc.
• It promotes foreign investments to other organizations by
guaranteeing the loans.
• Also, the world bank provides economic, monetary, and technical
advice to the member countries for any of their projects.
• It encourages the development of of-industries in underdeveloped
countries by introducing the various economic reforms.
iv.Speculators
• Speculators are sophisticated investors or traders who purchase
assets for short periods of time and employ strategies in order to
profit from changes in its price.
• According to Kaldor (2000), it is the buying of an asset or
financial instrument with the hope that the price of the asset or
financial instrument will increase in the future.
• Speculators are important to markets because they bring liquidity
and assume market risk.
• Conversely, they can also have a negative impact on markets,
when their trading actions result in a speculative bubble that
drives up an asset's price to unsustainable levels.
Speculators roles
• Welfare of the economy
• Market liquidity
• Risk bearing
improve the welfare of the economy
• Speculators, are typically willing to take on greater investment risk
than the average investor, are more willing to invest in a company,
asset, or security that is unproven or whose stock is trading at a
very low price, during times or in situations where more
conservative investors shy away.
• Thus, speculators often provide the capital that enables young
companies to grow and expand, or that provides price support for
assets or industries that have temporarily fallen on financially hard
times or out of favor. In such a way, speculators help to support
and drive forward the overall economy.
Market liquidity
• Speculators add liquidity to the markets by actively trading.
• A market without speculators would be an illiquid market,
characterized by large spreads between bid and ask prices, and
where it might be very difficult for investors to buy or sell
investments at a fair market price.
• The participation of speculators keeps markets fluid and helps
facilitate easy exchange between buyers and sellers at all times.
Risk bearing
• The higher risk tolerance of speculators translates to financing for
companies being more widely and readily available.
• Speculators are willing to risk lending money to companies,
governments, or business ventures that either lack established
credit or that are currently with poor credit rating.
• Without speculators, the only businesses able to obtain loans
would be those large, already established firms with a stellar
credit rating.
v.International Finance Corporation
• A member of the World Bank Group, the (IFC) provides financing
for private enterprise investments in developing countries.
• The IFC says its focus is eliminating poverty through economic
development, but critics claim it is more focused on profits than
people.
• In fiscal year 2021, the IFC invested $31.5 billion in financing
initiatives.
IFC roles
• Investment services
• Advisory services
• Asset management company
Investment services
• The IFC's investment services consist of loans, equity, trade
finance, syndicated loans, structured and securitized finance,
client risk management services, treasury services, and liquidity
management
• Mobilizing capital from other lenders and investors through loan
participations, parallel loans and other means.
Advisory services
• provides a range of advisory services to support corporate
decisionmaking regarding business, environment, social impact,
and sustainability.
• The IFC's corporate advice targets governance, managerial
capacity, scalability, and corporate responsibility.
• It prioritizes the encouragement of reforms that improve the trade
friendliness and ease of doing business in an effort to advise
countries on fostering a suitable investment climate.
• It also offers advice to governments on infrastructure development
and public-private partnerships.
Asset management
• The IFC established IFC Asset Management Company LLC (IFC
AMC) in 2009 as a wholly owned subsidiary to manage all capital
funds to be invested in emerging markets.
• The AMC manages capital mobilized by the IFC as well as by
third parties such as sovereign or pension funds, and other
development financing organizations.
vi.Brokers
• A broker is an individual or firm that acts as an intermediary
between an investor and a securities exchange.
• Can also refer to the role of a firm when it acts as an agent for a
customer and charges the customer a commission for its services.
• Discount brokers execute trades on behalf of a client, but typically
don’t provide investment advice.
• Full-service brokers provide execution services as well as tailored
investment advice and solutions.
Brokers roles
• Execute trades on the financial markets at the expense of the
customer and on his behalf.
• Provide information support about the situation on trading
platforms, sending notifications about quotes and trading
mechanisms.
• Provide information about other market participants, making the
correct decision for the client to conduct the transaction.
• Lending to clients for margin transactions.
• Storage and protection of customer data.
• Creating a technical base to make transactions on the exchange.
vii.Hedgers
• Hedgers are primary participants in the futures markets.
• Hedgers are traders who wish to protect themselves from the risk
involved in price movements.
• They look for opportunities to pass on this risk to those who are
willing to bear it.
• They are so keen to rid themselves of the uncertainty associated
with price movements that they may even be ready to do so at a
predetermined cost.
• Unlike speculators who assume market risk for profit, hedgers use
the futures markets to manage and offset risk.
roles
• First, hedging may reduce cash flow volatility reducing the
costs of financial distress and thereby alleviating the
under investment problem.
• Hedgers help the financial system by increasing liquidity
as it facilitates investors to invest in various asset classes.
• Hedging also requires lower margin outlay and thereby
offers a flexible price mechanism.
REFERENCES
• Kaldor, N.,(2000) "Speculation and Economic Stability,"
Review of Economic Studies, VII, 1-27.
• Cheridito, P. (2003). Arbitrage in fractional Brownian
motion models. Finance Stoch. 7 533–553.
END