Assignment on Commercial Banks
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Dissertation (Chapter 1,2, 3
Modification)
Modification)
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Table of Contents
CHAPTER 2 : LITERATURE REVIEW........................................................................................3
Theme 1 : Current condition of interest rate in commercial banks in Tajikistan........................3
Theme 2 - Theory behind fluctuation of Interest Rates in Tajikistan..........................................7
Theme 3. To analyse the impact of interest rate liberalisation in the financial system of
Tajikistan....................................................................................................................................17
Theme 4 : Relative factors behind the cause of fluctuation of interest rate.............................25
Theme : 5 Comparing the interest rate liberalization of Tajikistan with the neighbourhood
countries.....................................................................................................................................28
Theme : 6 : Benefits and challenges of accession to WTO in the banking sector of Tajikistan33
3.1 Selection of research methods.............................................................................................41
3.2 Research Philosophy............................................................................................................42
3.3 Justification for the research paradigm and methodology ..................................................43
3.4 Research approach...............................................................................................................45
3.5 Pilot Study............................................................................................................................46
3.6 Research design, Strategy and Procedures ..........................................................................46
3.6.1 Quantitative Questionnaire ..............................................................................................47
3.6.2 Qualitative Structure ........................................................................................................48
3.6.3 Secondary Data ................................................................................................................48
3.7 Data Collection....................................................................................................................49
3.7.1 Primary Data Collection...................................................................................................49
3.8 Ethical Considerations.........................................................................................................49
..................................................................................................................................................49
3.9 Limitations and Delimitation of Study ...............................................................................49
3.11 Summary ...........................................................................................................................50
REFERENCES..............................................................................................................................52
CHAPTER 2 : LITERATURE REVIEW........................................................................................3
Theme 1 : Current condition of interest rate in commercial banks in Tajikistan........................3
Theme 2 - Theory behind fluctuation of Interest Rates in Tajikistan..........................................7
Theme 3. To analyse the impact of interest rate liberalisation in the financial system of
Tajikistan....................................................................................................................................17
Theme 4 : Relative factors behind the cause of fluctuation of interest rate.............................25
Theme : 5 Comparing the interest rate liberalization of Tajikistan with the neighbourhood
countries.....................................................................................................................................28
Theme : 6 : Benefits and challenges of accession to WTO in the banking sector of Tajikistan33
3.1 Selection of research methods.............................................................................................41
3.2 Research Philosophy............................................................................................................42
3.3 Justification for the research paradigm and methodology ..................................................43
3.4 Research approach...............................................................................................................45
3.5 Pilot Study............................................................................................................................46
3.6 Research design, Strategy and Procedures ..........................................................................46
3.6.1 Quantitative Questionnaire ..............................................................................................47
3.6.2 Qualitative Structure ........................................................................................................48
3.6.3 Secondary Data ................................................................................................................48
3.7 Data Collection....................................................................................................................49
3.7.1 Primary Data Collection...................................................................................................49
3.8 Ethical Considerations.........................................................................................................49
..................................................................................................................................................49
3.9 Limitations and Delimitation of Study ...............................................................................49
3.11 Summary ...........................................................................................................................50
REFERENCES..............................................................................................................................52
CHAPTER 2 : LITERATURE REVIEW
Theme 1 : Current condition of interest rate in commercial banks in Tajikistan
According to Mogilevskii and Asadov (2018), banking system in Tajikistan is segregates
into two parts namely, National Bank of Tajikistan and second one is commercial banks. The
National Bank of country is the body which is responsible for performing all the regulatory
functions in the nation while the second tier of banking system which is commercial banks are
required to adhered to the rules and regulations of made by National Bank and to grant loans and
accept deposit to/from the public which is their prime function. In the view of Mehrotra and
Yetman (2015), the system of banking of Tajikistan is relatively weak and under-developed. The
banking sector of the nation experienced a setback in the year 2014 when economic crisis hit
Russia due to which it faced many systemic challenges. The country consists of about 16
commercial banks and about 80 micro-finance companies operating and have just one western
bank named as “Access Bank” which is a German bank. The author says that due to lack of big
and renowned banks across the world, the growth of banking system of the country is relatively
lower as compared to other Central Asian countries.
Essl and et.al., (2019) provides that interest rates are of two types such as borrowing
interest rate and lending interest rate. The rate at which commercial banks lends money to the
public or organisations is termed as lending interest rate while the rate which commercial banks
accepts deposits of public is known as borrowing interest rate for banks. Maxfield, Wang and de
Sousa (2018) stipulates that interest is considered as cost for one person while income for the
other person. It is basically taken as an opportunity cost wherein the borrower pay for grabbing
the opportunity now instead of foregoing the same which might costs it higher. Commercial
banks borrows which in other words, accepts deposit from public for which they pay some
interest to them, for the purpose of increasing the scope of their activities related to the
investments and earn higher profits for themselves.
Singh and Singh (2016) provides that bank's lending rate in the year May, 2019 was
25.351% which was observed to be less than the previous month's rate i.e., 25.389%. The author
states that changes in the interest rates can affect the market in both favourable and unfavourable
ways. When the National bank which is the central bank of Tajikistan changes the interest rate at
Theme 1 : Current condition of interest rate in commercial banks in Tajikistan
According to Mogilevskii and Asadov (2018), banking system in Tajikistan is segregates
into two parts namely, National Bank of Tajikistan and second one is commercial banks. The
National Bank of country is the body which is responsible for performing all the regulatory
functions in the nation while the second tier of banking system which is commercial banks are
required to adhered to the rules and regulations of made by National Bank and to grant loans and
accept deposit to/from the public which is their prime function. In the view of Mehrotra and
Yetman (2015), the system of banking of Tajikistan is relatively weak and under-developed. The
banking sector of the nation experienced a setback in the year 2014 when economic crisis hit
Russia due to which it faced many systemic challenges. The country consists of about 16
commercial banks and about 80 micro-finance companies operating and have just one western
bank named as “Access Bank” which is a German bank. The author says that due to lack of big
and renowned banks across the world, the growth of banking system of the country is relatively
lower as compared to other Central Asian countries.
Essl and et.al., (2019) provides that interest rates are of two types such as borrowing
interest rate and lending interest rate. The rate at which commercial banks lends money to the
public or organisations is termed as lending interest rate while the rate which commercial banks
accepts deposits of public is known as borrowing interest rate for banks. Maxfield, Wang and de
Sousa (2018) stipulates that interest is considered as cost for one person while income for the
other person. It is basically taken as an opportunity cost wherein the borrower pay for grabbing
the opportunity now instead of foregoing the same which might costs it higher. Commercial
banks borrows which in other words, accepts deposit from public for which they pay some
interest to them, for the purpose of increasing the scope of their activities related to the
investments and earn higher profits for themselves.
Singh and Singh (2016) provides that bank's lending rate in the year May, 2019 was
25.351% which was observed to be less than the previous month's rate i.e., 25.389%. The author
states that changes in the interest rates can affect the market in both favourable and unfavourable
ways. When the National bank which is the central bank of Tajikistan changes the interest rate at
which commercial banks borrow money, it has a ripple effect on the country's economy. Interest
is basically taken as a reward for mitigating the risk which is associated with the non payment of
the money borrowed by people. When the interest rates at which banks lend the money is lower,
people are encouraged to take more loans and spend on big purchases like homes, cars etc. This
is because people have to pay less interest on the amount they have borrowed which increases
their capacity of spending higher money. This have a positive impact in the economy as its
creates a ripple effect on country's economy. Liquidity tends to increase and money is transferred
from household sector to investment sector at a good pace. The ultimate effect of such lower
interest rate is reflected on the higher output of the nation which in turn accelerates the economic
growth of Tajikistan.
Kasenov (2017) in its studies stipulates that farmers and businesses are the major
beneficiaries of such lower interest rates instead of other section of society as stated above. This
is because lower interest rates allows the farmers and businesses in acquiring capital assets which
involves huge costs for which financing is required. The ultimate effect of such low interest rate
results into higher productivity through which the total output of the economy increases. Also, it
is seen that Tajikistan's rate of interest at which commercial banks lends money to people has
decreased over the month has a positive impact on the business and agriculture sector which are
the two highly contributing sectors of the Tajikistan's economy. Igonina and et.al., (2016) in its
research study stated that the country has witnesses as high interest rate as possible in May 2017
when the lending interest rate was 32.530 % which in a way significantly affected the entire
economy. The disposable income of the people in such condition decreases and they are
discouraged from getting loans or spending more. The author also stated that the country has
seen lending interest rate as low as possible in May 2002 when the rate of interest was just
13.097%.
Unit (2015) stated that the lending interest rate of Tajikistan is highly fluctuating as
interest rate in June 2018 was 28.940 which increased to 30.210 in July 2018 which went as low
as 20.511 in November 2018 which again increased to 25.351 in May 2017. This reflects the
instability in the credit supply and demand in the country. Donou-Adonsou and Sylwester
(2017) argues that higher interest rates is an opportunity for the commercial banks their
profitability increases in such scenario. This is because financial such as retail or commercial
banks, insurance companies, investment banks etc., holds huge cash in the form of customer
is basically taken as a reward for mitigating the risk which is associated with the non payment of
the money borrowed by people. When the interest rates at which banks lend the money is lower,
people are encouraged to take more loans and spend on big purchases like homes, cars etc. This
is because people have to pay less interest on the amount they have borrowed which increases
their capacity of spending higher money. This have a positive impact in the economy as its
creates a ripple effect on country's economy. Liquidity tends to increase and money is transferred
from household sector to investment sector at a good pace. The ultimate effect of such lower
interest rate is reflected on the higher output of the nation which in turn accelerates the economic
growth of Tajikistan.
Kasenov (2017) in its studies stipulates that farmers and businesses are the major
beneficiaries of such lower interest rates instead of other section of society as stated above. This
is because lower interest rates allows the farmers and businesses in acquiring capital assets which
involves huge costs for which financing is required. The ultimate effect of such low interest rate
results into higher productivity through which the total output of the economy increases. Also, it
is seen that Tajikistan's rate of interest at which commercial banks lends money to people has
decreased over the month has a positive impact on the business and agriculture sector which are
the two highly contributing sectors of the Tajikistan's economy. Igonina and et.al., (2016) in its
research study stated that the country has witnesses as high interest rate as possible in May 2017
when the lending interest rate was 32.530 % which in a way significantly affected the entire
economy. The disposable income of the people in such condition decreases and they are
discouraged from getting loans or spending more. The author also stated that the country has
seen lending interest rate as low as possible in May 2002 when the rate of interest was just
13.097%.
Unit (2015) stated that the lending interest rate of Tajikistan is highly fluctuating as
interest rate in June 2018 was 28.940 which increased to 30.210 in July 2018 which went as low
as 20.511 in November 2018 which again increased to 25.351 in May 2017. This reflects the
instability in the credit supply and demand in the country. Donou-Adonsou and Sylwester
(2017) argues that higher interest rates is an opportunity for the commercial banks their
profitability increases in such scenario. This is because financial such as retail or commercial
banks, insurance companies, investment banks etc., holds huge cash in the form of customer
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balances and businesses transactions. The author further explains this by stating that rise in the
rate of interest immediately results into increase in the earnings on such huge cash holdings. The
mechanism of profit making by such commercial banks is explained by the Martin and et.al.,
(2018) in its studies that commercial banks holds the balances of their customers at which they
some amount of interest which is obviously lower than the interest rate they charge from their
customers while lending the money. Increase in the rate of interest rates widens this gap due to
which banks becomes more able to enhance their profitability. For instance, the one of the
commercial bank in Tajikistan has balance of about 50 million Tajikistani Somoni on which 1%
interest is given by the banks to its customers. However, the same money have been invested by
it in short term notes or bills on which bank is earning 3 %. This gap of 2 % is termed as the
profitability for the company.
Sheremenko, Escalante and Florkowski (2017) disagree with the view of above author
and says that just because the profitability of the banking sector is one of the benefit of high
interest rates, it shall not be forgot that high interest rates decreases the capital which is needed
by the business organisations that reduces their productivity. It also induces the household sector
to save more money instead of spending it. This higher savings and lower expenditure decreases
the liquidity and money movement which eventually slows down the growth rate of an economy.
The same thing was experienced by the Tajikistan when interest rates in the country crossed the
mark of 30 % wherein people limit their expenses and hold back their money as savings. The
money rotation from household to expenditure to investment hindered because of that, which
ultimately led to slower economic growth of the country.
As per the studies of Al-Harbi (2019), Central Bank of the country greatly affects the
interest rates. In fact it is this organisation which lays down a guiding rate around which
commercial banks and their financial institutions have create their borrowing and lending
interesting rates. It is the body in the country which is also responsible for maintaining the
stability of financial system within the nation. National Bank in Tajikistan is embedded with this
responsibility in the country. One of the most significant power which the National Bank have,
which is to increase or decrease the discount rate in the country. Shift in the increase or
decrease in such interest rate have a massive impact on the building blocks of country's
macroeconomics, like spending and borrowing power of consumers.
rate of interest immediately results into increase in the earnings on such huge cash holdings. The
mechanism of profit making by such commercial banks is explained by the Martin and et.al.,
(2018) in its studies that commercial banks holds the balances of their customers at which they
some amount of interest which is obviously lower than the interest rate they charge from their
customers while lending the money. Increase in the rate of interest rates widens this gap due to
which banks becomes more able to enhance their profitability. For instance, the one of the
commercial bank in Tajikistan has balance of about 50 million Tajikistani Somoni on which 1%
interest is given by the banks to its customers. However, the same money have been invested by
it in short term notes or bills on which bank is earning 3 %. This gap of 2 % is termed as the
profitability for the company.
Sheremenko, Escalante and Florkowski (2017) disagree with the view of above author
and says that just because the profitability of the banking sector is one of the benefit of high
interest rates, it shall not be forgot that high interest rates decreases the capital which is needed
by the business organisations that reduces their productivity. It also induces the household sector
to save more money instead of spending it. This higher savings and lower expenditure decreases
the liquidity and money movement which eventually slows down the growth rate of an economy.
The same thing was experienced by the Tajikistan when interest rates in the country crossed the
mark of 30 % wherein people limit their expenses and hold back their money as savings. The
money rotation from household to expenditure to investment hindered because of that, which
ultimately led to slower economic growth of the country.
As per the studies of Al-Harbi (2019), Central Bank of the country greatly affects the
interest rates. In fact it is this organisation which lays down a guiding rate around which
commercial banks and their financial institutions have create their borrowing and lending
interesting rates. It is the body in the country which is also responsible for maintaining the
stability of financial system within the nation. National Bank in Tajikistan is embedded with this
responsibility in the country. One of the most significant power which the National Bank have,
which is to increase or decrease the discount rate in the country. Shift in the increase or
decrease in such interest rate have a massive impact on the building blocks of country's
macroeconomics, like spending and borrowing power of consumers.
MIRAZIZOV and et.al., (2017) states that discount rate is the cost which have to paid
for borrowing money from the central bank. When commercial banks borrow money from the
National bank of Tajikistan, they have to pay interest at the discount rate for the purpose of
shoring up the short term liquidity needs of the banks. For instance, the National Bank of the
country may increase or decrease this rate depending upon the circumstances and condition
related to economic pace and growth prevailing in the country. The authors provides that
discount rate of Tajikistan as on March 2017 was 16 % which is lower as compared to 18 % in
December 2016. The National Bank of Tajikistan exercised it power and lowered the discount
rate in the year 2017 because of the stagnant or slow pace of country's economy. This decision
was taken by the National Bank as it wanted to make the borrowing of the funds affordable for
the commercial banks so that economy does not get affected significantly. Khatat (2016)
articulates that when the retail banks or commercial banks borrows from National Bank at
cheaper rate, they are enabled of passing the savings to their customers by the way of lower
interest rates imposed on personal or mortgage loans etc. This leads to development of such
economic environment wherein the customers are encouraged to borrow which subsequently
leads to rise in consumer spending. However, Bougatef (2015) argues that decrease in the
interest rate have a negative impact on the investment earnings of the customers. The author says
that although reduction favours spending culture in the economy but it also lowers down the
income which the customers are earning from their investments in bank. This sometimes
discourages the investors or household sector to put their money as investments in the bank.
In the view of MUKANOV and BEGALIEV (2018), when the economy is progressing at
such a rate which might result into hyper-inflation, the National Bank rises the interest rates.
This is done to lower down the excessive demand of credit in the economy. The author explains
the mechanism that when the discount rate is higher, it will be a costly affair for the borrowing
banks to acquire funds from National Bank which in turn will squeeze the demand from
customer relating to the loans. Lower demand would help the country in bringing down the
inflation rate to a desired level so that economic growth of the nation does not hindered. Also,
this action is required for maintaining the stability of money credit and inflation rate in a country.
This was the reason why National Bank of Tajikistan increased the discount rate in the year 2017
to 18 % from the previous year in which it was 17.5 % since the economy was growing at good
rate wherein for taking control over the possibility of hyper-inflation, the National bank chose to
for borrowing money from the central bank. When commercial banks borrow money from the
National bank of Tajikistan, they have to pay interest at the discount rate for the purpose of
shoring up the short term liquidity needs of the banks. For instance, the National Bank of the
country may increase or decrease this rate depending upon the circumstances and condition
related to economic pace and growth prevailing in the country. The authors provides that
discount rate of Tajikistan as on March 2017 was 16 % which is lower as compared to 18 % in
December 2016. The National Bank of Tajikistan exercised it power and lowered the discount
rate in the year 2017 because of the stagnant or slow pace of country's economy. This decision
was taken by the National Bank as it wanted to make the borrowing of the funds affordable for
the commercial banks so that economy does not get affected significantly. Khatat (2016)
articulates that when the retail banks or commercial banks borrows from National Bank at
cheaper rate, they are enabled of passing the savings to their customers by the way of lower
interest rates imposed on personal or mortgage loans etc. This leads to development of such
economic environment wherein the customers are encouraged to borrow which subsequently
leads to rise in consumer spending. However, Bougatef (2015) argues that decrease in the
interest rate have a negative impact on the investment earnings of the customers. The author says
that although reduction favours spending culture in the economy but it also lowers down the
income which the customers are earning from their investments in bank. This sometimes
discourages the investors or household sector to put their money as investments in the bank.
In the view of MUKANOV and BEGALIEV (2018), when the economy is progressing at
such a rate which might result into hyper-inflation, the National Bank rises the interest rates.
This is done to lower down the excessive demand of credit in the economy. The author explains
the mechanism that when the discount rate is higher, it will be a costly affair for the borrowing
banks to acquire funds from National Bank which in turn will squeeze the demand from
customer relating to the loans. Lower demand would help the country in bringing down the
inflation rate to a desired level so that economic growth of the nation does not hindered. Also,
this action is required for maintaining the stability of money credit and inflation rate in a country.
This was the reason why National Bank of Tajikistan increased the discount rate in the year 2017
to 18 % from the previous year in which it was 17.5 % since the economy was growing at good
rate wherein for taking control over the possibility of hyper-inflation, the National bank chose to
increase the rate so that demand for credit is lowered down for the purpose of stabilizing the
economy. Geraets (2018) In a good economic conditions, people tends to save less and spend
more which in turn increases the demand of the money credit in the economy. The demand gets
so high that commercial banks are unable to meet it and for controlling such situation, the
National Bank of Tajikistan rise the interest rate so that people gets discouraged in demanding
excessive credit or borrowing from the commercial banks. The subsequent effect of such higher
interest rate is that prices of goods and services in the country is balanced which favour the
banking system and economic growth of the country.
Hernandez and Vadlamannati (2017), through its studies suggests that financial system of
Tajikistan is quite shallow. This is because of the fact that country does not higher financial
intermediation. The deposit and credit penetration rates of Tajikistan is lower than other regional
economies because of country's disturbed history of banking system and government's legacy of
interfering in the operational decision making which has resulted into ineffective resource
allocations throughout the country. The policies related to lending of funds are weak in
Tajikistan, there is lack of effective risk management in the banking system and weak corporate
governance has altogether resulted into lower productivity from the financial sector in the
country. Moreover, with the beginning of recession period in Russia 2014-2016 made the
situation worse for Tajikistan wherein many of the commercial banks became insolvent. World's
major financial organisations such as International Monetary Fund (IMF), ERBD and World
Bank are offering all the possible assistance to the authorities of Tajikistan for resolving its
problems and issues in the financial sector.
Theme 2 - Theory behind fluctuation of Interest Rates in Tajikistan
According to Holston, 2017, Interest Rates are the cost for borrowers which they give to
lender of loans in order to give benefits to lenders. Interest rates are basically set by central bank
in every country by keeping in mind all the aspects of economy. There are mainly three forces
which leads in determination of interest rates in country and by same process it is also
determined in Tajikistan. First force which help in determining interest rates are Federal Banks
who sets Fed Funds Rate and that specifically affects short term and variable interest rates.
Second force is investor demand for U.S. Treasury notes and bonds which mainly affects long-
term and Fixed interest rates. The third force is banking industry which offers loans and
economy. Geraets (2018) In a good economic conditions, people tends to save less and spend
more which in turn increases the demand of the money credit in the economy. The demand gets
so high that commercial banks are unable to meet it and for controlling such situation, the
National Bank of Tajikistan rise the interest rate so that people gets discouraged in demanding
excessive credit or borrowing from the commercial banks. The subsequent effect of such higher
interest rate is that prices of goods and services in the country is balanced which favour the
banking system and economic growth of the country.
Hernandez and Vadlamannati (2017), through its studies suggests that financial system of
Tajikistan is quite shallow. This is because of the fact that country does not higher financial
intermediation. The deposit and credit penetration rates of Tajikistan is lower than other regional
economies because of country's disturbed history of banking system and government's legacy of
interfering in the operational decision making which has resulted into ineffective resource
allocations throughout the country. The policies related to lending of funds are weak in
Tajikistan, there is lack of effective risk management in the banking system and weak corporate
governance has altogether resulted into lower productivity from the financial sector in the
country. Moreover, with the beginning of recession period in Russia 2014-2016 made the
situation worse for Tajikistan wherein many of the commercial banks became insolvent. World's
major financial organisations such as International Monetary Fund (IMF), ERBD and World
Bank are offering all the possible assistance to the authorities of Tajikistan for resolving its
problems and issues in the financial sector.
Theme 2 - Theory behind fluctuation of Interest Rates in Tajikistan
According to Holston, 2017, Interest Rates are the cost for borrowers which they give to
lender of loans in order to give benefits to lenders. Interest rates are basically set by central bank
in every country by keeping in mind all the aspects of economy. There are mainly three forces
which leads in determination of interest rates in country and by same process it is also
determined in Tajikistan. First force which help in determining interest rates are Federal Banks
who sets Fed Funds Rate and that specifically affects short term and variable interest rates.
Second force is investor demand for U.S. Treasury notes and bonds which mainly affects long-
term and Fixed interest rates. The third force is banking industry which offers loans and
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mortgage loans who changes interest rates depending on business needs. These are three main
forces which determines interest rates in any country.
