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International Monetary Fund

Abstract

This paper discusses systematic issues in international finance explained in the International Capital Markets report. The paper describes that the nature and extent of recent banking problems in several industrial countries along with the policy responses to those problems. It is observed that balance sheet problems in banking are widespread among the major industrial countries. The paper also analyses recent activity in the European currency unit bond and exchange markets, and reviews developments in the private financing of developing countries and discusses several issues raised by the recent experience, including the broadening of the investor base for developing country securities, the special role played by regional financial centers in East and Southeast Asia, and the systemic implications of the evolving pattern of developing country financing. A key influence on international capital movements in recent years was the rising international diversification of investment portfolios, which is generally believed to have increased in response to the liberalization of exchange and capital controls in many industrial countries in the 1970s and 1980s.

International Monetary Fund

Abstract

The countries and territories included in the major country groups of the Fund’s World Economic Outlook are listed below.1

International Monetary Fund

Abstract

There is now a free forward exchange market.26 Authorized foreign exchange dealers (banks and nonbank financial institutions) are permitted to negotiate forward exchange contracts in any currency. They may deal among themselves and with their customers, including both residents and nonresidents, at mutually negotiated rates. The Reserve Bank sets a limit for each dealer’s overall overnight foreign exchange exposure. However, in aggregate, dealers rarely use more than 25 percent of their approved limit.

International Monetary Fund

Abstract

—The stage of the restructuring or new money package process when the advisory committee banks seek the approval of other creditor banks of a draft agreement negotiated with the restructuring country.

International Monetary Fund

Abstract

Data on changes in bank claims and liabilities are derived from stock data on the reporting countries’ liabilities and assets, excluding changes attributed to exchange rate movements.

Ms. Kalpana Kochhar, Ms. Yan M Sun, Ms. Evridiki Tsounta, and Mr. Niklas J Westelius

For the latest thinking about the international financial system, monetary policy, economic development, poverty reduction, and other critical issues, subscribe to Finance & Development (F&D). This lively quarterly magazine brings you in-depth analyses of these and other subjects by the IMF’s own staff as well as by prominent international experts. Articles are written for lay readers who want to enrich their understanding of the workings of the global economy and the policies and activities of the IMF.

DAVID FOLKERTS-LANDAU and PETER M. GARBER

The paper presents evidence from the past three years which indicates that the exchange rate between the private ECU and the official ECU Basket can deviate substantially from par. The value of the private ECU is driven by expectations that a future European Central Bank will enforce par convertibility between the private ECU and the official ECU basket of currencies. Meanwhile, no existing institutional arrangement limits the private ECU’s value in terms of the Basket. This paper addresses the question of what determines the values of the private ECU and of private ECU interest rates. We show that an anticipation of a future fixing of the private ECU’s value, together with the interest rate setting mechanism of the large-value ECU payment and clearing system, are sufficient to determine its value. The determination of the private ECU exchange rate provides the template for how to determine the value of any private composite currency, such as, for example, a private SDR.

GRACIELA KAMINSKY and MANMOHAN S. KUMAR

An econometric investigation is undertaken into the efficiency of commodity futures markets. Despite considerable empirical literature, there is no consensus on whether or not the markets are efficient. This study suggests that for certain commodities expected excess returns to futures speculation are nonzero. However, these results do not necessarily imply that agents do not act rationally. The implications for the cost of using the futures market for hedging and for the power of futures prices to forecast future spot prices are also noted.

Robert A. Feldman

This paper elaborates the introduction of surveillance that gave the IMF broader responsibilities with respect to oversight of its members’ policies than existed under the par value system. The IMF’s purview has been broadened under the new system but, by the same token, its members are no longer obliged to seek its concurrence in changes in exchange rates. The continuing volatility of exchange rates, and their prolonged divergence from levels that appear to be sustainable over time, have been matters of growing concern.