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John Isaac

Abstract

Traditionally, the core functions of banking were to (1) accept money from, and collect checks for, customers; (2) honor checks for orders drawn on them by customers; (3) keep current accounts, or something of that kind, in which customers’ debits and credits are entered; and, of course, (4) lend. Banks derived their income largely from the margin between the interest rates they paid on money deposited with them and the interest rates they charged on money lent by them.

Robin Oliver

Abstract

Insurers are important financial intermediaries. They play a significant role in the financial system as vehicles for savings (policy premiums are not used immediately to meet claims; they are instead invested, earning policyholders a return when they either collect on claims or have their premiums reduced) and risk pooling (insurers pool the risks of different policyholders, so that those whose insured risk eventuates are compensated in part out of premiums paid by those who do not file claims). The insurance office itself provides an intermediary service. It underwrites some of the residual risk of the risk pooling and may assume some of the savings risk. An example of the latter is a traditional, nonparticipating annuity where the insurer guarantees the annuity payment irrespective of the investment performance of the fund from which the annuity is financed.

Mr. John R King

Abstract

This paper discusses issues that arise in designing an appropriate tax regime for three broad types of financial institutions that typically play major roles in securities markets—securities firms, investment funds, and pension funds. The focus is on taxes levied on the income or profits of these institutions, rather than indirect taxes on the financial products that they sell.

Howell H. Zee

Abstract

The term “innovative financial instruments” is generally taken to mean financial derivatives. A financial derivative (henceforth, simply derivative) is a financial instrument whose price depends on, or is derived from, the price of another asset. The asset underlying a derivative could be a commodity (for example, wheat), a financial asset (for example, a stock), or another derivative. There are two basic building blocks that can be used to construct derivatives: futures contracts traded in exchanges (or forward contracts traded in the over-the-counter market) and options contacts. Derivatives can be used for either hedging or speculative purposes (or both). Some elementary concepts related to derivatives are reviewed in the appendix to this paper.1

Alan Schenk and Howell H. Zee

Abstract

The value-added tax (VAT) has been adopted in over 100 countries. While the VAT base has been expanded in many countries to cover a wider range of goods and services, most countries with a VAT have not brought most financial services within the VAT net, especially financial intermediation services and other financial services rendered without explicit fees.

Mr. John R King

Abstract

Securities transactions taxes (STTs) are taxes imposed on the transfer of a financial instrument from one owner to another. These taxes are found in more than half of all countries in the Organization for Economic Cooperation and Development (OECD) and in many less developed countries as well. In the last two decades or so, however, there has been a clear trend away from the use of STTs: several OECD countries have abolished them or reduced their rates (as shown in Table 6.1).

Brian Graf

Abstract

8.1 The purpose of this chapter is to provide a general description of the ways in which consumer price indices (CPIs) are calculated in practice. The methods used in different countries are not exactly the same, but they have much in common. There is clearly interest from both compilers and users of CPIs in knowing how most national statistical offices (NSOs) actually calculate their CPIs.

Brian Graf

Abstract

The Consumer Price Index Manual: Concepts and Methods contains comprehensive information and explanations on compiling a consumer price index (CPI). The Manual provides an overview of the methods and practices national statistical offices (NSOs) should consider when making decisions on how to deal with the various problems in the compilation of a CPI. The chapters cover many topics. They elaborate on the different practices currently in use, propose alternatives whenever possible, and discuss the advantages and disadvantages of each alternative. The primary purpose of the Manual is to assist countries in producing CPIs that reflect internationally recommended methods and practices.

Bruce Fitzgerald

This paper reviews the World Bank lending for structural adjustment. The World Bank has always stressed the need to use limited investable resources efficiently. It has attempted to identify investment priorities in recipient countries and lent for projects that promised a high rate of return. The Bank’s Operational Manual defines structural adjustment lending as nonproject lending to support programs of policy and institutional change necessary to modify the structure of an economy so that it can maintain both its growth rate and the viability of its balance of payments in the medium term.