As per Anandan, 2018, the first force which affects short term interest rates are due other
factors involved in this force. There are other short term interest rates involved such as LIBOR,
Prime Rate etc. LIBOR is the rate banks at which is provided overnight loans to meet the Fed's
reserve requirements. It is generally a few tenths higher than the fed funds rate and is a small
amount rate charged. Prime rate are those charged by banks to their best customers. This rate is
generally above than the Fed Finds rate but it is blow than variable interest rate. It is in between
both the rates and it effects slowly to economy. When Federal Bank changes interest rates than it
takes approximately 12 months to 18 months for bringing change in whole economy. In this case
when rates are been increased than banks starting lending slowly and less and it directly affects
expansion of businesses. Even the decrease of 0.25 point in rate leads to stock market higher
because decrease in rates stimulates to the economy. On the other hand, when there is increase of
0.25 point in rate than the growth of market slowly declines. Thus, various types of interest rates
leads to different type of driven forces in market.
Hefeker, 2018, said that the second force in determination of interest rates are Treasury
Bills which affects long term rates. Longer term loans are of 15 to 30 years fixed interest
mortgage loans. These loans are generally for customer loans who wants to borrow loans for
purchasing auto mobiles, education, purchasing large furnitures etc. Interest rates on Long term
loans are generally higher than prime rate but lower than revolving credit rates. These interest
rates are not fed funds rate but rather they follow every time change in Treasury Notes Rates.
Treasury Notes rates are set by bidding process by U.S. Treasury department. In which they take
highest yield rate and it depends on notes i.e. if notes are high in demand than yield can be low
and vice- versa. In this way Treasury Notes Rates are been determined for Long term loans.
Cochrane, 2016, claimed that there are several types of interest rates which are only
affected by banks. For example, housing boom in year 2000 increased with the increase in Fed
Funds Rate. It is set target rates which are directly controlled by booming of houses. Other
interest loans were interest only loan in which borrowers used to pay only interest but never
reduced Principle. Credit card interest rates were usually higher than the LIBOR rates and were
required in order to maintain credit card facilities for clients. Interest rates are very important in
order to control the flow of money supply in any country. Increase in interest rates and decrease
forces which determines interest rates in any country.
As per Anandan, 2018, the first force which affects short term interest rates are due other
factors involved in this force. There are other short term interest rates involved such as LIBOR,
Prime Rate etc. LIBOR is the rate banks at which is provided overnight loans to meet the Fed's
reserve requirements. It is generally a few tenths higher than the fed funds rate and is a small
amount rate charged. Prime rate are those charged by banks to their best customers. This rate is
generally above than the Fed Finds rate but it is blow than variable interest rate. It is in between
both the rates and it effects slowly to economy. When Federal Bank changes interest rates than it
takes approximately 12 months to 18 months for bringing change in whole economy. In this case
when rates are been increased than banks starting lending slowly and less and it directly affects
expansion of businesses. Even the decrease of 0.25 point in rate leads to stock market higher
because decrease in rates stimulates to the economy. On the other hand, when there is increase of
0.25 point in rate than the growth of market slowly declines. Thus, various types of interest rates
leads to different type of driven forces in market.
Hefeker, 2018, said that the second force in determination of interest rates are Treasury
Bills which affects long term rates. Longer term loans are of 15 to 30 years fixed interest
mortgage loans. These loans are generally for customer loans who wants to borrow loans for
purchasing auto mobiles, education, purchasing large furnitures etc. Interest rates on Long term
loans are generally higher than prime rate but lower than revolving credit rates. These interest
rates are not fed funds rate but rather they follow every time change in Treasury Notes Rates.
Treasury Notes rates are set by bidding process by U.S. Treasury department. In which they take
highest yield rate and it depends on notes i.e. if notes are high in demand than yield can be low
and vice- versa. In this way Treasury Notes Rates are been determined for Long term loans.
Cochrane, 2016, claimed that there are several types of interest rates which are only
affected by banks. For example, housing boom in year 2000 increased with the increase in Fed
Funds Rate. It is set target rates which are directly controlled by booming of houses. Other
interest loans were interest only loan in which borrowers used to pay only interest but never
reduced Principle. Credit card interest rates were usually higher than the LIBOR rates and were
required in order to maintain credit card facilities for clients. Interest rates are very important in
order to control the flow of money supply in any country. Increase in interest rates and decrease
in Consumer Price Index is decreasing which means that economy is not doing good and this can
lead to slow economic growth rate. Increase in interest rates and decrease in Gross Domestic
Product which can lead to recession period in economy. The same situation is reversed when
interest rates are decreasing and CPI and GDP both are increasing it means that economy is
heating up and there is fast economic growth rate in a country. But is also lead economy towards
high inflation which is also not good for economy. In this manner interest rates affects economy
and that's why it is important to know working of interest rates as decided by banks.
On the other hand Yiheyis, 2018, said that interest rates also affects economy and
individual person in that particular economy. There is direct impact of interest rates on home
loan mortgages where if interest rates are higher than loan payment will also be higher. It means
that interest rates and loan payments are directly related to each other as it can be observed if
interest rates decreases than loan payments related to house loans. Interest rates also affects
inflation rates prevailing in economy. An individual must be smart enough to examine situation
and lock its money in fixed interest loan in order to stretch more amount of income for himself.
It has also been observed that if interest rates remains high for too many months than it leads to
slow growth rate of business present in economy. In this above mentioned manner, interest rates
does not only affects economy but it also affects individual present in an economy.
Bodenstein, 2017, said that the banks are the main participants in setting up interest rates
on loans taken by borrowers. Commercial Banks borrow some amount of loans from central
bank on certain percentage and lend these loans to general public on the rate above than
borrowed from central bank. The margin between rate provided by central bank and lending
loans on certain rate by commercial banks is known as spread and it is also profit margin for
commercial banks. Banks are generally free determine interest loans on deposits and on lending
rates as based on fed funds rate and other policies prevailing in economy. These interest rates are
been set by setting up certain rates as per reserve requirements and buying and selling “risk-
free” rates. Interest rates comes under monetary policies and are intended to influence economic
activities in a country. Other considerations which bank take at time of setting up interest rates
are inflation rates, stock market levels etc. In this manner bank decide interest rates which are to
be taken by bank on lending funds from individuals and businesses.
Arteta, and et.al., 2016 said that interest rates theory is generally related to the increase or
decrease in percentage of inflation rates in any country. Any country whose inflation rate
lead to slow economic growth rate. Increase in interest rates and decrease in Gross Domestic
Product which can lead to recession period in economy. The same situation is reversed when
interest rates are decreasing and CPI and GDP both are increasing it means that economy is
heating up and there is fast economic growth rate in a country. But is also lead economy towards
high inflation which is also not good for economy. In this manner interest rates affects economy
and that's why it is important to know working of interest rates as decided by banks.
On the other hand Yiheyis, 2018, said that interest rates also affects economy and
individual person in that particular economy. There is direct impact of interest rates on home
loan mortgages where if interest rates are higher than loan payment will also be higher. It means
that interest rates and loan payments are directly related to each other as it can be observed if
interest rates decreases than loan payments related to house loans. Interest rates also affects
inflation rates prevailing in economy. An individual must be smart enough to examine situation
and lock its money in fixed interest loan in order to stretch more amount of income for himself.
It has also been observed that if interest rates remains high for too many months than it leads to
slow growth rate of business present in economy. In this above mentioned manner, interest rates
does not only affects economy but it also affects individual present in an economy.
Bodenstein, 2017, said that the banks are the main participants in setting up interest rates
on loans taken by borrowers. Commercial Banks borrow some amount of loans from central
bank on certain percentage and lend these loans to general public on the rate above than
borrowed from central bank. The margin between rate provided by central bank and lending
loans on certain rate by commercial banks is known as spread and it is also profit margin for
commercial banks. Banks are generally free determine interest loans on deposits and on lending
rates as based on fed funds rate and other policies prevailing in economy. These interest rates are
been set by setting up certain rates as per reserve requirements and buying and selling “risk-
free” rates. Interest rates comes under monetary policies and are intended to influence economic
activities in a country. Other considerations which bank take at time of setting up interest rates
are inflation rates, stock market levels etc. In this manner bank decide interest rates which are to
be taken by bank on lending funds from individuals and businesses.
Arteta, and et.al., 2016 said that interest rates theory is generally related to the increase or
decrease in percentage of inflation rates in any country. Any country whose inflation rate
increases it is directly related to the prevailing inflation rates. These terms are mainly related too
macroeconomics because all these are big terms which affects whole economy with slightest
change in any inflation rate or interest rate. Generally, it has been observed that when interest
rates are risen, less number of people borrow money from banks which leads to reduction in
inflation rates. The same happens when interest rates are risen, more number of people borrow
loans from banks which leads to reduction inflation in country. This theory is the main issue of
fluctuation in interest rates which also affected economy of Tajikistan. In any country, when
Government wants to decrease the purchasing power in country it decreased interest rates and
vice- versa. Inflation rates are only main reason which affects interest rates in Tajikistan.
On the other hand Malkiel, 2015, claimed that inflation rates are only not reason for
fluctuation of interest rates in any country. There are many other reasons because of which
interest rates increases or decreases. It is also depended on demand and supply prevailing in the
market of Tajikistan. Increase in supply along with decrease in demand leads market forces to
decrease interest rates. In the situation of decrease in supply combined with increase in
demand leads market forces to increase in interest rates. Other factor which affects interest rates
in country is inverse relationship between interest rates and bond prices. When interest rates
increases bond prices automatically decreases and when interest rates decreases, bond prices
automatically increases. It shows inverse relationship between interest rates and bond Prices.
Other factors which affects interest rates are Economic Growth rate. There is minimum
economic growth rate above that rate inflationary pressure starts to increase. In order to keep
interest rates under control economic growth rate has to be under control. Other factor is rising
wage rates in Tajikistan also lead to increase in interest rates. Due to increase in wage rates it
leads to a wage price spiral which ultimately leads to increase in interest rates.
Holston, 2017, said that there are various issues in Tajikistan due to which interest rates
fluctuates in any country. These various issues are Federal Funds rate which are been set up by
Government. These are rates which are been applied by Government on short term borrowings
that are paid by lenders of short term loans. Interest rates in this case are influenced by buying or
selling of securities issued by Government. Government buys more of securities which helps
them to inject more money than lending and this tends to decrease in interest rates. While when
Government sells off more securities it leads to withdraw more amount of money from banks
and ultimately leads to decrease in price of interest rates. One factor affecting interest rates in
macroeconomics because all these are big terms which affects whole economy with slightest
change in any inflation rate or interest rate. Generally, it has been observed that when interest
rates are risen, less number of people borrow money from banks which leads to reduction in
inflation rates. The same happens when interest rates are risen, more number of people borrow
loans from banks which leads to reduction inflation in country. This theory is the main issue of
fluctuation in interest rates which also affected economy of Tajikistan. In any country, when
Government wants to decrease the purchasing power in country it decreased interest rates and
vice- versa. Inflation rates are only main reason which affects interest rates in Tajikistan.
On the other hand Malkiel, 2015, claimed that inflation rates are only not reason for
fluctuation of interest rates in any country. There are many other reasons because of which
interest rates increases or decreases. It is also depended on demand and supply prevailing in the
market of Tajikistan. Increase in supply along with decrease in demand leads market forces to
decrease interest rates. In the situation of decrease in supply combined with increase in
demand leads market forces to increase in interest rates. Other factor which affects interest rates
in country is inverse relationship between interest rates and bond prices. When interest rates
increases bond prices automatically decreases and when interest rates decreases, bond prices
automatically increases. It shows inverse relationship between interest rates and bond Prices.
Other factors which affects interest rates are Economic Growth rate. There is minimum
economic growth rate above that rate inflationary pressure starts to increase. In order to keep
interest rates under control economic growth rate has to be under control. Other factor is rising
wage rates in Tajikistan also lead to increase in interest rates. Due to increase in wage rates it
leads to a wage price spiral which ultimately leads to increase in interest rates.
Holston, 2017, said that there are various issues in Tajikistan due to which interest rates
fluctuates in any country. These various issues are Federal Funds rate which are been set up by
Government. These are rates which are been applied by Government on short term borrowings
that are paid by lenders of short term loans. Interest rates in this case are influenced by buying or
selling of securities issued by Government. Government buys more of securities which helps
them to inject more money than lending and this tends to decrease in interest rates. While when
Government sells off more securities it leads to withdraw more amount of money from banks
and ultimately leads to decrease in price of interest rates. One factor affecting interest rates in
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Tajikistan is Unemployment rate i.e. High Unemployment rate leads to high inflation rates in
country that leads to decrease in interest rates. Rise in prices commodities leads to rise in
inflation rates which leads to increase in interest rates in order to control purchasing power in
Tajikistan.
According to Sharpe, 2015, there is substantial rise in interest rates from year 2013 to
2017. Interest rates in country risen from 5.50% in year 2013 to 16.00% in year 2017. It is
observed that there has been approximately increase of 190% in four years which does not good
sign for growth of any economy. Economy is again leading to same position where country was
having 21% of interest rates in year 2000. It the same increase occurs in Tajikistan than it will
lead to again rise in interest rates up to 21%. Inflation report also shows that interest rates are not
affecting inflation rates because it is under control. It also shows that inflation rates are not rising
with rise of interest rates in Tajikistan. In year 2000 when interest rates were high than inflation
rates were also affected. Thus, it can be analysed that the situation which occurred in year 2000
can again occur in Year 2017 which means that rise in interest rates can also lead to rise in
inflation rates. If same situation takes place then it is not good for Tajikistan because rise in
inflation rates is a hint to destructive situation for a economy. Whole economy is affected if there
is increase in inflation rates because it creates problem not only for people living in economy but
it also affects other economies which are related to Tajikistan.
On the other hand Du, 2018, said that not only inflation rates in Tajikistan will be risen
but it will also affect other factors such as GDP, exports and imports of country. As per reports,
GDP growth rate has been same and are not increasing as the increase in inflation rates and
interest rates in Tajikistan. Percentage of Public Debt has been risen which shows that debt is
rising leads to purchasing power of consumers. Trade Balance of country has also been gone
negative and GDP Per capita is also decreasing which is not good for any country. These are
certain factors that are affected b y increase in interest rates which tends to destructive situation
for economy of Tajikistan. Government should try to increase more of exports against imports
occurring in country which will help economy to keep inflationary pressure under control.
Model behind used in order to know fluctuation of Interest Rates
According to Cairns, 2018, there are different models used in calculation of fluctuation of
interest rates occurring in economy. A theoretical model of interest rates is money market and
inflationary rates rising in market. In money market, inflation rises due to increase in money
country that leads to decrease in interest rates. Rise in prices commodities leads to rise in
inflation rates which leads to increase in interest rates in order to control purchasing power in
Tajikistan.
According to Sharpe, 2015, there is substantial rise in interest rates from year 2013 to
2017. Interest rates in country risen from 5.50% in year 2013 to 16.00% in year 2017. It is
observed that there has been approximately increase of 190% in four years which does not good
sign for growth of any economy. Economy is again leading to same position where country was
having 21% of interest rates in year 2000. It the same increase occurs in Tajikistan than it will
lead to again rise in interest rates up to 21%. Inflation report also shows that interest rates are not
affecting inflation rates because it is under control. It also shows that inflation rates are not rising
with rise of interest rates in Tajikistan. In year 2000 when interest rates were high than inflation
rates were also affected. Thus, it can be analysed that the situation which occurred in year 2000
can again occur in Year 2017 which means that rise in interest rates can also lead to rise in
inflation rates. If same situation takes place then it is not good for Tajikistan because rise in
inflation rates is a hint to destructive situation for a economy. Whole economy is affected if there
is increase in inflation rates because it creates problem not only for people living in economy but
it also affects other economies which are related to Tajikistan.
On the other hand Du, 2018, said that not only inflation rates in Tajikistan will be risen
but it will also affect other factors such as GDP, exports and imports of country. As per reports,
GDP growth rate has been same and are not increasing as the increase in inflation rates and
interest rates in Tajikistan. Percentage of Public Debt has been risen which shows that debt is
rising leads to purchasing power of consumers. Trade Balance of country has also been gone
negative and GDP Per capita is also decreasing which is not good for any country. These are
certain factors that are affected b y increase in interest rates which tends to destructive situation
for economy of Tajikistan. Government should try to increase more of exports against imports
occurring in country which will help economy to keep inflationary pressure under control.
Model behind used in order to know fluctuation of Interest Rates
According to Cairns, 2018, there are different models used in calculation of fluctuation of
interest rates occurring in economy. A theoretical model of interest rates is money market and
inflationary rates rising in market. In money market, inflation rises due to increase in money
supply over real money demand prevailing in market. This approach was given by Milton
Friedman where he has taken three assumptions. The first assumption is that the velocity and
demand of money in economy always remains same and never changes. Second assumption is
that in long run real output is affected by factors such as employment, capital, technology etc.
Third assumption is that the supply of money can be controlled independently because it is
determined by different set of factors. It was Milton who insisted again and again that central
bank has not increased interest rates with compulsion but it was rather the money because of
which interest rates were increased. All interest rates are then adjusted according to the market
expectations.
Engel, 2015, claimed that Milton had did everything that could happen in short run period
but the short rates ended up before the disinflation was complete. This was expected that long
rates will be fallen due to reduction in expectations of inflation but it was rather increased in
short runs and continued for several couple of years. Paul Volker has also used various strategies
in order to reduce inflation from economy. He raised fed fund rates by 20% in 1980 which lead
to end of inflation. In year 2015 again its strategies of ending inflation was used by using Volker
formula in banks. Formula prohibited banks to from using customer deposits to trade for their
own profit. In 2015, new Bretton Woods agreement was set up in order to guide world's different
monetary policies. Bretton Woods Agreement was created a coordinated international monetary
and financial system in country. It included replacement of global currency to dollar. This will
help in creating equilibrium in country's Balance of Payments. In 2009, also there was use of
Volker theory by President Obama in order to control inflation rates.
On the other hand Keynes, 2018, said that theory used by Paul Volker also created 1980-
82 recession. Due to high- cost for raising inflation rates led to creation of inflation rates. This
shows that Milton's assumptions were more relevant than Volker' s shocker rule. Milton's
assumptions were related to money supply and demand in long term. It warns that increase in
money supply leads to temporary increase in employment but at last it increases inflation. It
assumes that monetary policies are powerful than fiscal policies because fiscal policies only puts
main focus on taxation policies. Huge spendings creates money supply but it creates a deficit
which leads to increase in interest rates of Tajikistan. It also assumes that central bank is more
powerful than Government because they are ones who control money supply in country. Real
interest rates does affects inflation rates in economy while nominal rates does affects inflation
Friedman where he has taken three assumptions. The first assumption is that the velocity and
demand of money in economy always remains same and never changes. Second assumption is
that in long run real output is affected by factors such as employment, capital, technology etc.
Third assumption is that the supply of money can be controlled independently because it is
determined by different set of factors. It was Milton who insisted again and again that central
bank has not increased interest rates with compulsion but it was rather the money because of
which interest rates were increased. All interest rates are then adjusted according to the market
expectations.
Engel, 2015, claimed that Milton had did everything that could happen in short run period
but the short rates ended up before the disinflation was complete. This was expected that long
rates will be fallen due to reduction in expectations of inflation but it was rather increased in
short runs and continued for several couple of years. Paul Volker has also used various strategies
in order to reduce inflation from economy. He raised fed fund rates by 20% in 1980 which lead
to end of inflation. In year 2015 again its strategies of ending inflation was used by using Volker
formula in banks. Formula prohibited banks to from using customer deposits to trade for their
own profit. In 2015, new Bretton Woods agreement was set up in order to guide world's different
monetary policies. Bretton Woods Agreement was created a coordinated international monetary
and financial system in country. It included replacement of global currency to dollar. This will
help in creating equilibrium in country's Balance of Payments. In 2009, also there was use of
Volker theory by President Obama in order to control inflation rates.
On the other hand Keynes, 2018, said that theory used by Paul Volker also created 1980-
82 recession. Due to high- cost for raising inflation rates led to creation of inflation rates. This
shows that Milton's assumptions were more relevant than Volker' s shocker rule. Milton's
assumptions were related to money supply and demand in long term. It warns that increase in
money supply leads to temporary increase in employment but at last it increases inflation. It
assumes that monetary policies are powerful than fiscal policies because fiscal policies only puts
main focus on taxation policies. Huge spendings creates money supply but it creates a deficit
which leads to increase in interest rates of Tajikistan. It also assumes that central bank is more
powerful than Government because they are ones who control money supply in country. Real
interest rates does affects inflation rates in economy while nominal rates does affects inflation
rates. Real rates rather remove effects of inflation. Expansion of money supply leads to lowering
in interest rates and vice versa.
Analysis of how fluctuation of interest rates took place in Tajikistan
According to Avdjiev, and et.al., 2016, the main role of fluctuation of interest rates took
place because of banking sector and money in an country. It is mainly due to difference between
interbank policy rate and other rates such as collaterized rates, uncollaterized rates. Treasury
Bills rates, Pure inter temporal rates etc. Banks fails to recognize difference between interbank
rates and other short term rates and set them as minimum by 4% p.a. It affects the banking
productivity in long run because it affects policy rates. Fluctuation of interest rates can also be
analysed by demand and supply of money in market. If money supply in market is high it means
that interest rates will be lower because of which purchasing power of public increases. If money
supply in money market is lower which means that interest rates are high which affects
purchasing power of general public is decreased. There is direct relation between money supply,
interest rates and purchasing power factors which leads to fluctuation of interest rates.
On the other hand Jobst, 2016, fluctuation in interest rates can also be analysed by
investments done by general public in real estate business or share market. If investments in real
estate or share market are increasing than it means that interest rates have been lowered. It is
shown because if interest rates are lower than only public can borrow loans from banks which
leads to ultimately increase in investments. While investment in these sectors are decreasing than
it means that interest rates are been increased by central banks. At the last it also lead to decrease
in borrow of loans by public because it shows that there is less investments in these sectors.
Interest rates plays very important role in preparation of monetary policies and sets up whole
equilibrium of savings and investments. Also. Lower investments leads to lower economic
growth rate for Tajikistan and higher investments leads to higher economic growth rate in near
future.
Arteta, and et.al., 2016 claimed that interest rates are fluctuated even because of high
inflation rates occur in a country because higher inflation rates leads to high interest rates. It
shows that high inflation rates that purchasing power of public is decreasing which decreases
interest rates in order to slow down borrow of loans by public to increase their investments.
Lower inflation rates leads to higher interest rates because if inflation rates are higher than there
will be purchasing power of public. In order to increase more purchasing power of general public
in interest rates and vice versa.
Analysis of how fluctuation of interest rates took place in Tajikistan
According to Avdjiev, and et.al., 2016, the main role of fluctuation of interest rates took
place because of banking sector and money in an country. It is mainly due to difference between
interbank policy rate and other rates such as collaterized rates, uncollaterized rates. Treasury
Bills rates, Pure inter temporal rates etc. Banks fails to recognize difference between interbank
rates and other short term rates and set them as minimum by 4% p.a. It affects the banking
productivity in long run because it affects policy rates. Fluctuation of interest rates can also be
analysed by demand and supply of money in market. If money supply in market is high it means
that interest rates will be lower because of which purchasing power of public increases. If money
supply in money market is lower which means that interest rates are high which affects
purchasing power of general public is decreased. There is direct relation between money supply,
interest rates and purchasing power factors which leads to fluctuation of interest rates.
On the other hand Jobst, 2016, fluctuation in interest rates can also be analysed by
investments done by general public in real estate business or share market. If investments in real
estate or share market are increasing than it means that interest rates have been lowered. It is
shown because if interest rates are lower than only public can borrow loans from banks which
leads to ultimately increase in investments. While investment in these sectors are decreasing than
it means that interest rates are been increased by central banks. At the last it also lead to decrease
in borrow of loans by public because it shows that there is less investments in these sectors.
Interest rates plays very important role in preparation of monetary policies and sets up whole
equilibrium of savings and investments. Also. Lower investments leads to lower economic
growth rate for Tajikistan and higher investments leads to higher economic growth rate in near
future.
Arteta, and et.al., 2016 claimed that interest rates are fluctuated even because of high
inflation rates occur in a country because higher inflation rates leads to high interest rates. It
shows that high inflation rates that purchasing power of public is decreasing which decreases
interest rates in order to slow down borrow of loans by public to increase their investments.
Lower inflation rates leads to higher interest rates because if inflation rates are higher than there
will be purchasing power of public. In order to increase more purchasing power of general public
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by central bank than it has to decrease interest rates. In Tajikistan , interest rates have been
increased which shows that inflation rates are also been decreased because of which interest rates
were increased by central bank in order to control of purchasing power of general public. Other
reasons for fluctuation of interest rates are demand and supply of money in Tajikistan. These are
the above mentioned points because of which interest rates fluctuation took place in country and
this points can help central bank of country to improve their monetary policy in order to reduce
fluctuation of interest rates.
Impact of Negative Interest Rates on implementation in different banks or financial
institutions in Tajikistan
According to Brunnermeier, 2016, Negative interest rates are policy in which interest rate
value is negative and is lower than theoretical price i.e. Zero percent. It is new concept
introduced in order to remove financial crisis of country. Negative interest rates leads to high
cost for commercial banks. Negative interest rates means that public has to pay for loans
borrowed by them from banks on regular basis. These is done in order to keep minimum balance
by depositors in their deposit account so that it will banks to lend loans more freely to
individuals and businessman. At the time of deflationary people hold money rather them
investing or spending in various business. This leads to price falling due to decrease in demand
by buyers and eventually leads to unemployment. Expansionary monetary policies are set by
commercial banks at the time of stagnation in economy. It is further also observed that if
deflationary forces are high in economy than interest rates lowered to Zero rates will not be
enough. The third theory behind negative interest rates are in order to improve economic growth
rate in Tajikistan. Basically, it is applied when all other factors are failed in order to improve
economic growth of country. Reducing interest rates to Zero leads to reduction of costs for
individuals and businesses to borrow more loans from banks.
Wu, 2016 claimed that Zero interest rate percentage not always help in improving
economic growth of a country. Many times it has also been observed that economic output felled
due to Zero interest rates kept by central banks. At the time of financial crisis it was observed
that Zero coupon rates were introduced in order to improve economic growth but it happened
opposite of it and there was fallen in growth of company. Lower interest rates than Zero Interest
rates may lead to shrink in economy rather than growing in economy. This impact on
profitability of banks and banks gets destroyed and almost those banks who especially depend
increased which shows that inflation rates are also been decreased because of which interest rates
were increased by central bank in order to control of purchasing power of general public. Other
reasons for fluctuation of interest rates are demand and supply of money in Tajikistan. These are
the above mentioned points because of which interest rates fluctuation took place in country and
this points can help central bank of country to improve their monetary policy in order to reduce
fluctuation of interest rates.
Impact of Negative Interest Rates on implementation in different banks or financial
institutions in Tajikistan
According to Brunnermeier, 2016, Negative interest rates are policy in which interest rate
value is negative and is lower than theoretical price i.e. Zero percent. It is new concept
introduced in order to remove financial crisis of country. Negative interest rates leads to high
cost for commercial banks. Negative interest rates means that public has to pay for loans
borrowed by them from banks on regular basis. These is done in order to keep minimum balance
by depositors in their deposit account so that it will banks to lend loans more freely to
individuals and businessman. At the time of deflationary people hold money rather them
investing or spending in various business. This leads to price falling due to decrease in demand
by buyers and eventually leads to unemployment. Expansionary monetary policies are set by
commercial banks at the time of stagnation in economy. It is further also observed that if
deflationary forces are high in economy than interest rates lowered to Zero rates will not be
enough. The third theory behind negative interest rates are in order to improve economic growth
rate in Tajikistan. Basically, it is applied when all other factors are failed in order to improve
economic growth of country. Reducing interest rates to Zero leads to reduction of costs for
individuals and businesses to borrow more loans from banks.
Wu, 2016 claimed that Zero interest rate percentage not always help in improving
economic growth of a country. Many times it has also been observed that economic output felled
due to Zero interest rates kept by central banks. At the time of financial crisis it was observed
that Zero coupon rates were introduced in order to improve economic growth but it happened
opposite of it and there was fallen in growth of company. Lower interest rates than Zero Interest
rates may lead to shrink in economy rather than growing in economy. This impact on
profitability of banks and banks gets destroyed and almost those banks who especially depend
too much on customers deposit to make loans. Negative interest rates is main problem for those
financial institutions especially for those whose main aim is still to attract more number of
customers on basis of high interest rates in order to increase deposits. It is simple phenomenon if
a depositor is asking for interest rates he would be getting and banks tell him that interest rate is
Zero or negative than it will loose interest of depositor to deposit their cash in various financial
institutions. Main objective of banks to lower interest rates to Zero or negative is to attract more
number of borrowers from financial institutions but in that case they will loose depositors. In
such case negative interest rates lead to high cost for banks and several financial institutions.
On the other hand Claessens, 2018, various other consequences of negative interest rates
are that it curtails profit for banks. Main business of any bank is interest rate margins which is
most important source of business of revenue for banks. Negative interest rates means a direct
decline in interest rates margins which leads to decrease in profitability of banks. Competition
between individual clients and banks of negative interest rates is only profitable to banks that too
in some cases while in other cases it is disadvantage to individual client. If individual clients are
not satisfied with policies of clients than it will be problem for bank themselves because clients
may remove their accounts from banks. At this point bank has to not only face high cost of
negative interest rates but it has to also face problem of removal of bank accounts by depositors.
Thus, there be a two loss for banks in order to bring negative interest rates in financial markets.
The other reality of negative interest rates is creating uncertainty in financial markets. In such a
situation insurance companies gets relatively advantage because mortgage lending business and
scarcity of investment opportunities leads for investors leads to further problems in exacerbation.
Drechsler, 2018 said that negative interest rates are sweet poison for a bitter pill because
it leads to a only medicine for small time and then become big problem for banks themselves.
The other profits in implementing negative interest rates are additional revenues in trading
business. It means that lending loans lead to increase of profits by lending more loans to
businesses and individuals. It also lead to increase in demand of hedging or a stronger sign for
bringing stability in financial centre. It causes up heal in political parties because they need more
amount funding for their parties. At this time bank provide huge loans without even having
authentication of accounts. This situation is very favourable to political parties and also they
have to not pay any interest on borrowing of such loans by political parties. It has been very
diplomatic that negative interest rates leads to economic growth or not. Because it has been
financial institutions especially for those whose main aim is still to attract more number of
customers on basis of high interest rates in order to increase deposits. It is simple phenomenon if
a depositor is asking for interest rates he would be getting and banks tell him that interest rate is
Zero or negative than it will loose interest of depositor to deposit their cash in various financial
institutions. Main objective of banks to lower interest rates to Zero or negative is to attract more
number of borrowers from financial institutions but in that case they will loose depositors. In
such case negative interest rates lead to high cost for banks and several financial institutions.
On the other hand Claessens, 2018, various other consequences of negative interest rates
are that it curtails profit for banks. Main business of any bank is interest rate margins which is
most important source of business of revenue for banks. Negative interest rates means a direct
decline in interest rates margins which leads to decrease in profitability of banks. Competition
between individual clients and banks of negative interest rates is only profitable to banks that too
in some cases while in other cases it is disadvantage to individual client. If individual clients are
not satisfied with policies of clients than it will be problem for bank themselves because clients
may remove their accounts from banks. At this point bank has to not only face high cost of
negative interest rates but it has to also face problem of removal of bank accounts by depositors.
Thus, there be a two loss for banks in order to bring negative interest rates in financial markets.
The other reality of negative interest rates is creating uncertainty in financial markets. In such a
situation insurance companies gets relatively advantage because mortgage lending business and
scarcity of investment opportunities leads for investors leads to further problems in exacerbation.
Drechsler, 2018 said that negative interest rates are sweet poison for a bitter pill because
it leads to a only medicine for small time and then become big problem for banks themselves.
The other profits in implementing negative interest rates are additional revenues in trading
business. It means that lending loans lead to increase of profits by lending more loans to
businesses and individuals. It also lead to increase in demand of hedging or a stronger sign for
bringing stability in financial centre. It causes up heal in political parties because they need more
amount funding for their parties. At this time bank provide huge loans without even having
authentication of accounts. This situation is very favourable to political parties and also they
have to not pay any interest on borrowing of such loans by political parties. It has been very
diplomatic that negative interest rates leads to economic growth or not. Because it has been
observed even if negative interest rates led to positive economic growth rate but than also it lead
to very slow growth rate. One such successful example of negative interest rates is in year 2017
in US where Federal Reserve targets its interbank rates to increase and just expressing its
intention to increase its rates. This policy of increase in interbank rates leads to increase in
interest rates all over the world. This was happened at time or elections held in US as he
promised to improve fiscal policies in order to increase interest rates and inflation rates in
country. In this way, negative interest rates also leads to some of positive aspects of bringing
interest rates below zero rates.
On the negative side Tan, 2016 again claimed that negative interest rates are not good for
economy and it does not lead to improve in economic growth of country. Banks profits shrinks
and also it lowers down trust of public from banks or financial institutions. Also, borrowing costs
of banks have been increased due to penalties imposed by central banks to commercial banks.
Commercial banks responses by cross- subsidizing both losses and lowering profit margins for
banks by charging high payment transactions fees from clients. This high payment transaction
fees can be profitable for banks but it is not beneficial for clients because they have to pay high
charges on payment transactions. So, it may create problem for banks if clients start to loose their
interest in banks and it may also lead to removal of bank accounts by customers. The other main
reason for unsuccessful of implementation of negative interest rates is to lend loans to any person
there who comes for borrowing loans. Banks even lend loans to person who might default in
payment of principle and interests in nears future. This is also one of negative point that can
affect banks working and may cause them huge loss because of default payments by clients.
Thus, in such situation banks should duly take care about there payment that they will be paying
back principle and interest rates or not. Another point which can be taken by banks to keep
proper adequate amount of capital in banks are BASEL norms which help in knowing capital
requirements in proportion to risk weighted assets. Banks can also use these norms in order to
know optimum requirement of capital that is to be required by banks for lending leans to general
public.
Abdullah, 2015 said that it can be concluded that negative interest rates are having both
positive and negative aspects in banks at the time of implementation of negative interest rates in
banks. If negative interest rates are having numerous of advantages to banks by lending loans to
public than on other side it is also having numerous of disadvantages such as increase in
to very slow growth rate. One such successful example of negative interest rates is in year 2017
in US where Federal Reserve targets its interbank rates to increase and just expressing its
intention to increase its rates. This policy of increase in interbank rates leads to increase in
interest rates all over the world. This was happened at time or elections held in US as he
promised to improve fiscal policies in order to increase interest rates and inflation rates in
country. In this way, negative interest rates also leads to some of positive aspects of bringing
interest rates below zero rates.
On the negative side Tan, 2016 again claimed that negative interest rates are not good for
economy and it does not lead to improve in economic growth of country. Banks profits shrinks
and also it lowers down trust of public from banks or financial institutions. Also, borrowing costs
of banks have been increased due to penalties imposed by central banks to commercial banks.
Commercial banks responses by cross- subsidizing both losses and lowering profit margins for
banks by charging high payment transactions fees from clients. This high payment transaction
fees can be profitable for banks but it is not beneficial for clients because they have to pay high
charges on payment transactions. So, it may create problem for banks if clients start to loose their
interest in banks and it may also lead to removal of bank accounts by customers. The other main
reason for unsuccessful of implementation of negative interest rates is to lend loans to any person
there who comes for borrowing loans. Banks even lend loans to person who might default in
payment of principle and interests in nears future. This is also one of negative point that can
affect banks working and may cause them huge loss because of default payments by clients.
Thus, in such situation banks should duly take care about there payment that they will be paying
back principle and interest rates or not. Another point which can be taken by banks to keep
proper adequate amount of capital in banks are BASEL norms which help in knowing capital
requirements in proportion to risk weighted assets. Banks can also use these norms in order to
know optimum requirement of capital that is to be required by banks for lending leans to general
public.
Abdullah, 2015 said that it can be concluded that negative interest rates are having both
positive and negative aspects in banks at the time of implementation of negative interest rates in
banks. If negative interest rates are having numerous of advantages to banks by lending loans to
public than on other side it is also having numerous of disadvantages such as increase in
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borrowing cost of banks, default payment risk etc. Other negative aspect of negative interest
rates are that it lowers Government borrowings and it also lowers credit ratings of country.
Decrease in interest rates also leads to threat in share market, real estate bubble because of less
investment in such sectors. These leads to increase in more negative side of bringing negative
interest in banks of Tajikistan in order to remove financial crisis of country because it may create
a havoc. It may be possible that it may remove problem for banks but it is not suitable removing
big problem of financial crisis for whole economy. Thus, Tajikistan should properly examine
scenario of whole economy present in country and then only take decision that whether to
implement negative interest rates or not and what will be its impact after implementation on
whole economy.
Theme 3. To analyse the impact of interest rate liberalisation in the financial system of
Tajikistan.
As per the view points of Barrell, Karim and Ventouri, (2017) , the term interest rate has
been defined as the proportion of the debt or loan amount which has been charged in form of
interest to the borrower. Interest charge can be expressed either in form of annual percentage
basis or as specified of the loan amount which has been outstanding. With the help of
liberalisation and globalisation of the world economy, it has benefited many business
organisation in gaining competitive advantages by expanding their business operations to the
international market across the globe. Liberalisation of interest rate is a method in which the
monetary authority relinquishes or delegated some of its power or control related to setting or
manipulating rate of interest thereby allowing the market forces the power to determine interest
rates accordingly. With the help of Interest rate tool, it enables the financial market of the
economy in making proper and effective allocation of its resources. Also, it ensures measures to
be undertaken related to controlling, monitoring, directing as well as managing of cash and
capital flow thereby optimising the capital allocation process. It provides a balance between the
financial allocation system of the economy.
On the contradictory part of both Bruno and Shin, (2015), they argued that Interest rate is
like a price rate which is having the capability to perform rationing function thereby undertaking
allocating process of the limited supply of all the financial resources in number of competing
demands for such resources. Because of liberalisation made in Interest rate, many commercial
banks of different economies has to face difficulties and adverse situation in managing their
rates are that it lowers Government borrowings and it also lowers credit ratings of country.
Decrease in interest rates also leads to threat in share market, real estate bubble because of less
investment in such sectors. These leads to increase in more negative side of bringing negative
interest in banks of Tajikistan in order to remove financial crisis of country because it may create
a havoc. It may be possible that it may remove problem for banks but it is not suitable removing
big problem of financial crisis for whole economy. Thus, Tajikistan should properly examine
scenario of whole economy present in country and then only take decision that whether to
implement negative interest rates or not and what will be its impact after implementation on
whole economy.
Theme 3. To analyse the impact of interest rate liberalisation in the financial system of
Tajikistan.
As per the view points of Barrell, Karim and Ventouri, (2017) , the term interest rate has
been defined as the proportion of the debt or loan amount which has been charged in form of
interest to the borrower. Interest charge can be expressed either in form of annual percentage
basis or as specified of the loan amount which has been outstanding. With the help of
liberalisation and globalisation of the world economy, it has benefited many business
organisation in gaining competitive advantages by expanding their business operations to the
international market across the globe. Liberalisation of interest rate is a method in which the
monetary authority relinquishes or delegated some of its power or control related to setting or
manipulating rate of interest thereby allowing the market forces the power to determine interest
rates accordingly. With the help of Interest rate tool, it enables the financial market of the
economy in making proper and effective allocation of its resources. Also, it ensures measures to
be undertaken related to controlling, monitoring, directing as well as managing of cash and
capital flow thereby optimising the capital allocation process. It provides a balance between the
financial allocation system of the economy.
On the contradictory part of both Bruno and Shin, (2015), they argued that Interest rate is
like a price rate which is having the capability to perform rationing function thereby undertaking
allocating process of the limited supply of all the financial resources in number of competing
demands for such resources. Because of liberalisation made in Interest rate, many commercial
banks of different economies has to face difficulties and adverse situation in managing their
banking as well as financial activities. In case of political colour, commercial banks have to face
problems including poor and ineffective management, lack of financial knowledge, lack of risk
awareness, low environment related to excessive profits. Under such business or financial
environment, there has been a high increase in the level of competition among all the banks.
Cairns, (2018) also argued that in such competitive environment, the bank competition has been
mainly related with making limitation in respect of mastery of deposits, loans, competition in
context of non price it has created high negative impact on the performance of banking as well as
financial institution. Due to such interest rate liberalisation, it has resulted in not so strong
overall competitiveness of commercial bank along with the existing services phenomenal.
Caballero, Farhi and Gourinchas, (2017), states that with the introduction of liberalisation in
respect of interest rate mechanisms, its main objective is to provide commercial banks more freedom
to perform or act in respect of pricing of their loans, deposits so as to compete with every commercial
bank. Also, it has been aimed at bringing improvement in the overall efficiency of bank for
promoting economic development and growth thus making economy more competitive and strong.
To maintain adequate as well as fine balance between the existing competitive environment, safety
and soundness of the whole banking system, the government has to adopt effective and cautious
approach in relation with the interest rate liberalisation process. At the time of several different stages
or methodology of such liberalization, all the commercial banks were given more and full power to
set down all the interest rates of their deposits and loans as well. After the process of liberalization of
interest rate was completed, all the commercial banks has the power to gain full authority. This
authority provides banks power to set down their own deposit rates and charge their customers which
are based on the credit risks and other factors of the borrowers.
Drechsler, Savov and Schnabl, (2018) disagrees with the statement that though there are
some benefits of liberalising interest rate in the economy, it has come up with some negative
implications as well. Prior to the liberalization of interest rate, all the dominant and profit making
banks are not able to exercise their market power so as to extract revenue in form of rental value
as charged from their customers because the interest rates were already determined and specified.
All the commercial banks are having thought of either raising or lowering down the amount or
rate related to the retail deposit rate, lending rates. It has been set to almost the level same as
considered when the change in the rate of policy has been announced. From this situation, it has
been assessed that the banking system structure of Tajikistan is highly concentrated. All the
problems including poor and ineffective management, lack of financial knowledge, lack of risk
awareness, low environment related to excessive profits. Under such business or financial
environment, there has been a high increase in the level of competition among all the banks.
Cairns, (2018) also argued that in such competitive environment, the bank competition has been
mainly related with making limitation in respect of mastery of deposits, loans, competition in
context of non price it has created high negative impact on the performance of banking as well as
financial institution. Due to such interest rate liberalisation, it has resulted in not so strong
overall competitiveness of commercial bank along with the existing services phenomenal.
Caballero, Farhi and Gourinchas, (2017), states that with the introduction of liberalisation in
respect of interest rate mechanisms, its main objective is to provide commercial banks more freedom
to perform or act in respect of pricing of their loans, deposits so as to compete with every commercial
bank. Also, it has been aimed at bringing improvement in the overall efficiency of bank for
promoting economic development and growth thus making economy more competitive and strong.
To maintain adequate as well as fine balance between the existing competitive environment, safety
and soundness of the whole banking system, the government has to adopt effective and cautious
approach in relation with the interest rate liberalisation process. At the time of several different stages
or methodology of such liberalization, all the commercial banks were given more and full power to
set down all the interest rates of their deposits and loans as well. After the process of liberalization of
interest rate was completed, all the commercial banks has the power to gain full authority. This
authority provides banks power to set down their own deposit rates and charge their customers which
are based on the credit risks and other factors of the borrowers.
Drechsler, Savov and Schnabl, (2018) disagrees with the statement that though there are
some benefits of liberalising interest rate in the economy, it has come up with some negative
implications as well. Prior to the liberalization of interest rate, all the dominant and profit making
banks are not able to exercise their market power so as to extract revenue in form of rental value
as charged from their customers because the interest rates were already determined and specified.
All the commercial banks are having thought of either raising or lowering down the amount or
rate related to the retail deposit rate, lending rates. It has been set to almost the level same as
considered when the change in the rate of policy has been announced. From this situation, it has
been assessed that the banking system structure of Tajikistan is highly concentrated. All the
dominant banks are having more power and full control over which has been used in negative
manner for seeking more benefits out of it for own growth and profitability aspect. Thus, theses
banks having power set retail interest rates during the period of interest rate liberalisation
process. As per the thoughts of Du, Tepper and Verdelhan, (2018), the relationship among the
interest rate liberalization, behaviour of banks and process related to the financing of business of
small firms has been considered and studied from decades for analysing its impact on the
financial system of Tajikistan. Banks and financial institution lends their capital resource amount
to the bigger corporation as well as business firms with the objective of gaining maximum
interest amount out of it. Their main objective behind lending of capital amount to such big firms
is that these firm are having good credit score i.e. their credit information is very much
transparent as well as credit and trust worthy among the market place. Thus, banks finds such big
firms as low information searching cost objectives with high trustworthy benefit. The another
reason for providing financial assistance to such big corporation is that their financial as well as
liquidity position is sound and strong enough to repay all the amount which has been taken in
form of debt or loan. Also on the other hand, the cash flow of such big business organisation is
more stable and effective which provides assurance to lenders or financial institutions that no
credit default will arise on part of these firms.
As per the arguments made by Gust and et.al., (2017), it has been noticed that Interest
rate liberalization may not be able to produced the expected benefits out of accounting as well as
business transactions in case when the timing, pace and sequencing aspects are off or not in line
with the set defined procedures. All such aspects needs to be determined with the help of degree
of macroeconomic factors such as stability, the banking conditions and state enterprise sectors.
Furthermore, the capabilities of central banks should be evaluated for ascertaining all the benefits
and limitations it has been facing. The impact which the interest rate liberalization process has
brought to all the commercial as well as dominating banks can be defined under the category of
the impact made on the seller side of the market with the objective such that all the impacts on
small firms are defined and known as the impact in context of the buyer side. As per the
Memmel, (2017) study which has been conducted to determine the effects of reformation of such
policy from the perspective of buyer sides. By narrowing down of the interest rate gap, it will
force all the banks to lend or provide their money in positive manner to its customers so as to
maintain their revenue. It is related especially to the targeted small firms which are having
manner for seeking more benefits out of it for own growth and profitability aspect. Thus, theses
banks having power set retail interest rates during the period of interest rate liberalisation
process. As per the thoughts of Du, Tepper and Verdelhan, (2018), the relationship among the
interest rate liberalization, behaviour of banks and process related to the financing of business of
small firms has been considered and studied from decades for analysing its impact on the
financial system of Tajikistan. Banks and financial institution lends their capital resource amount
to the bigger corporation as well as business firms with the objective of gaining maximum
interest amount out of it. Their main objective behind lending of capital amount to such big firms
is that these firm are having good credit score i.e. their credit information is very much
transparent as well as credit and trust worthy among the market place. Thus, banks finds such big
firms as low information searching cost objectives with high trustworthy benefit. The another
reason for providing financial assistance to such big corporation is that their financial as well as
liquidity position is sound and strong enough to repay all the amount which has been taken in
form of debt or loan. Also on the other hand, the cash flow of such big business organisation is
more stable and effective which provides assurance to lenders or financial institutions that no
credit default will arise on part of these firms.
As per the arguments made by Gust and et.al., (2017), it has been noticed that Interest
rate liberalization may not be able to produced the expected benefits out of accounting as well as
business transactions in case when the timing, pace and sequencing aspects are off or not in line
with the set defined procedures. All such aspects needs to be determined with the help of degree
of macroeconomic factors such as stability, the banking conditions and state enterprise sectors.
Furthermore, the capabilities of central banks should be evaluated for ascertaining all the benefits
and limitations it has been facing. The impact which the interest rate liberalization process has
brought to all the commercial as well as dominating banks can be defined under the category of
the impact made on the seller side of the market with the objective such that all the impacts on
small firms are defined and known as the impact in context of the buyer side. As per the
Memmel, (2017) study which has been conducted to determine the effects of reformation of such
policy from the perspective of buyer sides. By narrowing down of the interest rate gap, it will
force all the banks to lend or provide their money in positive manner to its customers so as to
maintain their revenue. It is related especially to the targeted small firms which are having
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capacity to provide high revenue amount to such banks and vice versa. This will provide
positive impact on the needs of customers as well as the small firms as they will be better
satisfied with such reforms and policy.
Guthmann and Fill, (2020) provides their statements in favour of liberalisation of interest
rate and its impact on the financial system in Tajikistan. The benefit which is expected to be
received from the process of liberalisation of interest rate having main focus on the liberalised
capital account is to undertake investments in excess of domestic savings levels and economic as
well as financial growth. The policy of interest rate liberalization had come up with the positive
effect on transmission of the monetary policy as followed by Tajikistan. It has been noticed that
the mark up level is much lower and interest rate pass through has become more complete and
proper in the phase of post liberalization. All the policies related to the monetary transmission
has became more effective after adoption of policy of liberalization of the interest rate due to
reform measures as introduced by the government and tough market competition in the banking
industrial sectors with the entry of foreign banks, newly formed domestic banks and non banking
financial institutions of that economy. The process of interest rate liberalization is almost similar
and related to the procedure of deregulation of the interest rules thereby having focus on both,
and adopting gradual as well as cautious approach so as to maintain the stability and
development of the financial system of Tajikistan.
On the other hand Jelilov, Waziri and Isik, (2016), disagrees by saying that for
determining adequate and relevant sequence of interest rate liberalisation, financial or banking
institutions authorities are required to distinguish transactions taking place related to loan and
deposit one but also has to make difference between retail and wholesale transactions. By
adopting early liberalization of interest rates in respect of wholesale transactions has becomes
critical aspect in case of reforming of the monetary policy for the economy. It thus facilitates the
development of an interbank market economic indicators which includes commodity prices,
exchange rates, yield curves etc. thus studying impact which liberalisation of the interest rate
system has made on the financial system of Tajikistan. Also, due to rapid liberalisation process
in the economy, especially where its financial as well as banking institutions are facing situation
of lack of experienced management can result in weak or unsound financial economic sector.
Also Pond, (2018) mentioned that Liberalisation process needs to have smooth flow so that
economy or financial sector doesn't gets hampered. By having fast liberalised process it can
positive impact on the needs of customers as well as the small firms as they will be better
satisfied with such reforms and policy.
Guthmann and Fill, (2020) provides their statements in favour of liberalisation of interest
rate and its impact on the financial system in Tajikistan. The benefit which is expected to be
received from the process of liberalisation of interest rate having main focus on the liberalised
capital account is to undertake investments in excess of domestic savings levels and economic as
well as financial growth. The policy of interest rate liberalization had come up with the positive
effect on transmission of the monetary policy as followed by Tajikistan. It has been noticed that
the mark up level is much lower and interest rate pass through has become more complete and
proper in the phase of post liberalization. All the policies related to the monetary transmission
has became more effective after adoption of policy of liberalization of the interest rate due to
reform measures as introduced by the government and tough market competition in the banking
industrial sectors with the entry of foreign banks, newly formed domestic banks and non banking
financial institutions of that economy. The process of interest rate liberalization is almost similar
and related to the procedure of deregulation of the interest rules thereby having focus on both,
and adopting gradual as well as cautious approach so as to maintain the stability and
development of the financial system of Tajikistan.
On the other hand Jelilov, Waziri and Isik, (2016), disagrees by saying that for
determining adequate and relevant sequence of interest rate liberalisation, financial or banking
institutions authorities are required to distinguish transactions taking place related to loan and
deposit one but also has to make difference between retail and wholesale transactions. By
adopting early liberalization of interest rates in respect of wholesale transactions has becomes
critical aspect in case of reforming of the monetary policy for the economy. It thus facilitates the
development of an interbank market economic indicators which includes commodity prices,
exchange rates, yield curves etc. thus studying impact which liberalisation of the interest rate
system has made on the financial system of Tajikistan. Also, due to rapid liberalisation process
in the economy, especially where its financial as well as banking institutions are facing situation
of lack of experienced management can result in weak or unsound financial economic sector.
Also Pond, (2018) mentioned that Liberalisation process needs to have smooth flow so that
economy or financial sector doesn't gets hampered. By having fast liberalised process it can
provides danger to the economy and financial sector operations whereas if the process of
liberalisation is too slow it will result in defeating of all the reforms and policies made for the
betterment and development of the financial system of Tajikistan.
As per the ideas provided by Liu, Wang and Xu, (2017), related to Interest rate
liberalisation the pricing power of banking products of different commercial as well as financial
institution has been transferred from the central bank to the commercial banks thereby having
significant effects on the monetary policy transmission. To maintain interest rate liberalisation
on good tack it is very much important to have close and good cooperation among all the
monetary authorities, government agencies, department who are responsible for bringing
structural reforms in the real sectors of the Tajikistan economy. Tan, Ji and Huang, (2016)
provides demonstrations related to both the theoretical as well as empirical aspects with the aim
of depicting that the market interest rates are more sensitive to changes being made in the rate of
policy decided and thus is less reactive to all the open market operations. The process of interest
rate liberalization as carried on by the financial institutions have power and full control in
relation to charge or set different pricing options for their own financial products. It mainly
refers to the process of setting price of its deposit and loan by the commercial Banks.
Commercial Banks having power only for making a reasonable pricing of the loan amount as a
result of which the liberalization of the interest rate will be realized.
In respect of which Waemustafa and Sukri, (2016) makes comments by stating that by
adopting effective monetary transmission mechanism, the economy of Tajikistan can have
effective monetary policy reforms for smooth functioning of its financial sector. The interest rate
pass through is considered as the first transmission mechanism which has to be modelled for
better performance. Also it has been found to be one of the strong transmission channel which
supports advanced economies and its development. To maintain and promote price stability,
monetary authorities, agencies have to understand that how fast and to the what extent the
instruments related to such policies have affected the aggregate demand and inflation thereby
affecting the financial system of Tajikistan. For effective functioning of monetary transmission
channels it has be related to the interest rate pass through. Thus with increase in the interest
rates, it can leads to appreciation in the value of local currency thereby creating affect on the
exchange rate pass through. Thus, it will have an impact on the output thereby creative impact in
form of affecting the competitiveness of domestic goods vis-à-vis the foreign goods as well. The
liberalisation is too slow it will result in defeating of all the reforms and policies made for the
betterment and development of the financial system of Tajikistan.
As per the ideas provided by Liu, Wang and Xu, (2017), related to Interest rate
liberalisation the pricing power of banking products of different commercial as well as financial
institution has been transferred from the central bank to the commercial banks thereby having
significant effects on the monetary policy transmission. To maintain interest rate liberalisation
on good tack it is very much important to have close and good cooperation among all the
monetary authorities, government agencies, department who are responsible for bringing
structural reforms in the real sectors of the Tajikistan economy. Tan, Ji and Huang, (2016)
provides demonstrations related to both the theoretical as well as empirical aspects with the aim
of depicting that the market interest rates are more sensitive to changes being made in the rate of
policy decided and thus is less reactive to all the open market operations. The process of interest
rate liberalization as carried on by the financial institutions have power and full control in
relation to charge or set different pricing options for their own financial products. It mainly
refers to the process of setting price of its deposit and loan by the commercial Banks.
Commercial Banks having power only for making a reasonable pricing of the loan amount as a
result of which the liberalization of the interest rate will be realized.
In respect of which Waemustafa and Sukri, (2016) makes comments by stating that by
adopting effective monetary transmission mechanism, the economy of Tajikistan can have
effective monetary policy reforms for smooth functioning of its financial sector. The interest rate
pass through is considered as the first transmission mechanism which has to be modelled for
better performance. Also it has been found to be one of the strong transmission channel which
supports advanced economies and its development. To maintain and promote price stability,
monetary authorities, agencies have to understand that how fast and to the what extent the
instruments related to such policies have affected the aggregate demand and inflation thereby
affecting the financial system of Tajikistan. For effective functioning of monetary transmission
channels it has be related to the interest rate pass through. Thus with increase in the interest
rates, it can leads to appreciation in the value of local currency thereby creating affect on the
exchange rate pass through. Thus, it will have an impact on the output thereby creative impact in
form of affecting the competitiveness of domestic goods vis-à-vis the foreign goods as well. The
exchange rate channel of monetary transmission has been found to be one of the major channel
of monetary transmission in the whole transition economy of Tajikistan which has provided
beneficiary transaction to its financial sector.
However at the critical note Wang and et.al., (2018) argued that in the financial sector of
the economy liberalizing interest rates is considered as one of the most important factor. It helps
financial system thus allowing all the banking as well as financial departments to set policies and
reforms. But with the liberalised interest rate, all theses policies and reforms have to be set by
the market forces. Also, power has been allocated for developing the financial markets more
effectively and strongly so that credit facility can be allocated more effectively and efficiently.
Each country's economy is required to design its own plans for making and implementation of
strong financial reforms. These financial principles should be universally applicable at least in
those countries where policy as well as reform makers are having some power and control over
the process related to the liberalization. It is required on the part of policymakers to first decide
when the economy should be introduced with the starting process of liberalizing interest rates.
Also, decision has to be made in respect of how fast the process of liberalising interest rate
should move. While making of this decision, it is very much important to take into consideration
factors related to how far, developed and advanced the country's economy as well as financial
system in reforming the sector of state enterprises and in making establishment of credit culture.
As per the explanation made by Wang, Tsai and Chen, (2019) related to macroeconomic
environment and financial sector, it has been assessed that economy of Tajikistan is very small
and vulnerable to shocks such poor business climates. The economy of Tajikistan heavily relies
on import functions with its exports having a very narrow base. Tajikistan economy is
commodity driven including aluminium, cotton, gold etc. on the large basis. When it comes to
import and export functions of Tajikistan, liberalisation of interest rate transmission plays a vital
role. The rate of interbank lending accurately reflects situation in context of both the short term
capital supply and demand which depicts most representative interest rates among the financial
markets of the economy of Tajikistan. Thus, it is the main part of interest rate liberalization that
inter bank lending rate has become criterion of interest rate liberalization for assessing its impact
on the financial system of the economy. Also, the monetary authorities and agencies are having
full control or power related to the interest rate in the indirect manner of which one cannot make
use directly for making control over the market interest rate. The central bank on the other hand
of monetary transmission in the whole transition economy of Tajikistan which has provided
beneficiary transaction to its financial sector.
However at the critical note Wang and et.al., (2018) argued that in the financial sector of
the economy liberalizing interest rates is considered as one of the most important factor. It helps
financial system thus allowing all the banking as well as financial departments to set policies and
reforms. But with the liberalised interest rate, all theses policies and reforms have to be set by
the market forces. Also, power has been allocated for developing the financial markets more
effectively and strongly so that credit facility can be allocated more effectively and efficiently.
Each country's economy is required to design its own plans for making and implementation of
strong financial reforms. These financial principles should be universally applicable at least in
those countries where policy as well as reform makers are having some power and control over
the process related to the liberalization. It is required on the part of policymakers to first decide
when the economy should be introduced with the starting process of liberalizing interest rates.
Also, decision has to be made in respect of how fast the process of liberalising interest rate
should move. While making of this decision, it is very much important to take into consideration
factors related to how far, developed and advanced the country's economy as well as financial
system in reforming the sector of state enterprises and in making establishment of credit culture.
As per the explanation made by Wang, Tsai and Chen, (2019) related to macroeconomic
environment and financial sector, it has been assessed that economy of Tajikistan is very small
and vulnerable to shocks such poor business climates. The economy of Tajikistan heavily relies
on import functions with its exports having a very narrow base. Tajikistan economy is
commodity driven including aluminium, cotton, gold etc. on the large basis. When it comes to
import and export functions of Tajikistan, liberalisation of interest rate transmission plays a vital
role. The rate of interbank lending accurately reflects situation in context of both the short term
capital supply and demand which depicts most representative interest rates among the financial
markets of the economy of Tajikistan. Thus, it is the main part of interest rate liberalization that
inter bank lending rate has become criterion of interest rate liberalization for assessing its impact
on the financial system of the economy. Also, the monetary authorities and agencies are having
full control or power related to the interest rate in the indirect manner of which one cannot make
use directly for making control over the market interest rate. The central bank on the other hand
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is having indirect affect on the interest rates which can use of three major policy tools broadly
named as open market operations, legal deposit reserve, re discount rate. All these policy tools
are having ability to indirectly makes adjustment in the interest rates and to further provide
guidance related to the market interest rates.
On this part Khalid, Shehzad and Naqvi, (2019) argues that for avoiding or mitigating
unstable flows of deposits between the financial institutions, it is essential to not to wait till all
the lending rates becomes fully liberalized at the beginning so as to liberalize rates on different
deposits types including large time deposits etc. By making early liberalization of rates on the
large deposits, it can be justified with the help of fact that one can make efforts for competing on
increasing basis with the money market instruments such as treasury bills or repurchase
agreements. Also, it has been argued by Nwafor, (2018), that financial deregulation and
liberalisation activities can have negative impact on the functioning of the financial system of
Tajikistan. It can be done by setting the ceiling amount on the interest rate deposits, which the
government has supported to make increase in the moral hazard activities by making adverse
selection. It can cause a decrease in the economic efficiency of the borrowers thereby reducing
all the competition in the market as well as the level of savings to a great extent. With the help of
financial deregulation and liberalisation there can be a decrease in savings thus causing decrease
in the investment amount. Also, with the decrease in the level of investments it can bring a
decline in the level of employment thus bringing economic stagnation in Tajikistan.
As per the statements provided by Gaddis and Pieters, (2017), the term financial
liberalisation is required to have a consequence related to efficient and effective distribution of
all the available financial resources thus increasing level of aggregate savings and investments.
Also, emphasis has been made on making more efficient and proper use of financial resources as
preconditions for creating sustainable means for bringing in more economic growth and
development of the country. Interest rates as set down in the economy is known as price of
money which is have direct impact on the costs as incurred or associated with the function of
financing of the requirements of the working capital. Also, it lays indirect influence as well on
the capital structure of many business organisations as well as business firms. Deregulation of
interest rates viz. To removing of the ceilings on the deposit interest rates as set down by the
government can results in increasing tough and high competition among all the commercial
named as open market operations, legal deposit reserve, re discount rate. All these policy tools
are having ability to indirectly makes adjustment in the interest rates and to further provide
guidance related to the market interest rates.
On this part Khalid, Shehzad and Naqvi, (2019) argues that for avoiding or mitigating
unstable flows of deposits between the financial institutions, it is essential to not to wait till all
the lending rates becomes fully liberalized at the beginning so as to liberalize rates on different
deposits types including large time deposits etc. By making early liberalization of rates on the
large deposits, it can be justified with the help of fact that one can make efforts for competing on
increasing basis with the money market instruments such as treasury bills or repurchase
agreements. Also, it has been argued by Nwafor, (2018), that financial deregulation and
liberalisation activities can have negative impact on the functioning of the financial system of
Tajikistan. It can be done by setting the ceiling amount on the interest rate deposits, which the
government has supported to make increase in the moral hazard activities by making adverse
selection. It can cause a decrease in the economic efficiency of the borrowers thereby reducing
all the competition in the market as well as the level of savings to a great extent. With the help of
financial deregulation and liberalisation there can be a decrease in savings thus causing decrease
in the investment amount. Also, with the decrease in the level of investments it can bring a
decline in the level of employment thus bringing economic stagnation in Tajikistan.
As per the statements provided by Gaddis and Pieters, (2017), the term financial
liberalisation is required to have a consequence related to efficient and effective distribution of
all the available financial resources thus increasing level of aggregate savings and investments.
Also, emphasis has been made on making more efficient and proper use of financial resources as
preconditions for creating sustainable means for bringing in more economic growth and
development of the country. Interest rates as set down in the economy is known as price of
money which is have direct impact on the costs as incurred or associated with the function of
financing of the requirements of the working capital. Also, it lays indirect influence as well on
the capital structure of many business organisations as well as business firms. Deregulation of
interest rates viz. To removing of the ceilings on the deposit interest rates as set down by the
government can results in increasing tough and high competition among all the commercial
banking industry. Also, it has impact in form of increase in both the deposits and loans interest
rates.
On the other hand Gopalan and Rajan, (2017), all the problems arising are related to too
many regulations as imposed by the higher authorities and high competition prevailing in the
market place. If the economy has too many regulations imposed in it, then it can result in arising
of conflict with the competition. Business firms facing constrained in form of regulations have to
bear negative impact or disadvantage when compared to all the other business and market
players. Regulations has also limited the scope and possibility of conducting operations of
different types of financial institutions thereby making high interferences on directly basis with
the free competition. If there is an increase in the competitive forces on regular and at fast phase,
then it can be considered as a sources of risk which will have direct impact on the financial
system of Tajikistan.
As per the observation made by Nishikawa, (2015), it can be said that in the process of
financial transaction every participation is having full power as well as autonomy related to the
choice in respect of number of structure, flexible manner for meeting needs. Also it plays
significant role in the formulation of market equilibrium interest rate. All the financial
institutions which are having pricing power in respect of their financial products and tools
mainly refers to the pricing done of deposit and loan by the commercial banks. All the
Commercial Banks as well as dominating banks can only make reasonable pricing for the loans
amount and will result in realisation of the interest rate liberalization on its own.
However on the critical note, Alagidede and Ibrahim, (2017) argued that the economy
which has been characterized with the factor of financial repression thus raising nominal interest
rates in relation to the inflation would always focuses on increasing its saving and supply of
investible resources in its own economy for the betterment as well as smooth functioning of its
financial system. Also, it results in increase in the productivity of investment because such
resources are channelled so as to protects and have higher rates of return. Furthermore, it has
been argued that financial repression can arises in situation mostly when the economy imposes
ceilings on the nominal deposit and lending interest rates at the rate which is much low level as
compared to inflation level rate. Thus, such low real interest rates makes affect in form of
discourage of savings and its mobilization through the financial system thereby having negative
rates.
On the other hand Gopalan and Rajan, (2017), all the problems arising are related to too
many regulations as imposed by the higher authorities and high competition prevailing in the
market place. If the economy has too many regulations imposed in it, then it can result in arising
of conflict with the competition. Business firms facing constrained in form of regulations have to
bear negative impact or disadvantage when compared to all the other business and market
players. Regulations has also limited the scope and possibility of conducting operations of
different types of financial institutions thereby making high interferences on directly basis with
the free competition. If there is an increase in the competitive forces on regular and at fast phase,
then it can be considered as a sources of risk which will have direct impact on the financial
system of Tajikistan.
As per the observation made by Nishikawa, (2015), it can be said that in the process of
financial transaction every participation is having full power as well as autonomy related to the
choice in respect of number of structure, flexible manner for meeting needs. Also it plays
significant role in the formulation of market equilibrium interest rate. All the financial
institutions which are having pricing power in respect of their financial products and tools
mainly refers to the pricing done of deposit and loan by the commercial banks. All the
Commercial Banks as well as dominating banks can only make reasonable pricing for the loans
amount and will result in realisation of the interest rate liberalization on its own.
However on the critical note, Alagidede and Ibrahim, (2017) argued that the economy
which has been characterized with the factor of financial repression thus raising nominal interest
rates in relation to the inflation would always focuses on increasing its saving and supply of
investible resources in its own economy for the betterment as well as smooth functioning of its
financial system. Also, it results in increase in the productivity of investment because such
resources are channelled so as to protects and have higher rates of return. Furthermore, it has
been argued that financial repression can arises in situation mostly when the economy imposes
ceilings on the nominal deposit and lending interest rates at the rate which is much low level as
compared to inflation level rate. Thus, such low real interest rates makes affect in form of
discourage of savings and its mobilization through the financial system thereby having negative
impact on both the quantity and quality of investment and thus influences growth as well as
development of the economy on a large extent.
Theme 4 : Relative factors behind the cause of fluctuation of interest rate
Holston, Laubach and Williams (2017) says that fluctuation in the interest rate arises due
to a factor called inflation. The term inflation means an environment in which the prices of goods
and services are increased within in a specific economy. This is associated with a concept that as
the rate of inflation is increased or prices of services and goods increases, the purchasing power
of the people decreases in the country. In short, it means cost of living. Inflation have a
significant effect on the interest rates which are prevailing in the country and has the capability
of fluctuating it to a crucial level. Laubach and Williams (2016) through its studies states that
interest rate is one of the way of through which the central bank of the country controls the
continuous price rise in the economy. The authors claims that for controlling the high rate of
inflation, the rate of interest in a particular economy is increased. The mechanism of this increase
in interest rate is explained by the author in its studies. For example, when the interest rates are
made higher, the cost of taking loans from banks will increase which in turn will make the
borrowing expensive for the people as they will have to pay higher amount as interest to the bank
which will left them with lower disposable income. Due to such effect, the demand for such
expensive borrowing will be reduced and supply of money in the economy will also be declined.
Kiley (2015) articulates that a decrease in the money supply will result into lower expenditure on
the goods and services by people. The immediate effect of such lower expenditure will be
reflected in the lower demand for the goods and services. With the supply being constant and
such lower demand, the prices of the available goods and services will fall in the country and
through this lower demand, the inflation would be stabilised in Tajikistan. The author says that
there is a compete cycle through which inflation is controlled by interest rates which is fixed by
the central bank in the nation.
Hördahl, Sobrun and Turner (2016) is of the opinion that supply and demand of credit in
an economy largely affects the interest rates. In the context of lending money, increase in the
demand of credit or supply shortage results into rise in the interest rates. For example,
commercial banks in Tajikistan, if facing higher demand for the credit from its customers, it is
very likely that interest rates in the country would go up since the National Bank have to
maintain the stability in money supply in the economy. Naifar (2016) argues with the above
development of the economy on a large extent.
Theme 4 : Relative factors behind the cause of fluctuation of interest rate
Holston, Laubach and Williams (2017) says that fluctuation in the interest rate arises due
to a factor called inflation. The term inflation means an environment in which the prices of goods
and services are increased within in a specific economy. This is associated with a concept that as
the rate of inflation is increased or prices of services and goods increases, the purchasing power
of the people decreases in the country. In short, it means cost of living. Inflation have a
significant effect on the interest rates which are prevailing in the country and has the capability
of fluctuating it to a crucial level. Laubach and Williams (2016) through its studies states that
interest rate is one of the way of through which the central bank of the country controls the
continuous price rise in the economy. The authors claims that for controlling the high rate of
inflation, the rate of interest in a particular economy is increased. The mechanism of this increase
in interest rate is explained by the author in its studies. For example, when the interest rates are
made higher, the cost of taking loans from banks will increase which in turn will make the
borrowing expensive for the people as they will have to pay higher amount as interest to the bank
which will left them with lower disposable income. Due to such effect, the demand for such
expensive borrowing will be reduced and supply of money in the economy will also be declined.
Kiley (2015) articulates that a decrease in the money supply will result into lower expenditure on
the goods and services by people. The immediate effect of such lower expenditure will be
reflected in the lower demand for the goods and services. With the supply being constant and
such lower demand, the prices of the available goods and services will fall in the country and
through this lower demand, the inflation would be stabilised in Tajikistan. The author says that
there is a compete cycle through which inflation is controlled by interest rates which is fixed by
the central bank in the nation.
Hördahl, Sobrun and Turner (2016) is of the opinion that supply and demand of credit in
an economy largely affects the interest rates. In the context of lending money, increase in the
demand of credit or supply shortage results into rise in the interest rates. For example,
commercial banks in Tajikistan, if facing higher demand for the credit from its customers, it is
very likely that interest rates in the country would go up since the National Bank have to
maintain the stability in money supply in the economy. Naifar (2016) argues with the above
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author and claims that demand and supply is not only the sole factor which fluctuates the interest
rates in the state. The author says that federal fund rate is the factor which affects the variations
in the interest rate. Federal fund rate is that rate which the financial institutions imposes on other
financial institution for short term borrowings and loans. This rate is fixed by the central bank of
the country wherein this governing body may decrease the rate for the purpose of encouraging
borrowing in the economy and may increase the rates for limiting the borrowing power of the
institutions for stabilising the money supply.
Arteta and et.al., (2016) provides another factor that cause fluctuations in the interest
rates of the commercial bank in a particular economy. This factor is saving rates. People have a
tendency to save a significant portion of their income for the purpose of meeting their needs in
the future. Such savings determine the interest rate in the nation. For example, when the saving
rates are increased, people will tend to save more as they would be earning higher returns on
their savings, and would borrow less. In such a scenario, interest rates have to be lowered down
for the purpose of compensating such imbalance. Dimic and et.al., (2016) states that saving rates
has opposite impact on interest rates when they are reduced. Like when the saving rates are
declined, borrowing becomes the necessity of the process of consumption in the economy and as
a result interest rates are increased by the central bank for keeping the things reasonable.
Bond market is another reason which is cited by Agapova and McNulty (2016) that
creates a fluctuation in the interest rates. It has been said by the author that bond market is
considered as law of land when someone talks about debt. For example, countries like Tajikistan
when issues higher debt in the name of government, the country has to often make more money
for offsetting such debt. The immediate consequence of such higher debt is increase in the
money supply which as a result, makes the interest rates to go higher. It is through this way that
borrowing environment is kept rational in the country. However, Del Negro and et.al., (2017)
disagrees with the opinion of above author and says that changes in the cash reserve ratio causes
fluctuations in the interest rates of the commercial banks in Tajikistan. Cash reserve ratio means
that amount of money which the commercial banks have to to keep with the National Bank.
When this authority rises up this ratio, the actual funds available with the banks decreases. This
action is taken by the central bank in order to extract out excessive money from the financial/
banking system. The author states that it is the tool through which National bank keep a check on
increase in the prices and interest rates.
rates in the state. The author says that federal fund rate is the factor which affects the variations
in the interest rate. Federal fund rate is that rate which the financial institutions imposes on other
financial institution for short term borrowings and loans. This rate is fixed by the central bank of
the country wherein this governing body may decrease the rate for the purpose of encouraging
borrowing in the economy and may increase the rates for limiting the borrowing power of the
institutions for stabilising the money supply.
Arteta and et.al., (2016) provides another factor that cause fluctuations in the interest
rates of the commercial bank in a particular economy. This factor is saving rates. People have a
tendency to save a significant portion of their income for the purpose of meeting their needs in
the future. Such savings determine the interest rate in the nation. For example, when the saving
rates are increased, people will tend to save more as they would be earning higher returns on
their savings, and would borrow less. In such a scenario, interest rates have to be lowered down
for the purpose of compensating such imbalance. Dimic and et.al., (2016) states that saving rates
has opposite impact on interest rates when they are reduced. Like when the saving rates are
declined, borrowing becomes the necessity of the process of consumption in the economy and as
a result interest rates are increased by the central bank for keeping the things reasonable.
Bond market is another reason which is cited by Agapova and McNulty (2016) that
creates a fluctuation in the interest rates. It has been said by the author that bond market is
considered as law of land when someone talks about debt. For example, countries like Tajikistan
when issues higher debt in the name of government, the country has to often make more money
for offsetting such debt. The immediate consequence of such higher debt is increase in the
money supply which as a result, makes the interest rates to go higher. It is through this way that
borrowing environment is kept rational in the country. However, Del Negro and et.al., (2017)
disagrees with the opinion of above author and says that changes in the cash reserve ratio causes
fluctuations in the interest rates of the commercial banks in Tajikistan. Cash reserve ratio means
that amount of money which the commercial banks have to to keep with the National Bank.
When this authority rises up this ratio, the actual funds available with the banks decreases. This
action is taken by the central bank in order to extract out excessive money from the financial/
banking system. The author states that it is the tool through which National bank keep a check on
increase in the prices and interest rates.
Economic growth of a nation significantly affects the interest rates as articulated by
Gelos and Ustyugova (2017) in its studies. If the country is experiencing good economic time,
demand of the credit will be increased. If the lenders i.e., banks does not have sufficient funds
for lending it to the borrowers, it will have to increase the interest rates for maintaining the
stability of forces which are demand and supply of money in the economy. For example,
economic growth rate of Tajikistan in the year 2018 was 7.3 % which is considered as very good
indicator of economic prosperity. In such a scenario, the interest rate has fluctuated, like it was
16% in the year 2017 which was higher than previous year i.e., 2016 . The interest rate was
increased by the National Bank in order to decrease demand for the credit borrowing. When the
demand falls, a stability in the money supply is achieved by the nation through which the
inflation rate is also controlled. Such a move is necessary on the part of central authority so that a
balance is maintained in the financial and banking system of Tajikistan.
Dong, Li and Yang (2016) argues with the view of above author and stipulates that it is
the fiscal policy which is the reason behind fluctuation in the interest rates of the commercial
banks. Fiscal policy refers to the tool through which the government makes adjustments in its
expenditure levels and tax rates for the purpose of monitoring and influencing country's
economy. The author states that in growing economy, all the businesses requires funds for
expanding their operations which makes them to borrow from commercial banks and financial
institutions. This results into higher demand for the credit in the economy and for meeting such
higher demands, the interest rates are made higher for compensating such increased demand.
Another author Batsaikhan and Dabrowski (2017) in its studies claims that monetary policy is
the major factor that cause change in the interest rate. Monetary policy is a tool of government
through which it exercise its powers of controlling the money supply in the economy, liquidity in
the financial system of the country and interest rates. It is the statement which comprises action
plan taken by government, central bank and currency board of a country in order to control the
quantum of money that is required to be supplied in an economy and the channels through which
such money is to supplied. The macro-economic objectives of a nation such as maintaining
inflation rate, liquidity, consumption,, expenditure and economic growth, is achieved through
appropriate monetary policy. For example, in Tajikistan, the National Bank modify the supply of
money in order to control the inflation in the country. However, Tarr (2016), states that taking
control over the supply of money by the way of monetary policy is ineffective since nobody
Gelos and Ustyugova (2017) in its studies. If the country is experiencing good economic time,
demand of the credit will be increased. If the lenders i.e., banks does not have sufficient funds
for lending it to the borrowers, it will have to increase the interest rates for maintaining the
stability of forces which are demand and supply of money in the economy. For example,
economic growth rate of Tajikistan in the year 2018 was 7.3 % which is considered as very good
indicator of economic prosperity. In such a scenario, the interest rate has fluctuated, like it was
16% in the year 2017 which was higher than previous year i.e., 2016 . The interest rate was
increased by the National Bank in order to decrease demand for the credit borrowing. When the
demand falls, a stability in the money supply is achieved by the nation through which the
inflation rate is also controlled. Such a move is necessary on the part of central authority so that a
balance is maintained in the financial and banking system of Tajikistan.
Dong, Li and Yang (2016) argues with the view of above author and stipulates that it is
the fiscal policy which is the reason behind fluctuation in the interest rates of the commercial
banks. Fiscal policy refers to the tool through which the government makes adjustments in its
expenditure levels and tax rates for the purpose of monitoring and influencing country's
economy. The author states that in growing economy, all the businesses requires funds for
expanding their operations which makes them to borrow from commercial banks and financial
institutions. This results into higher demand for the credit in the economy and for meeting such
higher demands, the interest rates are made higher for compensating such increased demand.
Another author Batsaikhan and Dabrowski (2017) in its studies claims that monetary policy is
the major factor that cause change in the interest rate. Monetary policy is a tool of government
through which it exercise its powers of controlling the money supply in the economy, liquidity in
the financial system of the country and interest rates. It is the statement which comprises action
plan taken by government, central bank and currency board of a country in order to control the
quantum of money that is required to be supplied in an economy and the channels through which
such money is to supplied. The macro-economic objectives of a nation such as maintaining
inflation rate, liquidity, consumption,, expenditure and economic growth, is achieved through
appropriate monetary policy. For example, in Tajikistan, the National Bank modify the supply of
money in order to control the inflation in the country. However, Tarr (2016), states that taking
control over the supply of money by the way of monetary policy is ineffective since nobody
knows what quantity of money is actually required in an economy to facilitate smooth flow of
economic activities at any time. The author further says that how such money is to be used once
it is accessible.
Chow (2016) provides that recession is the factor which causes change in the interest rate in the
country. In the period of recession where the economy is stagnant, the central bank makes all the
efforts for dealing with this situation. The author says that it is business community which is
affected the most by the recession. For restarting and reviving the business & economic
activities, the federal bank lowers down the discount rate, the rate at which banks borrows
money from the central bank. The reason behind such low discount rate is to induce commercial
banks to borrow funds from central bank so that they can lend it to the business organizations.
The lower interest rates facilitates the businesses in acquiring capital assets and makes their
expenditure quite affordable. The discount rate is kept low by the central bank till the economy
picks up and improve. However, Sagynbekova (2017) disagrees with the views of above author
and claims that risk of default is the factor which determiners the increase or decrease in the
commercial banks’ interest rates. Whenever a bank lends a loan, it always undertakes a risk
which is associated with the non payment of loan money by the borrower. Those people who
have poor history of repaying the loan are likely to show the inappropriate financial behaviour
relating to a new loan. Thus, for mitigating such risk, commercial banks tends to increase the
interest rates on the loan. Such higher interest rate compensate the risk which the commercial
banks takes by lending money to such people who have records of making defaults in payments.
Müller (2018) argues that risk is the secondary factor which affects the interest rates, the major
factors at macro level are inflation, recession and economic growth of the country which causes
the fluctuations in the interest rates. For maintaining the balance in the economy, it is very
necessary to adjust the interest rates. Demand and supply of the money credit in the economy
needs to be balanced so that economic conditions in the country does not disturbed.
Theme : 5 Comparing the interest rate liberalization of Tajikistan with the neighbourhood
countries
As per the views of Zhunusova and Herrmann (2018) liberalization of interest rate refers
to a process performed by authorized monetary authority of the country through which they
maintain control over the flow of money within the economy of country. By liberalizing the
economic activities at any time. The author further says that how such money is to be used once
it is accessible.
Chow (2016) provides that recession is the factor which causes change in the interest rate in the
country. In the period of recession where the economy is stagnant, the central bank makes all the
efforts for dealing with this situation. The author says that it is business community which is
affected the most by the recession. For restarting and reviving the business & economic
activities, the federal bank lowers down the discount rate, the rate at which banks borrows
money from the central bank. The reason behind such low discount rate is to induce commercial
banks to borrow funds from central bank so that they can lend it to the business organizations.
The lower interest rates facilitates the businesses in acquiring capital assets and makes their
expenditure quite affordable. The discount rate is kept low by the central bank till the economy
picks up and improve. However, Sagynbekova (2017) disagrees with the views of above author
and claims that risk of default is the factor which determiners the increase or decrease in the
commercial banks’ interest rates. Whenever a bank lends a loan, it always undertakes a risk
which is associated with the non payment of loan money by the borrower. Those people who
have poor history of repaying the loan are likely to show the inappropriate financial behaviour
relating to a new loan. Thus, for mitigating such risk, commercial banks tends to increase the
interest rates on the loan. Such higher interest rate compensate the risk which the commercial
banks takes by lending money to such people who have records of making defaults in payments.
Müller (2018) argues that risk is the secondary factor which affects the interest rates, the major
factors at macro level are inflation, recession and economic growth of the country which causes
the fluctuations in the interest rates. For maintaining the balance in the economy, it is very
necessary to adjust the interest rates. Demand and supply of the money credit in the economy
needs to be balanced so that economic conditions in the country does not disturbed.
Theme : 5 Comparing the interest rate liberalization of Tajikistan with the neighbourhood
countries
As per the views of Zhunusova and Herrmann (2018) liberalization of interest rate refers
to a process performed by authorized monetary authority of the country through which they
maintain control over the flow of money within the economy of country. By liberalizing the
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interest rate, the monitory authority lead in increasing the amount of flow within the country. It
can also be termed as easing off the controlling measures of monitory policies and releasing a
sort of control over the market forces. Further, on this Vercueil (2018) stated that liberalisation
of the interest rate may result in becoming a critical step taken by the authorised monitory
authorities. It may lead in increasing the amount of liquidity within the economy and that may
result in highly anticipation of market within the country's economy. Thus, it may result in
increasing the chances of increasing the amount of black money within the economy. Thus, it is
required to analyse the current situation of the country's economy and formulate the policies
regarding liberalization of interest rates accordingly.
Further, Chemutai and Escaith (2017) has view that it is an essential task to be preformed
by the monitory authorities of a country to formulate effective monitory plans and policies for
the country. An inefficient plan may result in inefficiently allocation of funds and other financial
resources within the loan market across the country or availability of excessive amount of
financial resources within the financial market of the country. Both the situation would lead in
increasing the risk of financial uncertainties within the economy of the country. In addition,
Verdiyeva (2018) said that a country's monitory policies need to be framed while taking into
consideration current situations of the overall economy along with monitory policies of
neighbourhood countries. Formulation of less effective monitory policies as compare to the
policies of neighbourhood countries may result in transformation of financial resources of the
country into neighbourhood country. It would have direct influence over the positioning of an
economy in the global economic market.
As per the study of Georgiev, Nagy-Mohacsi and Plekhanov (2017) In Tajikistan, the
financial market of Tajikistan got affected due to financial crises 2008. At that time,many
national and international government institutions raised the need of developing effective
policies and plans regarding regulation of financial market. It helped in development of
Tajikistan's financial market for multi-years. Further, the liberalisation of monitory policies also
helped in improving the computers and informational technologies within all over the country by
using the financial resources of the country's economy. On the other hand, as per the views of
Gabdrakhmanov and et.al., (2016) as a result if strict monitory polcies and higher interest rate,
the government failed to raise a huge amount of foreign direct investment within the country.
Further, it also leads increment of money laundry activities within the economy. Thus, it can be
can also be termed as easing off the controlling measures of monitory policies and releasing a
sort of control over the market forces. Further, on this Vercueil (2018) stated that liberalisation
of the interest rate may result in becoming a critical step taken by the authorised monitory
authorities. It may lead in increasing the amount of liquidity within the economy and that may
result in highly anticipation of market within the country's economy. Thus, it may result in
increasing the chances of increasing the amount of black money within the economy. Thus, it is
required to analyse the current situation of the country's economy and formulate the policies
regarding liberalization of interest rates accordingly.
Further, Chemutai and Escaith (2017) has view that it is an essential task to be preformed
by the monitory authorities of a country to formulate effective monitory plans and policies for
the country. An inefficient plan may result in inefficiently allocation of funds and other financial
resources within the loan market across the country or availability of excessive amount of
financial resources within the financial market of the country. Both the situation would lead in
increasing the risk of financial uncertainties within the economy of the country. In addition,
Verdiyeva (2018) said that a country's monitory policies need to be framed while taking into
consideration current situations of the overall economy along with monitory policies of
neighbourhood countries. Formulation of less effective monitory policies as compare to the
policies of neighbourhood countries may result in transformation of financial resources of the
country into neighbourhood country. It would have direct influence over the positioning of an
economy in the global economic market.
As per the study of Georgiev, Nagy-Mohacsi and Plekhanov (2017) In Tajikistan, the
financial market of Tajikistan got affected due to financial crises 2008. At that time,many
national and international government institutions raised the need of developing effective
policies and plans regarding regulation of financial market. It helped in development of
Tajikistan's financial market for multi-years. Further, the liberalisation of monitory policies also
helped in improving the computers and informational technologies within all over the country by
using the financial resources of the country's economy. On the other hand, as per the views of
Gabdrakhmanov and et.al., (2016) as a result if strict monitory polcies and higher interest rate,
the government failed to raise a huge amount of foreign direct investment within the country.
Further, it also leads increment of money laundry activities within the economy. Thus, it can be
evaluated that monitory authorities of the country are required to maintain effective and balanced
liberalization within the country. It has direct impact over the development and growth of the
country.
Kuhrt and Buranelli (2019) says that recently Tajikistan have ,liberalised its interest rates
for bank that resulted in increasing the assets held by commercial banks by 21.3 times as
compare to previously held assets. Further, it also helped in increasing the capital of banks by 7.7
times. Although, due to excessive liberalised interest rate, the economy of the country influenced
in the negative dynamic, It resulted in reducing the GDP rate from 51.6% to 37%. In addition,
share of banking sector in the aggregate capital also reduced from 10.8 % to 6.4 %. It lead in
reducing the growth of banking sector in the country. On the other hand, Shaofeng (2017)stated
that by seeing the reduction in the overall economic growth in the country, monitory authorities
of Tajikistan improved their strategies and plans for the country. It resulted in substantial
improvement in the overall economy. It resulted in increasing the amount of investments within
the banking sector through which banks gained operational benefits and became able to improve
their performance and increase their share in country's GDP. In addition to this, it also lead in
reduction of the implicit risk of banks.
By studying the reports of world bank Alotaibi (2015) said that Tajikistan's government
decided to liberalised the economic and monitory policies. It helped in helped the country in
increasing the amount of foreign direct investment within the country. It also helped the country
in becoming one of the largest economy of the world. On the other hand, talking about the
economy of China, Petrick and Pomfret (2016) said that China increased the controlling
measures within the its monitory policies. It caused in slowing down the overall economic
growth of the country. Furthermore, due to lack of liberty in the country's economic policies,
country also faced lack of foreign direct investment that slowed down the efficiency of overall
monitory and financial market of the country. Thus, it resulted in making the monitory
authorities realised that they are required to liberalised the overall monitory policies of the
country.
Lee, Park and Shin (2015) realised that for the purpose of acceleration of development in
the economy, and pursuing the national development agendas, it is required to formulate
effective policies and standards relating to the monitory policies of country. For this purpose,
developing neighbourhood countries like Nigeria, Mozambique, Bolivia, liberalised their interest
liberalization within the country. It has direct impact over the development and growth of the
country.
Kuhrt and Buranelli (2019) says that recently Tajikistan have ,liberalised its interest rates
for bank that resulted in increasing the assets held by commercial banks by 21.3 times as
compare to previously held assets. Further, it also helped in increasing the capital of banks by 7.7
times. Although, due to excessive liberalised interest rate, the economy of the country influenced
in the negative dynamic, It resulted in reducing the GDP rate from 51.6% to 37%. In addition,
share of banking sector in the aggregate capital also reduced from 10.8 % to 6.4 %. It lead in
reducing the growth of banking sector in the country. On the other hand, Shaofeng (2017)stated
that by seeing the reduction in the overall economic growth in the country, monitory authorities
of Tajikistan improved their strategies and plans for the country. It resulted in substantial
improvement in the overall economy. It resulted in increasing the amount of investments within
the banking sector through which banks gained operational benefits and became able to improve
their performance and increase their share in country's GDP. In addition to this, it also lead in
reduction of the implicit risk of banks.
By studying the reports of world bank Alotaibi (2015) said that Tajikistan's government
decided to liberalised the economic and monitory policies. It helped in helped the country in
increasing the amount of foreign direct investment within the country. It also helped the country
in becoming one of the largest economy of the world. On the other hand, talking about the
economy of China, Petrick and Pomfret (2016) said that China increased the controlling
measures within the its monitory policies. It caused in slowing down the overall economic
growth of the country. Furthermore, due to lack of liberty in the country's economic policies,
country also faced lack of foreign direct investment that slowed down the efficiency of overall
monitory and financial market of the country. Thus, it resulted in making the monitory
authorities realised that they are required to liberalised the overall monitory policies of the
country.
Lee, Park and Shin (2015) realised that for the purpose of acceleration of development in
the economy, and pursuing the national development agendas, it is required to formulate
effective policies and standards relating to the monitory policies of country. For this purpose,
developing neighbourhood countries like Nigeria, Mozambique, Bolivia, liberalised their interest
rate with a view to improve the amount of public investments in their commodity market.
Formulation of liberalised policies helped these countries in elimination of negative impact of
their commodity market and rising up them from decline in their GDP as well. Liberalisation of
policies of helped Nigeria, Bolivia, Mozambique, etc. in scaling up the amount of public
investments that directly influenced their economic condition positively.
On this, Kim, Sanaev and Babakholov (2018) said that neighbourhood countries of
Tajikistan like China, Russia, increases the interest rates over loan and credits. It resulted in
reduction in the flow of funds and other financial resources within the country. All these policies
lead in strengthening executives powers in the other institutions. It helped them in achievement
of their strategic goals and objectives in relation to maintain working relations with donors and
the U.N. but civil society remains weak, under state pressure and dependent on donors. Zhang
(2018) has view over liberalisation of interest rate that Russia is one among those economies that
have a huge level of influence over economic condition and monitory policies of Tajikistan.
Tajikistan keeps participate in the economy of Russia. It reduces its participant from $ 3.8 billion
to $ 1.28 billion in the year 2015 as compare to the year 2014. Further, as per the reports of
world bank, this participant kept reduced further in the year 2016 as well. It also influenced the
export and import market of Tajikistan.
Moreover, Sauvé and Soprana (2018) has a view that in late 1990's the china was one of
the most advanced economy as compared to other Latin American countries. It also resumed its
sustainable economic growth through advanced economic strategies and plans. Policies of China
involved higher interest rate despite of it substantial capital inflows and demand of credits and
loans remained high in the country. Major liberalisation policies of China were liberalisation of
restrictions over foreign direct investors and external accounts, liberalisation of interest rate in
order to improve the positioning of banking supervision, etc. All these policies resulted in
improving quality of monitory policies and improving the impact of these policies over growth
of economy of China.
As per the views of Kaya and Woo (2018) a country is required to maintain healthy
relations with its neighbourhoods. As Russia have a great influence over the Tajikistan's
economic development, financial and monitory sector's development depends upon the effective
monitory policies of the country formulated on the basis of monitory policies and plans of
Russia. Banking sectors are one of major factor of Tajikistan having influence over the economic
Formulation of liberalised policies helped these countries in elimination of negative impact of
their commodity market and rising up them from decline in their GDP as well. Liberalisation of
policies of helped Nigeria, Bolivia, Mozambique, etc. in scaling up the amount of public
investments that directly influenced their economic condition positively.
On this, Kim, Sanaev and Babakholov (2018) said that neighbourhood countries of
Tajikistan like China, Russia, increases the interest rates over loan and credits. It resulted in
reduction in the flow of funds and other financial resources within the country. All these policies
lead in strengthening executives powers in the other institutions. It helped them in achievement
of their strategic goals and objectives in relation to maintain working relations with donors and
the U.N. but civil society remains weak, under state pressure and dependent on donors. Zhang
(2018) has view over liberalisation of interest rate that Russia is one among those economies that
have a huge level of influence over economic condition and monitory policies of Tajikistan.
Tajikistan keeps participate in the economy of Russia. It reduces its participant from $ 3.8 billion
to $ 1.28 billion in the year 2015 as compare to the year 2014. Further, as per the reports of
world bank, this participant kept reduced further in the year 2016 as well. It also influenced the
export and import market of Tajikistan.
Moreover, Sauvé and Soprana (2018) has a view that in late 1990's the china was one of
the most advanced economy as compared to other Latin American countries. It also resumed its
sustainable economic growth through advanced economic strategies and plans. Policies of China
involved higher interest rate despite of it substantial capital inflows and demand of credits and
loans remained high in the country. Major liberalisation policies of China were liberalisation of
restrictions over foreign direct investors and external accounts, liberalisation of interest rate in
order to improve the positioning of banking supervision, etc. All these policies resulted in
improving quality of monitory policies and improving the impact of these policies over growth
of economy of China.
As per the views of Kaya and Woo (2018) a country is required to maintain healthy
relations with its neighbourhoods. As Russia have a great influence over the Tajikistan's
economic development, financial and monitory sector's development depends upon the effective
monitory policies of the country formulated on the basis of monitory policies and plans of
Russia. Banking sectors are one of major factor of Tajikistan having influence over the economic
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performance of the country. On this Kothari (2018) said that all major transactions of country's
economy such as debt repayments, foreign direct investments, international payments, foreign
exchange transactions, etc. depends upon the performance of banking sector of the country. In
order to improve the performance and positioning of banking sectors, the government is required
to set the most appropriate interest rates to be applicable over the banks. Thus, it can be said that
interest rates set by the monitory authorities of country.
In the view of Bun (2018) Monitory authority also decides the interest rate by analysing
and evaluating the security of domestic money and financial market. It leads in setting the
interest rate for the foreign investors in such a way so that foreign investors could be attracted
towards the country' s economy and also democratic market could be safe from the foreign
investors. In the mean time, the domestic financial market of Tajikistan suffered from higher
amount of foreign investments in the market that resulted in exploitation of the domestic
investors. Thus, by realising it, the monitory authorities rose the interest rate for foreign investors
that resulted in reduction of foreign investments within the country. Thus increase in rate of
interest lead in prevention of domestic investors. In this perceptive, Martin-Ortega and O’Brien
(2019) said that Afganistan is one of the neighbourhood country of Tajikistan that have a huge
impact over the economic condition of it. Monitory policy framed by government of Afghanistan
have a direct influence over the money market of Tajikistan in terms of value of foreign
investment. In addition, it also lead in making the domestic investors to invest their excessive of
funds into Afghanistan. Thus, it can be said that with the view to reduce the influence and
eliminate the negative impact of Afghanistan's and other neighbourhood country's monitory
policies, the government of Tajikistan and its monitory authorities needs to formulate their
plans, policies and procedures for the the country after taking into consideration all the monitory
aspects of its neighbourhood countries.
After studying the monitory market completely, Aid (2019) realised that economic
growth of the country have direct influence over its GDP growth. It directly affected the
performance of small and private enterprise. Thus, it also have impact over the employment rate
in Tajikistan. Study shows that liberalisation of interest rate has resulted in increasing the
economic growth from 49.7 % to 55.1 % in 2015 as compare to the year 2000. It also resulted in
increase in the contribution of banking sector in the from 31 % to 54.6 %. On this (.....) said that
with the help of liberalisation of interest rates, the individuals have been encouraged to make a
economy such as debt repayments, foreign direct investments, international payments, foreign
exchange transactions, etc. depends upon the performance of banking sector of the country. In
order to improve the performance and positioning of banking sectors, the government is required
to set the most appropriate interest rates to be applicable over the banks. Thus, it can be said that
interest rates set by the monitory authorities of country.
In the view of Bun (2018) Monitory authority also decides the interest rate by analysing
and evaluating the security of domestic money and financial market. It leads in setting the
interest rate for the foreign investors in such a way so that foreign investors could be attracted
towards the country' s economy and also democratic market could be safe from the foreign
investors. In the mean time, the domestic financial market of Tajikistan suffered from higher
amount of foreign investments in the market that resulted in exploitation of the domestic
investors. Thus, by realising it, the monitory authorities rose the interest rate for foreign investors
that resulted in reduction of foreign investments within the country. Thus increase in rate of
interest lead in prevention of domestic investors. In this perceptive, Martin-Ortega and O’Brien
(2019) said that Afganistan is one of the neighbourhood country of Tajikistan that have a huge
impact over the economic condition of it. Monitory policy framed by government of Afghanistan
have a direct influence over the money market of Tajikistan in terms of value of foreign
investment. In addition, it also lead in making the domestic investors to invest their excessive of
funds into Afghanistan. Thus, it can be said that with the view to reduce the influence and
eliminate the negative impact of Afghanistan's and other neighbourhood country's monitory
policies, the government of Tajikistan and its monitory authorities needs to formulate their
plans, policies and procedures for the the country after taking into consideration all the monitory
aspects of its neighbourhood countries.
After studying the monitory market completely, Aid (2019) realised that economic
growth of the country have direct influence over its GDP growth. It directly affected the
performance of small and private enterprise. Thus, it also have impact over the employment rate
in Tajikistan. Study shows that liberalisation of interest rate has resulted in increasing the
economic growth from 49.7 % to 55.1 % in 2015 as compare to the year 2000. It also resulted in
increase in the contribution of banking sector in the from 31 % to 54.6 %. On this (.....) said that
with the help of liberalisation of interest rates, the individuals have been encouraged to make a
large number of deposits and take loans as well. It has resulted in growth of individual deposits
to 55.1 % along with increasing consumer loans to 41.8 %.
Theme : 6 : Benefits and challenges of accession to WTO in the banking sector of Tajikistan
As per the views of Xie and Han (2019) WTO is world trade organization which is an
intergovernmental organisation that has been formulated in order to develop different regulations
and laws for monitoring and controlling each type of international business transactions. The
essential role of WTO is to act as a forum for negotiating international trade agreements and
settle down all disputes among members. Further, Arveladze and Smeets (2017) says that in
order to impose effective controlling measures over business transactions of a company made
beyond the geographical boundaries, Tajikistan made a step forward towards accession to WTO
within the country. Besides it, with the support of international trade centre (ITC) the Tajikistan
the accession of WTO ensures smooth running and orderly processing of overall international
business transactions. It also results in positively impacting advancing the negotiation process of
the international transactions made by the businesses of Tajikistan.
In the view of Buettner and Madzharova (2018) integrating with World Trade
Organization (WTO) is a need of an hour since it allows the nations to entirely collaborate with
other nations for reaping in the benefits of globalization. The author stipulates that entering into
WTO would increase the external risks in the context of open market and would decrease the
social security. This means that when the economy is open, more of foreign businesses would
mark their presence in the country as it will be an opportunity for them to explore the benefits of
developing economy. In such a situation, the capital markets would be more prone to the external
risks, fraud and higher fluctuations in the interest rates prevailing in the country. However,
Shadikhodjaev (2019) disagrees with the above author and says that becoming a member of
World Trade Organisation would make the financial and banking sector highly competitive,
which is one of the challenge for the home commercial banks. This is due to the fact that foreign
financial institutions would gain a substantial share in the market of Tajikistan and would lead to
lead to a situation where less competitive banking firms would leave the field as they could not
beat such highly effective and renowned banking companies.
Sutyrin, Trofimenko and Gubina (2019) articulates that becoming a member of World
Trade Organization (WTO) would not rule out the possibility of disputes and conflicts relating to
trade. The author provides that country would continue to have trade conflicts despite being the
to 55.1 % along with increasing consumer loans to 41.8 %.
Theme : 6 : Benefits and challenges of accession to WTO in the banking sector of Tajikistan
As per the views of Xie and Han (2019) WTO is world trade organization which is an
intergovernmental organisation that has been formulated in order to develop different regulations
and laws for monitoring and controlling each type of international business transactions. The
essential role of WTO is to act as a forum for negotiating international trade agreements and
settle down all disputes among members. Further, Arveladze and Smeets (2017) says that in
order to impose effective controlling measures over business transactions of a company made
beyond the geographical boundaries, Tajikistan made a step forward towards accession to WTO
within the country. Besides it, with the support of international trade centre (ITC) the Tajikistan
the accession of WTO ensures smooth running and orderly processing of overall international
business transactions. It also results in positively impacting advancing the negotiation process of
the international transactions made by the businesses of Tajikistan.
In the view of Buettner and Madzharova (2018) integrating with World Trade
Organization (WTO) is a need of an hour since it allows the nations to entirely collaborate with
other nations for reaping in the benefits of globalization. The author stipulates that entering into
WTO would increase the external risks in the context of open market and would decrease the
social security. This means that when the economy is open, more of foreign businesses would
mark their presence in the country as it will be an opportunity for them to explore the benefits of
developing economy. In such a situation, the capital markets would be more prone to the external
risks, fraud and higher fluctuations in the interest rates prevailing in the country. However,
Shadikhodjaev (2019) disagrees with the above author and says that becoming a member of
World Trade Organisation would make the financial and banking sector highly competitive,
which is one of the challenge for the home commercial banks. This is due to the fact that foreign
financial institutions would gain a substantial share in the market of Tajikistan and would lead to
lead to a situation where less competitive banking firms would leave the field as they could not
beat such highly effective and renowned banking companies.
Sutyrin, Trofimenko and Gubina (2019) articulates that becoming a member of World
Trade Organization (WTO) would not rule out the possibility of disputes and conflicts relating to
trade. The author provides that country would continue to have trade conflicts despite being the
member of WTO. It also states that channelising the private sector into the accession to WTO.
Moreover, as a member of international governing organisation, Tajikistan would have to adhere
to enormous rules and regulations which would be a tedious task for the law making authorities
of the country. This is because they would have to make their laws and legislation which are in
line with the guidelines and framework provided by the World Trade Organisation. However,
ANDERSON and MüLLER (2017) disagrees with the claims of above author and says that
adhering to the rules and laws of WTO would help the country in enhancing its corporate
governance in the financial & banking sector. This in turn would assist the banking companies
in attaining the confidence of investors which as a conseque4nce would desire to invest more of
their money as an investments in the bank. Such higher amount of money available with the bank
would aid in meeting the demand of the borrowers conveniently. The major impact of such good
corporate governance in the financial sector would be reasonable interest rates at all time. Also,
there will not any material fluctuations which could hurt the economy in any possible way.
In the opinion of Chemutai and Escaith (2017), accession to WTO or becoming a
member of WTO is that this organization has certain trade rules which does not favours the
developing nations. The author states that rules and regulations of WTO may hamper the
development and growth of infant industries in Tajikistan. For instance, Tajikistan being a
developing economy desires of diversifying its economy by investing more in financial and
manufacturing sector but becoming a member of WTO restricts them in doing so. This is because
a protected environment has to be facilitated to the infant industries to bloom which is possible
only through tariff protection. Escaith and Chemutai (2017) argues with the opinion of above
author and stipulates that free trade between the countries and reduced tariff rates across the
members of WTO would make Tajikistan more efficient in the sense that more of exports would
be encouraged in the country through which greater amount of foreign capital could be brought
in the economy. The effect of such exports and international business transactions would result
into higher economic growth in the country. The consequence of such economic growth would
be seen in the lower interest rates, higher profitability for the commercial banks since people
would have more disposable income for spending on goods and services. Higher expenditure by
the household sector facilitates the banks in mobilizing the public deposits into capital
investment that eventually leads to higher industrial output of the country. All these things
collectively contributes to the GDP of the nation.
Moreover, as a member of international governing organisation, Tajikistan would have to adhere
to enormous rules and regulations which would be a tedious task for the law making authorities
of the country. This is because they would have to make their laws and legislation which are in
line with the guidelines and framework provided by the World Trade Organisation. However,
ANDERSON and MüLLER (2017) disagrees with the claims of above author and says that
adhering to the rules and laws of WTO would help the country in enhancing its corporate
governance in the financial & banking sector. This in turn would assist the banking companies
in attaining the confidence of investors which as a conseque4nce would desire to invest more of
their money as an investments in the bank. Such higher amount of money available with the bank
would aid in meeting the demand of the borrowers conveniently. The major impact of such good
corporate governance in the financial sector would be reasonable interest rates at all time. Also,
there will not any material fluctuations which could hurt the economy in any possible way.
In the opinion of Chemutai and Escaith (2017), accession to WTO or becoming a
member of WTO is that this organization has certain trade rules which does not favours the
developing nations. The author states that rules and regulations of WTO may hamper the
development and growth of infant industries in Tajikistan. For instance, Tajikistan being a
developing economy desires of diversifying its economy by investing more in financial and
manufacturing sector but becoming a member of WTO restricts them in doing so. This is because
a protected environment has to be facilitated to the infant industries to bloom which is possible
only through tariff protection. Escaith and Chemutai (2017) argues with the opinion of above
author and stipulates that free trade between the countries and reduced tariff rates across the
members of WTO would make Tajikistan more efficient in the sense that more of exports would
be encouraged in the country through which greater amount of foreign capital could be brought
in the economy. The effect of such exports and international business transactions would result
into higher economic growth in the country. The consequence of such economic growth would
be seen in the lower interest rates, higher profitability for the commercial banks since people
would have more disposable income for spending on goods and services. Higher expenditure by
the household sector facilitates the banks in mobilizing the public deposits into capital
investment that eventually leads to higher industrial output of the country. All these things
collectively contributes to the GDP of the nation.
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Laruelle and Peyrouse (2015) says that since the rules of World Trade Organization are
imposed on all of its members in a uniform manner, it leads to creation of inequalities amongst
the member nations as each of the nation have different economic conditions. This was
considered as one of the challenge which the Tajikistan has faced by its accession to WTO. Also,
the country has not still obeyed to the policies of WTO which are related to free trade. The
nation has maintained a policy of providing protection to domestic industries without notifying
any of its partners. Kuhrt and Costa Buranelli (2019) argues with the above author and claims
that becoming a member of WTO has strengthened the economy of the country and has
improved the financial system of the nation. Due to the good trade relations with the countries,
the country has been able to stabilize the conditions in its economy in relation to inflation.
Stabilized inflation has directly impacted the interest rates of the commercial banks which in turn
has resulted into higher flow of household income into investment sector which has facilitated
higher availability of funds for industrial development in the country.
In this view Chemutai and Escaith (2017) said that WTO provides guidelines and policies
through which appropriate amount of liberalization can be imposed within the financial and
monitory market of the country. Moreover, it also leads in creation of appropriate competitive
environment among the country along with maintenance of sufficient amount of financial
resources. It also leads to spread the understanding of good practice of rules and regulations of
financial sectors and different international trade practices. Therefore, it can be stated that
accession of WTO in Tajikistan leads to improve the efficiencies of international trade practices
within financial service sectors like banks and other corporations that provides financial services
to their clients.
On the other hand, as per Sauvé and Soprana (2018) at the time of accession of WTO, a
programme was organised in which a training session on “WTO Accessions and their Business
Implications - Lessons from Other Countries” was organised. This session was having a major
focus on the process of WTO accession. It also provide knowledge regarding various benefits
and challenges that are needed to be analysed before implementation of accessions to WTO.
Organisation of this session resulted in spreading appropriate knowledge among all commercial
banks, through which they became able to implement and face all the challenges effectively and
imposed on all of its members in a uniform manner, it leads to creation of inequalities amongst
the member nations as each of the nation have different economic conditions. This was
considered as one of the challenge which the Tajikistan has faced by its accession to WTO. Also,
the country has not still obeyed to the policies of WTO which are related to free trade. The
nation has maintained a policy of providing protection to domestic industries without notifying
any of its partners. Kuhrt and Costa Buranelli (2019) argues with the above author and claims
that becoming a member of WTO has strengthened the economy of the country and has
improved the financial system of the nation. Due to the good trade relations with the countries,
the country has been able to stabilize the conditions in its economy in relation to inflation.
Stabilized inflation has directly impacted the interest rates of the commercial banks which in turn
has resulted into higher flow of household income into investment sector which has facilitated
higher availability of funds for industrial development in the country.
In this view Chemutai and Escaith (2017) said that WTO provides guidelines and policies
through which appropriate amount of liberalization can be imposed within the financial and
monitory market of the country. Moreover, it also leads in creation of appropriate competitive
environment among the country along with maintenance of sufficient amount of financial
resources. It also leads to spread the understanding of good practice of rules and regulations of
financial sectors and different international trade practices. Therefore, it can be stated that
accession of WTO in Tajikistan leads to improve the efficiencies of international trade practices
within financial service sectors like banks and other corporations that provides financial services
to their clients.
On the other hand, as per Sauvé and Soprana (2018) at the time of accession of WTO, a
programme was organised in which a training session on “WTO Accessions and their Business
Implications - Lessons from Other Countries” was organised. This session was having a major
focus on the process of WTO accession. It also provide knowledge regarding various benefits
and challenges that are needed to be analysed before implementation of accessions to WTO.
Organisation of this session resulted in spreading appropriate knowledge among all commercial
banks, through which they became able to implement and face all the challenges effectively and
perform build their new policies and procedures in this context easily. Further, as per the views
of Lu (2018) Tajikistan have a view that the accessions to WTO resulted in involvement of
remittance to be transferred through the banking system that plays a vital role in increasing the
contribution of banking sector in the GDP growth rate of the country. Besides it, it also helped in
increasing the productivity of banking sector as a whole that leads in improving the chances of
potential growth of the banking sector.
The Georgiev, Nagy-Mohacsi and Plekhanov (2017) said that accession to Tajikistan was
in the year 2013, ITC contributed in the implementation of all complex reforms of this accession
and helped it in building the ability of banking sectors to gain further benefits from accessions to
WTO. It also lead in enabling the banks in making effective contribution in the economic growth
of the country. Whereas, GONZALEZ (2017) has a view that ITC played an essential role in
assisting the banks in making active participation of the banks in performance of negotiation
process of accessions. Along with this, it also helped the banks by providing appropriate
guidelines regarding formations of their policies regarding maintenance of sufficient amount of
foreign investment, domestic investment, commercial loans etc. It also help in improving the
performance of overall banking sector of Tajikistan.
Further, as per the views of Figueiredo and Lima (2017) WTO accession in Tajikistan
resulted in improving the quality of building effective plans and formulation of different
regulations by banking sectors in order to improve the growth of country's economic and
financial conditions as a whole. At the time of accession to WTO, the Tajikistan's government
signed a memorandum contract. This contractual agreement contains details that provides proper
guidelines to implementation of economic reforms, trade development and investment along with
technical assistance. Therefore, it can be analysed that with the help of analysing and evaluating
each clause included in the memorandum of WTO accession and understand the guidelines
regarding formulation of policies in context to setting different interest rates, export import
policies, etc. It resulted in formulation of more effective strategies through which they can
improve their workings.
As per the views of Pogoretskyy and Melnyk (2016) accessions to WTO resulted in
partnering of the country with Asian development banks. It helped them in taking all the
necessary steps for developing co ordination and co hosting among the domestic banks with the
Asian development banks. IT helped banks in making improving the efficiencies of commercial
of Lu (2018) Tajikistan have a view that the accessions to WTO resulted in involvement of
remittance to be transferred through the banking system that plays a vital role in increasing the
contribution of banking sector in the GDP growth rate of the country. Besides it, it also helped in
increasing the productivity of banking sector as a whole that leads in improving the chances of
potential growth of the banking sector.
The Georgiev, Nagy-Mohacsi and Plekhanov (2017) said that accession to Tajikistan was
in the year 2013, ITC contributed in the implementation of all complex reforms of this accession
and helped it in building the ability of banking sectors to gain further benefits from accessions to
WTO. It also lead in enabling the banks in making effective contribution in the economic growth
of the country. Whereas, GONZALEZ (2017) has a view that ITC played an essential role in
assisting the banks in making active participation of the banks in performance of negotiation
process of accessions. Along with this, it also helped the banks by providing appropriate
guidelines regarding formations of their policies regarding maintenance of sufficient amount of
foreign investment, domestic investment, commercial loans etc. It also help in improving the
performance of overall banking sector of Tajikistan.
Further, as per the views of Figueiredo and Lima (2017) WTO accession in Tajikistan
resulted in improving the quality of building effective plans and formulation of different
regulations by banking sectors in order to improve the growth of country's economic and
financial conditions as a whole. At the time of accession to WTO, the Tajikistan's government
signed a memorandum contract. This contractual agreement contains details that provides proper
guidelines to implementation of economic reforms, trade development and investment along with
technical assistance. Therefore, it can be analysed that with the help of analysing and evaluating
each clause included in the memorandum of WTO accession and understand the guidelines
regarding formulation of policies in context to setting different interest rates, export import
policies, etc. It resulted in formulation of more effective strategies through which they can
improve their workings.
As per the views of Pogoretskyy and Melnyk (2016) accessions to WTO resulted in
partnering of the country with Asian development banks. It helped them in taking all the
necessary steps for developing co ordination and co hosting among the domestic banks with the
Asian development banks. IT helped banks in making improving the efficiencies of commercial
banks in formulation of policies and setting the rates with a view to spread sufficient amount of
financial resources within the world. Further, Siddiqui (2019) also said that WTO realised that
lower amount of investment is one of the major challenge faced by Tajikistan's banking sector.
Thus, WTO made the banks to develop their strategies and plans for the private, small and
medium sized enterprise so that they can gain substantial amount of expansion.
Furthermore, as per the views of Smart (2017)with the help of accession to WTO by
Tajikistan, the monitory authorities of country started developing their monitory policies, set
plans regarding implementation of taxation system, judicial regulations regarding international
transactions, etc. Further, with the help of guidelines mentioned in the memorandum of contract,
Government of Tajikistan also became able to liberalize their monitory policies. All these factors
plays an essential role in improving the growth and expansion of trades and businesses within the
business. Further, in this context, Grant and Boys (2015) has a view that with the accession of
WTO, the overall businesses could become able to grow at the potential rate. On the other hand,
as the development of different businesses have direct impact over the growth of financial and
trading market of the country, it leads to drive up the trade and economic development and
investment in all over the country. In this order, it can be said that the accession leads to improve
the trade investment within the monitory and financial market of the country that positively
influenced the banking sector of Tajikistan.
Bruszt and Palestini (2016) also talked about the benefits gained by the banking sectors in
lieu of accessions to WTO within the monitory system of the country. As per their views,
partnering of Asian development bank with Tajikistan, resulted in improving the quality of its
domestic banks in developing effective plans and procedures for controlling the flow of money
within the country. Further, this partnership also make the banks to liberalise their policies for
different types of businesses and individuals. This step helped the banks in increasing the amount
of commercial and personal loans taken by different persons of the country. Thus, it can be
evaluated that accession to WTO in Tajikistan leads in providing great benefits to overall
banking sectors of the country. In this context, Shadikhodjaev (2018) said that the
implementation of rules developed by the world trade organization within the operations of
banking sector helps the banks in improving the knowledge of its managers, board of directors
and other members of its management team in developing more effective plans to be
implemented over the banks at the time of providing services to their customers. It results n
financial resources within the world. Further, Siddiqui (2019) also said that WTO realised that
lower amount of investment is one of the major challenge faced by Tajikistan's banking sector.
Thus, WTO made the banks to develop their strategies and plans for the private, small and
medium sized enterprise so that they can gain substantial amount of expansion.
Furthermore, as per the views of Smart (2017)with the help of accession to WTO by
Tajikistan, the monitory authorities of country started developing their monitory policies, set
plans regarding implementation of taxation system, judicial regulations regarding international
transactions, etc. Further, with the help of guidelines mentioned in the memorandum of contract,
Government of Tajikistan also became able to liberalize their monitory policies. All these factors
plays an essential role in improving the growth and expansion of trades and businesses within the
business. Further, in this context, Grant and Boys (2015) has a view that with the accession of
WTO, the overall businesses could become able to grow at the potential rate. On the other hand,
as the development of different businesses have direct impact over the growth of financial and
trading market of the country, it leads to drive up the trade and economic development and
investment in all over the country. In this order, it can be said that the accession leads to improve
the trade investment within the monitory and financial market of the country that positively
influenced the banking sector of Tajikistan.
Bruszt and Palestini (2016) also talked about the benefits gained by the banking sectors in
lieu of accessions to WTO within the monitory system of the country. As per their views,
partnering of Asian development bank with Tajikistan, resulted in improving the quality of its
domestic banks in developing effective plans and procedures for controlling the flow of money
within the country. Further, this partnership also make the banks to liberalise their policies for
different types of businesses and individuals. This step helped the banks in increasing the amount
of commercial and personal loans taken by different persons of the country. Thus, it can be
evaluated that accession to WTO in Tajikistan leads in providing great benefits to overall
banking sectors of the country. In this context, Shadikhodjaev (2018) said that the
implementation of rules developed by the world trade organization within the operations of
banking sector helps the banks in improving the knowledge of its managers, board of directors
and other members of its management team in developing more effective plans to be
implemented over the banks at the time of providing services to their customers. It results n
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increasing the attraction of population towards policies of bank. Thus, banks become able to
increase their number of customers and amount of investment by this way. Hence, accessions to
WTO results in development of effectiveness in the bank regarding attracting a large number of
customers and improve their value of business as well. On the other hand, Naseer (2017) also
have view that implementation of WTO regulation within the trade regulations of international
business of the country results in implementation of some rigid rules and regulations of the
foreigjn companies. It affected the value of trades and amount of foreign direct investment
within the country. In this order, due to involvement of trade policies upon several businesses of
country resulted in increasing difficulties for different business organisation who either imports
or exports their goods and services across the geographical boundaries. Thus, it negatively
influenced the economic growth of Tajikistan.
In this context, Wignaraja and et.al., (2018) also said that through different policies of
monitory authorities of the Tajikistan formulated on the basis of rules and regulation of WTO,
resulted in reduction of tax rate overt the cotton industry. As the Tajikistan is one of the largest
manufacturer country of cotton, the banking sector have a huge impact of cotton industry. With
reduction in tax rate, the prices of cotton also went down that helped the cotton traders in
increasing their revenues from export of cotton. In this regard, this accession to WTO in
Tajikistan helped the cotton industry in improving their exports. Therefore, it can be said that,
with the WTO helped the cotton industry in bringing more value of foreign currency within the
country. In this regard, with the implementation of WTO Tajikistan leads to gain a economic
growth at a large level.
Del Negro and et.al., (2017) said that WTO accession contract sanctity and adequate
intellectual property right protections remain elusive. The government of Tajikistan imposed
arbitrary trading policy in order to protect the fledgling without notifying its partners.
Tajikistan’s overall banking sector suffered a lot due to lower remittance flow during the
recession of Russia. Banking and financial authorities formulated effective strategies and plans,
the Tajikistan effectively faced recession and helped its banking sectors in improving its
stabilization. The effective plans formulated on the basis of policies and guidelines of WTO
resulted in increasing the nominal lending rates about 27 % for providing loans in national
currency and 18 % for providing loans in other currencies such as dollar. On this Liu, Wang and
Xu, (2017) said that the commercial banks wee restricted by WTO to restrict the amount of to be
increase their number of customers and amount of investment by this way. Hence, accessions to
WTO results in development of effectiveness in the bank regarding attracting a large number of
customers and improve their value of business as well. On the other hand, Naseer (2017) also
have view that implementation of WTO regulation within the trade regulations of international
business of the country results in implementation of some rigid rules and regulations of the
foreigjn companies. It affected the value of trades and amount of foreign direct investment
within the country. In this order, due to involvement of trade policies upon several businesses of
country resulted in increasing difficulties for different business organisation who either imports
or exports their goods and services across the geographical boundaries. Thus, it negatively
influenced the economic growth of Tajikistan.
In this context, Wignaraja and et.al., (2018) also said that through different policies of
monitory authorities of the Tajikistan formulated on the basis of rules and regulation of WTO,
resulted in reduction of tax rate overt the cotton industry. As the Tajikistan is one of the largest
manufacturer country of cotton, the banking sector have a huge impact of cotton industry. With
reduction in tax rate, the prices of cotton also went down that helped the cotton traders in
increasing their revenues from export of cotton. In this regard, this accession to WTO in
Tajikistan helped the cotton industry in improving their exports. Therefore, it can be said that,
with the WTO helped the cotton industry in bringing more value of foreign currency within the
country. In this regard, with the implementation of WTO Tajikistan leads to gain a economic
growth at a large level.
Del Negro and et.al., (2017) said that WTO accession contract sanctity and adequate
intellectual property right protections remain elusive. The government of Tajikistan imposed
arbitrary trading policy in order to protect the fledgling without notifying its partners.
Tajikistan’s overall banking sector suffered a lot due to lower remittance flow during the
recession of Russia. Banking and financial authorities formulated effective strategies and plans,
the Tajikistan effectively faced recession and helped its banking sectors in improving its
stabilization. The effective plans formulated on the basis of policies and guidelines of WTO
resulted in increasing the nominal lending rates about 27 % for providing loans in national
currency and 18 % for providing loans in other currencies such as dollar. On this Liu, Wang and
Xu, (2017) said that the commercial banks wee restricted by WTO to restrict the amount of to be
borrowed. It resulted in increasing the inability among the small and medium sized business
enterprise in borrowing loans for performing their normal business transactions or expand their
business. It resulted in becoming a challenge for the commercial banks as reduction in their
business operations and amount of profit to be gained by them in lieu of interest on loan taken by
small and medium sized enterprise.
Moreover, as per the view of Gust and et.al., (2017) Because of liberalisation made in
Interest rate, many commercial banks of different economies has to face difficulties and adverse
situation in managing their banking as well as financial activities. Due to political reasons,
banking sector have to face various problems including ineffective operational management and
risk management. Further, due poor environment relating to generation of excessive profits. On
this Caballero, Farhi and Gourinchas, (2017) argued that WTO accession in Tajikistan resulted in
imposition of liberalisation within the monitory policies of the country, leads to provide
commercial banks more freedom to perform or act in respect of pricing of their loans, deposits so
as to compete with every commercial bank. Also, it has been aimed at bringing improvement in
the overall efficiency of bank for promoting economic development and growth thus making
economy more competitive and strong. After the process of liberalization of interest rate was
completed, all the commercial banks has the power to gain full authority. It helped commercial
businesses in growing with a rapid rate as liberalisation resulted in increasing the number of
borrowers. Besides, by charging appropriate rate of interest, they also become able to generate
appropriate amount of profit from it.
Arteta, and et.al., (2016) said that accession to WTO in Tajikistan leads in development
of liberalised policies relating to export of goods and services from the country. It would help
the government in bringing a large amount of foreign investment within the country. The effect
of such exports and international business transactions would result into higher economic growth
in the country. It would result in a rapid growth of overall economy of the country through which
banking sectors could grow themselves easily. In this context Bruno and Shin, (2015), argued
that WTO makes its each member state to formulate policies in uniform manner. it may provide
negative effect over any specific economy whose condition may not be appropriate for the
policies framed as per the regulations of World trade organisation. It may also have a direct
impact over the business of commercial banks of a country.
Abdullah, (2015) has a view that being a member of world trade organisation, Tajikistan
enterprise in borrowing loans for performing their normal business transactions or expand their
business. It resulted in becoming a challenge for the commercial banks as reduction in their
business operations and amount of profit to be gained by them in lieu of interest on loan taken by
small and medium sized enterprise.
Moreover, as per the view of Gust and et.al., (2017) Because of liberalisation made in
Interest rate, many commercial banks of different economies has to face difficulties and adverse
situation in managing their banking as well as financial activities. Due to political reasons,
banking sector have to face various problems including ineffective operational management and
risk management. Further, due poor environment relating to generation of excessive profits. On
this Caballero, Farhi and Gourinchas, (2017) argued that WTO accession in Tajikistan resulted in
imposition of liberalisation within the monitory policies of the country, leads to provide
commercial banks more freedom to perform or act in respect of pricing of their loans, deposits so
as to compete with every commercial bank. Also, it has been aimed at bringing improvement in
the overall efficiency of bank for promoting economic development and growth thus making
economy more competitive and strong. After the process of liberalization of interest rate was
completed, all the commercial banks has the power to gain full authority. It helped commercial
businesses in growing with a rapid rate as liberalisation resulted in increasing the number of
borrowers. Besides, by charging appropriate rate of interest, they also become able to generate
appropriate amount of profit from it.
Arteta, and et.al., (2016) said that accession to WTO in Tajikistan leads in development
of liberalised policies relating to export of goods and services from the country. It would help
the government in bringing a large amount of foreign investment within the country. The effect
of such exports and international business transactions would result into higher economic growth
in the country. It would result in a rapid growth of overall economy of the country through which
banking sectors could grow themselves easily. In this context Bruno and Shin, (2015), argued
that WTO makes its each member state to formulate policies in uniform manner. it may provide
negative effect over any specific economy whose condition may not be appropriate for the
policies framed as per the regulations of World trade organisation. It may also have a direct
impact over the business of commercial banks of a country.
Abdullah, (2015) has a view that being a member of world trade organisation, Tajikistan
would have to adhere to enormous rules and regulations which would be a tedious task for the
law making authorities of the country. It leads to ineffective rules and regulations of the country.
It can be caused due to guidelines provided by world trade organisation on the basis of which
each monitory policy of the country. Besides it, Khalid, Shehzad and Naqvi, (2019) argued that
regulations and policies of WTO leads to improve the efficiency of banks and other financial and
monitory insititutions in formulation of laws and plans with the help of which they can gain a
rapid growth. Also, it can also help in increasing the economic growth of the country as a whole.
law making authorities of the country. It leads to ineffective rules and regulations of the country.
It can be caused due to guidelines provided by world trade organisation on the basis of which
each monitory policy of the country. Besides it, Khalid, Shehzad and Naqvi, (2019) argued that
regulations and policies of WTO leads to improve the efficiency of banks and other financial and
monitory insititutions in formulation of laws and plans with the help of which they can gain a
rapid growth. Also, it can also help in increasing the economic growth of the country as a whole.
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CHAPTER 3
METHODOLOGY
3.0 Introduction
Research methodology is defined as process or method for conducting of research study.
It is known as systematic description which provides foundation for successful execution of
research project. The chapter will describe the different approaches used along with explanation
of data collection process and analysis for making study more effective and meaningful to others
as well.
3.1 Selection of research methods
For completing research study, different method as well as procedure needs to be
followed. Based on Theoretical and empirical literature on the finance sector and other
hypothesis is surveyed with a view to provide better understanding of the empirical results to be
obtained. The second step includes compilation of all data gathered as per requirement of
research study. Yearly data, stretching from 1999 to 2014 are used to enable long run empirical
analysis. Also, this time period encompasses the pre-reform era which signifies financial
repression, and includes post reform era that is indicative of financial liberalisation. Prior to
applying formal econometric methodology, it is important to ascertain the behaviour of the data
through the use of descriptive statistical tests and simple correlation (Fletcher, 2017). Some of
statistical tests include mean, variance, standard deviation etc. which helps in making detailed
analysis of data.
The empirical undertaking to validate this assertion will include co-integration analysis
using the co-integration approach. This approach of Co-integration allows researcher in making
proper analysis into the existence of a long run stable relationship between various pertinent
variables i.e. financial development proxies, financial liberalisation proxies, interest rate,
savings, growth and investment. Financial liberalisation is defined as a gradual process of
liberalizing financial economy of the country, there are various legislative processes which
warrant financial liberalisation occurring at different time period. Thus, with help of principal
component analysis, identification of single most important component factor serving as proxy
for financial liberalisation and financial development can be done. Therefore, for generating
METHODOLOGY
3.0 Introduction
Research methodology is defined as process or method for conducting of research study.
It is known as systematic description which provides foundation for successful execution of
research project. The chapter will describe the different approaches used along with explanation
of data collection process and analysis for making study more effective and meaningful to others
as well.
3.1 Selection of research methods
For completing research study, different method as well as procedure needs to be
followed. Based on Theoretical and empirical literature on the finance sector and other
hypothesis is surveyed with a view to provide better understanding of the empirical results to be
obtained. The second step includes compilation of all data gathered as per requirement of
research study. Yearly data, stretching from 1999 to 2014 are used to enable long run empirical
analysis. Also, this time period encompasses the pre-reform era which signifies financial
repression, and includes post reform era that is indicative of financial liberalisation. Prior to
applying formal econometric methodology, it is important to ascertain the behaviour of the data
through the use of descriptive statistical tests and simple correlation (Fletcher, 2017). Some of
statistical tests include mean, variance, standard deviation etc. which helps in making detailed
analysis of data.
The empirical undertaking to validate this assertion will include co-integration analysis
using the co-integration approach. This approach of Co-integration allows researcher in making
proper analysis into the existence of a long run stable relationship between various pertinent
variables i.e. financial development proxies, financial liberalisation proxies, interest rate,
savings, growth and investment. Financial liberalisation is defined as a gradual process of
liberalizing financial economy of the country, there are various legislative processes which
warrant financial liberalisation occurring at different time period. Thus, with help of principal
component analysis, identification of single most important component factor serving as proxy
for financial liberalisation and financial development can be done. Therefore, for generating
financial liberalisation index, study adopts and makes use of combination of variables relevant to
internal financial liberalisation process of economy.
In this competitive world by using process of liberalisation and globalisation of world
economy, it provides several benefits to many business organisation in form of competitive
advantages, market share etc. Also, it provides supports to business firms thereby expanding
their business operations to the international market across the globe. Unless and until financial
institutions brings update in themselves as needed, it is difficult for them to survive and compete
in the global market. In this context, the study provides an overview of how the banking industry
is outsourcing its activities to different sectors in both domestic and international scenarios. The
study gives information with knowledge of how financial sector can sustain in market and helps
in developing suitable methods on outsourcing of financial services by bank (Heagney, 2016).
The study adopts an econometric model in determining effects of variation in interest rates on
economic growth in developing countries especially Tajikistani case. The study has gathered
time series annual data for period covering 1990 to 2015 from the National Bank of Tajikistan,
National Bureau of Statistics and World Trade Organisation.
3.2 Research Philosophy
A belief as per which researcher gathers, analysed and evaluate relevant data required for
study completion. It has two types Interpretivism and Positivism. A combination of qualitative
and quantitative research approaches can assist in practical solutions to overcome limitations of
mono-method research discussed for the last 50 years. However, it is rarely addressed in current
debates whether it is possible to develop solid methodological strategies for structuring research
methods based on that insight of combining qualitative and quantitative methods, though there is
a broad agreement that a use of multiple methods. Furthermore, due to lack of agreement
between classification and terminology of different mixed, combined or multi-method designs
are used in research practice.
The research has been based on comparative analysis, positivism philosophy which
adheres to scientific part of research subject having emphasis on surveys, questionnaire and
statistical data collected. Also, emphasis is made only on factual knowledge as gained through
observation including measurement. In comparative analysis studies the role of the researcher is
internal financial liberalisation process of economy.
In this competitive world by using process of liberalisation and globalisation of world
economy, it provides several benefits to many business organisation in form of competitive
advantages, market share etc. Also, it provides supports to business firms thereby expanding
their business operations to the international market across the globe. Unless and until financial
institutions brings update in themselves as needed, it is difficult for them to survive and compete
in the global market. In this context, the study provides an overview of how the banking industry
is outsourcing its activities to different sectors in both domestic and international scenarios. The
study gives information with knowledge of how financial sector can sustain in market and helps
in developing suitable methods on outsourcing of financial services by bank (Heagney, 2016).
The study adopts an econometric model in determining effects of variation in interest rates on
economic growth in developing countries especially Tajikistani case. The study has gathered
time series annual data for period covering 1990 to 2015 from the National Bank of Tajikistan,
National Bureau of Statistics and World Trade Organisation.
3.2 Research Philosophy
A belief as per which researcher gathers, analysed and evaluate relevant data required for
study completion. It has two types Interpretivism and Positivism. A combination of qualitative
and quantitative research approaches can assist in practical solutions to overcome limitations of
mono-method research discussed for the last 50 years. However, it is rarely addressed in current
debates whether it is possible to develop solid methodological strategies for structuring research
methods based on that insight of combining qualitative and quantitative methods, though there is
a broad agreement that a use of multiple methods. Furthermore, due to lack of agreement
between classification and terminology of different mixed, combined or multi-method designs
are used in research practice.
The research has been based on comparative analysis, positivism philosophy which
adheres to scientific part of research subject having emphasis on surveys, questionnaire and
statistical data collected. Also, emphasis is made only on factual knowledge as gained through
observation including measurement. In comparative analysis studies the role of the researcher is
limited to data collection and interpretation through objective approach and the research findings
are usually observable and quantifiable.
Researcher analysis depends on quantifiable observations providing with statistical
analysis. It has been noted that philosophy, positivism is in accordance with empiricist view that
knowledge stems from human experience and understanding (Kumar, 2019). Comparative
studies in research study makes use of deductive approach, whereas inductive research approach
type relates to phenomenology philosophy. Further comparative relates to viewpoint that
researcher needs to concentrate on facts, whereas phenomenology concentrates on the meaning
and has provision for human interest.
Researchers on choosing positivist approach in study defines independent thoughts
related to the subject matter which can be purely objective. Positivist approach of philosophy
covers scientific part having its main focus on collection of data via surveys, questionnaire and
statistical means. Independent means as maintained minimal interaction with research
participants at the time of carrying on research process. In other words, studies with positivist
paradigm are based purely on facts and consider the world to be external and objective in context
of research subject matter. Interest rate tool enables financial market of the economy thereby
helping in providing proper and effective allocation of available resources. Further measures to
be undertaken in respect of cash and capital flow & its controlling, monitoring, & managing for
having optimum capital allocation supporting smooth functioning of financial sector.
3.3 Justification for the research paradigm and methodology
Research paradigm is an approach related to conducting of a research project having
need to be cross examined as well as verified from the side of research community. Positivism
also known as logical positivism defines scientific method for establishing truth and reality of
objective. Positivism is based upon view that science is only foundation for true knowledge as
well as understanding which contains methods, techniques and procedures as used in natural
sciences. It offers best framework for investigating the social world related to the topic. It
reflects strict empirical approach providing knowledge which is based directly on experience,
facts and causes of behaviour. Positivism approach is concerned with scientific method to study
of human action, its meaning etc.
are usually observable and quantifiable.
Researcher analysis depends on quantifiable observations providing with statistical
analysis. It has been noted that philosophy, positivism is in accordance with empiricist view that
knowledge stems from human experience and understanding (Kumar, 2019). Comparative
studies in research study makes use of deductive approach, whereas inductive research approach
type relates to phenomenology philosophy. Further comparative relates to viewpoint that
researcher needs to concentrate on facts, whereas phenomenology concentrates on the meaning
and has provision for human interest.
Researchers on choosing positivist approach in study defines independent thoughts
related to the subject matter which can be purely objective. Positivist approach of philosophy
covers scientific part having its main focus on collection of data via surveys, questionnaire and
statistical means. Independent means as maintained minimal interaction with research
participants at the time of carrying on research process. In other words, studies with positivist
paradigm are based purely on facts and consider the world to be external and objective in context
of research subject matter. Interest rate tool enables financial market of the economy thereby
helping in providing proper and effective allocation of available resources. Further measures to
be undertaken in respect of cash and capital flow & its controlling, monitoring, & managing for
having optimum capital allocation supporting smooth functioning of financial sector.
3.3 Justification for the research paradigm and methodology
Research paradigm is an approach related to conducting of a research project having
need to be cross examined as well as verified from the side of research community. Positivism
also known as logical positivism defines scientific method for establishing truth and reality of
objective. Positivism is based upon view that science is only foundation for true knowledge as
well as understanding which contains methods, techniques and procedures as used in natural
sciences. It offers best framework for investigating the social world related to the topic. It
reflects strict empirical approach providing knowledge which is based directly on experience,
facts and causes of behaviour. Positivism approach is concerned with scientific method to study
of human action, its meaning etc.
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Shift from positivism to post-positivism has been observed in mid 20th century. Post-
positivism as per the dogmatic view of positivism states that turning emphasis from absolute
certainty to probability can constructs knowledge, better understanding rather than process of
laws of nature noting (Ledford and Gast, 2018). As per Post-positivism approach, strict
adherence to scientific method research is not enough as research outcomes are neither objective
nor unquestionably certain. Post-positivism process is influenced by philosophy known as
critical realism as distinguished from positivism as per focus made on theory verification or
falsification. As per critical realism observations may involve error and mistakes resulting in
modification in the theories.
Objectivity can nevertheless be achieved by using multiple measures, observations so as
to gain clear understanding of what is happening. To maintain proper balance in between
existing competitive environment, safety and soundness of the whole banking system, it is
required on part of government to adopt effective and cautious approaches in line with
liberalisation of interest rate. In discussion below, two are treated as belonging to the same
family. In mixed research process, researcher makes use of combination of quantitative and
qualitative research methods, approaches in completing single research study. The qualitative
and quantitative parts of a research study can be conducted concurrently i.e. conducting both
parts at same time or in proper sequence so as to address a research question effectively &
provides positive value to researcher.
Macroeconomic analysis before Keynes was limited to monetary theory under which
neoclassical quantitative theory of money dominated. The initial prerequisite for neoclassical
macroeconomic analysis was full employment of labour and other factors of production, the
percentage was treated as a phenomenon of real economy, balancing supply and demand of
capital effect of changes in money amount done to influence price level. Keynes considered
savings and investments as a processes which is determined by different factors, whereas
investment and savings doesn't depends on ratio of interest rate and marginal efficiency of
capital. Liberalization of interest rate can't produced expected benefits from accounting &
business transactions with situation including timing, pace and sequencing are off or not in line
with the set defined procedures.
As per modern portfolio theory, problem of portfolio optimisation aimed to minimise risk
at a given average profitability level related to business as well as financial sector. Also the
positivism as per the dogmatic view of positivism states that turning emphasis from absolute
certainty to probability can constructs knowledge, better understanding rather than process of
laws of nature noting (Ledford and Gast, 2018). As per Post-positivism approach, strict
adherence to scientific method research is not enough as research outcomes are neither objective
nor unquestionably certain. Post-positivism process is influenced by philosophy known as
critical realism as distinguished from positivism as per focus made on theory verification or
falsification. As per critical realism observations may involve error and mistakes resulting in
modification in the theories.
Objectivity can nevertheless be achieved by using multiple measures, observations so as
to gain clear understanding of what is happening. To maintain proper balance in between
existing competitive environment, safety and soundness of the whole banking system, it is
required on part of government to adopt effective and cautious approaches in line with
liberalisation of interest rate. In discussion below, two are treated as belonging to the same
family. In mixed research process, researcher makes use of combination of quantitative and
qualitative research methods, approaches in completing single research study. The qualitative
and quantitative parts of a research study can be conducted concurrently i.e. conducting both
parts at same time or in proper sequence so as to address a research question effectively &
provides positive value to researcher.
Macroeconomic analysis before Keynes was limited to monetary theory under which
neoclassical quantitative theory of money dominated. The initial prerequisite for neoclassical
macroeconomic analysis was full employment of labour and other factors of production, the
percentage was treated as a phenomenon of real economy, balancing supply and demand of
capital effect of changes in money amount done to influence price level. Keynes considered
savings and investments as a processes which is determined by different factors, whereas
investment and savings doesn't depends on ratio of interest rate and marginal efficiency of
capital. Liberalization of interest rate can't produced expected benefits from accounting &
business transactions with situation including timing, pace and sequencing are off or not in line
with the set defined procedures.
As per modern portfolio theory, problem of portfolio optimisation aimed to minimise risk
at a given average profitability level related to business as well as financial sector. Also the
market portfolio is a set of all available forces present at the moment the investor securities is
effective. By having combination of market portfolio along with risk-free asset provides
efficient portfolio with less risk and less expected income (Litosseliti, 2018). This approach is
related to macroeconomic, since its main object is distribution of aggregate capital in the
economy into 2 forms viz. cash and non-cash i.e. in the form of securities.
The economic, monetary and fiscal policy impact on economy which is largely
transferred with help of mechanism of money and securities markets. By creating solid and
empirically applicable framework for research on the functioning of the money and securities
markets it has been able to make improvement in overall efficiency of bank for development and
growth of the economic sector thus making it more competitive and strong. Furthermore,
emphasis is made on changes taking place in these markets affect consumption, investment,
production, employment and the economic growth. During different stages of such liberalization,
all commercial banks were given more and full power to set down all the interest rates of their
deposits and loans as well.
3.4 Research approach
It is related with concept and procedure which consist of assumptions necessary for
undertaking research process such gathering of data, analysis and interpretation for providing
detailed conclusion of subject matter. Deductive approach helps researcher in framing new
hypothesis, themes and concepts which are essential part in carrying on successful research
project. On the other hand, an inductive approach is concerned with generation of new theory
which has been emerged from the process of data collection. The research study having its basis
on comparative analysis and on existing financial liberalisation approaches as applied by
numerous countries (Meredith, Mantel Jr and Shafer, 2017). Thus for this research project, most
appropriate approach for completion of whole study is deductive one.
Deductive research approach is related to well known theory or phenomenon, tests
whether such theory is valid or beneficial for given circumstances. The deductive approach
follows the path of logic and reasons which are most likely or closely related to research subject
matter. The reasoning under deductive approach starts with formulation of theory and thus leads
to development of new hypothesis. Deductive reasoning basically deals with factor related to
reasoning from general to particular area of research subject matter. Inductive reasoning
effective. By having combination of market portfolio along with risk-free asset provides
efficient portfolio with less risk and less expected income (Litosseliti, 2018). This approach is
related to macroeconomic, since its main object is distribution of aggregate capital in the
economy into 2 forms viz. cash and non-cash i.e. in the form of securities.
The economic, monetary and fiscal policy impact on economy which is largely
transferred with help of mechanism of money and securities markets. By creating solid and
empirically applicable framework for research on the functioning of the money and securities
markets it has been able to make improvement in overall efficiency of bank for development and
growth of the economic sector thus making it more competitive and strong. Furthermore,
emphasis is made on changes taking place in these markets affect consumption, investment,
production, employment and the economic growth. During different stages of such liberalization,
all commercial banks were given more and full power to set down all the interest rates of their
deposits and loans as well.
3.4 Research approach
It is related with concept and procedure which consist of assumptions necessary for
undertaking research process such gathering of data, analysis and interpretation for providing
detailed conclusion of subject matter. Deductive approach helps researcher in framing new
hypothesis, themes and concepts which are essential part in carrying on successful research
project. On the other hand, an inductive approach is concerned with generation of new theory
which has been emerged from the process of data collection. The research study having its basis
on comparative analysis and on existing financial liberalisation approaches as applied by
numerous countries (Meredith, Mantel Jr and Shafer, 2017). Thus for this research project, most
appropriate approach for completion of whole study is deductive one.
Deductive research approach is related to well known theory or phenomenon, tests
whether such theory is valid or beneficial for given circumstances. The deductive approach
follows the path of logic and reasons which are most likely or closely related to research subject
matter. The reasoning under deductive approach starts with formulation of theory and thus leads
to development of new hypothesis. Deductive reasoning basically deals with factor related to
reasoning from general to particular area of research subject matter. Inductive reasoning
approach is opposite of this part. In other words, deductive approach involves formulation of
hypothesis along with their subjection to testing during research process, while inductive studies
do not deal with hypothesis formulation in any manner.
3.5 Pilot Study
The term Pilot study provides norms, standards & guidelines for complete scientific
research work in any of the social or management research project study. It helps in making
improvement in research quality and type. The data to be collected for research project should be
as per object defined or as per the subject matter with minimum impediments and maximum
convenience, for making the data qualitative one. The pilot study has been conducted by
selecting 50 respondents from different banks so as to update questions and eliminate errors,
mistakes which has become part of questionnaire. Finally, questionnaire redesigned by removing
errors through discussions with experts in research and bank areas by collecting from different
bank managers.
3.6 Research design, Strategy and Procedures
According to Alavi and et.al., (2018), research design is defined as conceptual framework
related to methods, techniques which has been chosen by the researcher for combining different
components of research project. It is arrangement of condition as undertaken for collection and
analysis of data in manner which aims to combine relevance to research purpose with economy
in procedure.
According to Bresler and Stake (2017), the term research design constitutes blue print of
collection, measure and analysis of data and includes different methods of research viz. survey,
observation, experiment, content analysis or their combinations. Thus, according to author
research design is overall framework of research project which mentions about several types and
sources of information and procedure to be followed in such data collection. In other words,
Decisions regarding what, where, when, how much, by what means concerning an inquiry or a
research study constitutes a research design.
There is competition between public and private sector banks regarding better
performance as well as productivity. Therefore, it is a keen need to study such matter having
basis of secondary data obtained from selected banks' annual reports. The population of study
hypothesis along with their subjection to testing during research process, while inductive studies
do not deal with hypothesis formulation in any manner.
3.5 Pilot Study
The term Pilot study provides norms, standards & guidelines for complete scientific
research work in any of the social or management research project study. It helps in making
improvement in research quality and type. The data to be collected for research project should be
as per object defined or as per the subject matter with minimum impediments and maximum
convenience, for making the data qualitative one. The pilot study has been conducted by
selecting 50 respondents from different banks so as to update questions and eliminate errors,
mistakes which has become part of questionnaire. Finally, questionnaire redesigned by removing
errors through discussions with experts in research and bank areas by collecting from different
bank managers.
3.6 Research design, Strategy and Procedures
According to Alavi and et.al., (2018), research design is defined as conceptual framework
related to methods, techniques which has been chosen by the researcher for combining different
components of research project. It is arrangement of condition as undertaken for collection and
analysis of data in manner which aims to combine relevance to research purpose with economy
in procedure.
According to Bresler and Stake (2017), the term research design constitutes blue print of
collection, measure and analysis of data and includes different methods of research viz. survey,
observation, experiment, content analysis or their combinations. Thus, according to author
research design is overall framework of research project which mentions about several types and
sources of information and procedure to be followed in such data collection. In other words,
Decisions regarding what, where, when, how much, by what means concerning an inquiry or a
research study constitutes a research design.
There is competition between public and private sector banks regarding better
performance as well as productivity. Therefore, it is a keen need to study such matter having
basis of secondary data obtained from selected banks' annual reports. The population of study
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consists of all type of Tajikistan banking industries and sector which successfully implemented
financial liberalisation and its related process. Design of study indicates two things such as the
size of sample and methodology used in selecting sample banks.
Banks and financial institution lends their capital to large business organisation with
objective of gaining maximum interest amount. Their main objective behind such lending is that
these business firms have good credit score as well as trust worthy among market place which
provides ease for banks in getting their loan repayment easily.
3.6.1 Quantitative Questionnaire
In present research study, sample is divided into two sub-groups based on respondent’s
opinion regarding to the financial services sector on nationalised and private sector banks. For
gathering data and information relevant to quantitative research subject matter, respondents have
been selected randomly from the respective banks. Scales and measurement which has been
used for such process includes: Five point Likert scale (1 to 5).
1. Excellent
2. Good
3. Average
4. Poor
5. Very Poor
To identify perception regarding providing financial services questionnaire has been
designed and divided into 8 groups from Group A to Group G. It helps in identifying quality,
satisfaction and transparency financial sector. Also it will help in determining whether there has
been any negative or adverse impact on financial sector performance of Tajikistan. The final
questionnaire has been prepared in line with aims, objectives and hypothesis.
Questionnaire Nature:
Group A: Demographic Information It contains personal information.
Group B: General Information
Group C: Service Quality
Group D: Level of satisfaction regarding transactions
Group E: Transparency
Group F: Pensioner Information
Group G: General Opinion
financial liberalisation and its related process. Design of study indicates two things such as the
size of sample and methodology used in selecting sample banks.
Banks and financial institution lends their capital to large business organisation with
objective of gaining maximum interest amount. Their main objective behind such lending is that
these business firms have good credit score as well as trust worthy among market place which
provides ease for banks in getting their loan repayment easily.
3.6.1 Quantitative Questionnaire
In present research study, sample is divided into two sub-groups based on respondent’s
opinion regarding to the financial services sector on nationalised and private sector banks. For
gathering data and information relevant to quantitative research subject matter, respondents have
been selected randomly from the respective banks. Scales and measurement which has been
used for such process includes: Five point Likert scale (1 to 5).
1. Excellent
2. Good
3. Average
4. Poor
5. Very Poor
To identify perception regarding providing financial services questionnaire has been
designed and divided into 8 groups from Group A to Group G. It helps in identifying quality,
satisfaction and transparency financial sector. Also it will help in determining whether there has
been any negative or adverse impact on financial sector performance of Tajikistan. The final
questionnaire has been prepared in line with aims, objectives and hypothesis.
Questionnaire Nature:
Group A: Demographic Information It contains personal information.
Group B: General Information
Group C: Service Quality
Group D: Level of satisfaction regarding transactions
Group E: Transparency
Group F: Pensioner Information
Group G: General Opinion
With questionnaire prepared related to different categories, researcher can easily acquire
information pertaining to the subject matter of research topic. It will assist researcher in getting
better understanding and interpretation about the subject matter which can be used by other
scholars and researcher as well in their completion of their research project.
3.6.2 Qualitative Structure
For conducting qualitative research project, data has to be collected accordingly.
Information on the basis of characteristic, features is gathered and further analysed. Also one of
the source of collecting information is personal interview with concerned officials of Banks
under study. The interview only takes place voluntary and all personal data will be confidential.
One of the advantage of using qualitative structure is that it has less complexity in analysis of the
data. In addition, qualitative structure provides more strong conclusion as they are supported by
relevant theories and concepts. Data is collected with help of questionnaire prepared and survey
done.
3.6.3 Secondary Data
Secondary data is one method of collecting data in which data has already been gathered
from the published sources with help of primary sources. Secondary data has been collected from
annual reports, magazines, booklets etc. of various commercial as well as dominating banks,
financial institutions and National Bank of Tajikistan. Also, sources has been taken from internet
publications, books, published articles, financial and business journals (Quinlan and et.al., 2019).
Furthermore, data has been gathered from WTO and OECD publications available on the
Financial Liberalisation reports. One of the advantage of using secondary data is that it is easily
available and thus researcher can found strong as well as relevant support through work of
previous scholars. All information provided in secondary sources are of reliable, accurate nature
which can be used by researcher in their completing activities of research project. As compare to
primary data it is more reliable and validate one. For developing brief thesis and understanding,
data has been collected from secondary sources with help of books, journals and articles related
to subject matter.
information pertaining to the subject matter of research topic. It will assist researcher in getting
better understanding and interpretation about the subject matter which can be used by other
scholars and researcher as well in their completion of their research project.
3.6.2 Qualitative Structure
For conducting qualitative research project, data has to be collected accordingly.
Information on the basis of characteristic, features is gathered and further analysed. Also one of
the source of collecting information is personal interview with concerned officials of Banks
under study. The interview only takes place voluntary and all personal data will be confidential.
One of the advantage of using qualitative structure is that it has less complexity in analysis of the
data. In addition, qualitative structure provides more strong conclusion as they are supported by
relevant theories and concepts. Data is collected with help of questionnaire prepared and survey
done.
3.6.3 Secondary Data
Secondary data is one method of collecting data in which data has already been gathered
from the published sources with help of primary sources. Secondary data has been collected from
annual reports, magazines, booklets etc. of various commercial as well as dominating banks,
financial institutions and National Bank of Tajikistan. Also, sources has been taken from internet
publications, books, published articles, financial and business journals (Quinlan and et.al., 2019).
Furthermore, data has been gathered from WTO and OECD publications available on the
Financial Liberalisation reports. One of the advantage of using secondary data is that it is easily
available and thus researcher can found strong as well as relevant support through work of
previous scholars. All information provided in secondary sources are of reliable, accurate nature
which can be used by researcher in their completing activities of research project. As compare to
primary data it is more reliable and validate one. For developing brief thesis and understanding,
data has been collected from secondary sources with help of books, journals and articles related
to subject matter.
3.7 Data Collection
This study can be completed with help data to be collected from both secondary and
primary sources as obtained from the annual report of selected public sector and private sector
banks. Appropriate and relevant data has also been collected with the help of interviews and
questionnaires as prepared. Different Bank quest, books, periodicals, journals and different
website related banking industries etc. have used for better reliability. Opinions expressed in
Business standard, accounting literature, Annual review used in completion of study.
3.7.1 Primary Data Collection
The process of primary data collection is one in which data is gathered by researcher for
first time so as to evaluate better results out of it which includes survey, observation, interview
etc. The structured questionnaire has been prepared for collecting opinion from different
respondents. The first pilot study conducted reveals weaknesses as associated with questionnaire
with resulted in preparation of final questionnaire as per the objectives and hypothesis framed.
By using the primary data collection more realistic facts can be analysed which depends upon the
latest trends of interest rates. Thus it help to develop more realistic conclusions and
interpretation.
3.8 Ethical Considerations
While conducting this research study, researcher has to undertake various types of
challenges as well as issues for which researcher has use key terms such as Interest rate
liberalisation etc. Also, all data collected related to subject matter is done from different websites
and internet sources (Silverman, 2016). All participants has willingly participated in
questionnaire by giving their written consent. Data as gathered are not used as in it is form.
Furthermore, no copy and paste has been done in completing research project. Researcher has
comply with all ethical norms during undertaking of this research study. All data are totally
rephrased and used thereafter in making of this project.
3.9 Limitations and Delimitation of Study
Outsourced financial services includes application & document processing, investment
management, marketing and supervision of loans, data processing etc. Outsourcing brings in
This study can be completed with help data to be collected from both secondary and
primary sources as obtained from the annual report of selected public sector and private sector
banks. Appropriate and relevant data has also been collected with the help of interviews and
questionnaires as prepared. Different Bank quest, books, periodicals, journals and different
website related banking industries etc. have used for better reliability. Opinions expressed in
Business standard, accounting literature, Annual review used in completion of study.
3.7.1 Primary Data Collection
The process of primary data collection is one in which data is gathered by researcher for
first time so as to evaluate better results out of it which includes survey, observation, interview
etc. The structured questionnaire has been prepared for collecting opinion from different
respondents. The first pilot study conducted reveals weaknesses as associated with questionnaire
with resulted in preparation of final questionnaire as per the objectives and hypothesis framed.
By using the primary data collection more realistic facts can be analysed which depends upon the
latest trends of interest rates. Thus it help to develop more realistic conclusions and
interpretation.
3.8 Ethical Considerations
While conducting this research study, researcher has to undertake various types of
challenges as well as issues for which researcher has use key terms such as Interest rate
liberalisation etc. Also, all data collected related to subject matter is done from different websites
and internet sources (Silverman, 2016). All participants has willingly participated in
questionnaire by giving their written consent. Data as gathered are not used as in it is form.
Furthermore, no copy and paste has been done in completing research project. Researcher has
comply with all ethical norms during undertaking of this research study. All data are totally
rephrased and used thereafter in making of this project.
3.9 Limitations and Delimitation of Study
Outsourced financial services includes application & document processing, investment
management, marketing and supervision of loans, data processing etc. Outsourcing brings in
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several risks viz. of nature strategic, reputation, operational, counterparty, systematic etc. Failure
in maintaining confidentiality, non-compliance of legal regulatory norms can result in financial
loss and reputation risk on part of bank as well.
The manner in which data is maintained, styled and its format has also been changed
which created lack of consistency, reliability etc. Out of different means of gathering primary
data discussion, observation, personal interview, mail surveying are chosen (Lane, 2018). From
perspective of accuracy of data, utmost care has been taken to minimize mistakes, errors in
collection of primary data. Primary data has been compared and confirmed with the official
banks statistics for checking its accuracy. Difficulty has been faced when bank officers
undisclosed bank data due to confidentiality.
Banks become very much cautious in sharing their official as well as financial data with
research scholars because of increasing competition in banking sector. For collecting secondary
data, researcher has to face some difficulties in gathering annual reports of some bank. Thus, the
quality of this research totally depends on reliability and accuracy of data published in the banks'
annual reports.
3.11 Summary
It can be concluded that financial liberalisation is prominent feature in both developed
and developing nations. This study aimed is to determine and examine quantitative and
qualitative effect of financial liberalisation on economic growth of developing countries.
Research methodology is manner used for solving research problem scientifically including
assumptions and values, as useful for interpreting data and making conclusions. The present
analytical study is an attempt to study the productivity measurement for selected unit of financial
sector for a particular period.
Research philosophy chosen is positivism approach as it is based on view that science is
key aspect for gaining true knowledge. Current research is based on comparative analysis with
existing financial liberalisation approach applied by numerous countries (Macit, 2017).
Deductive approach is considered proper one for both quantitative and qualitative type so as to
identify deep assumptions thus giving mixed combination positive value.
This thesis consists of six chapters. The first chapter presents context of study. Chapter
two offers review of the theoretical and empirical literature regarding financial liberalisation,
in maintaining confidentiality, non-compliance of legal regulatory norms can result in financial
loss and reputation risk on part of bank as well.
The manner in which data is maintained, styled and its format has also been changed
which created lack of consistency, reliability etc. Out of different means of gathering primary
data discussion, observation, personal interview, mail surveying are chosen (Lane, 2018). From
perspective of accuracy of data, utmost care has been taken to minimize mistakes, errors in
collection of primary data. Primary data has been compared and confirmed with the official
banks statistics for checking its accuracy. Difficulty has been faced when bank officers
undisclosed bank data due to confidentiality.
Banks become very much cautious in sharing their official as well as financial data with
research scholars because of increasing competition in banking sector. For collecting secondary
data, researcher has to face some difficulties in gathering annual reports of some bank. Thus, the
quality of this research totally depends on reliability and accuracy of data published in the banks'
annual reports.
3.11 Summary
It can be concluded that financial liberalisation is prominent feature in both developed
and developing nations. This study aimed is to determine and examine quantitative and
qualitative effect of financial liberalisation on economic growth of developing countries.
Research methodology is manner used for solving research problem scientifically including
assumptions and values, as useful for interpreting data and making conclusions. The present
analytical study is an attempt to study the productivity measurement for selected unit of financial
sector for a particular period.
Research philosophy chosen is positivism approach as it is based on view that science is
key aspect for gaining true knowledge. Current research is based on comparative analysis with
existing financial liberalisation approach applied by numerous countries (Macit, 2017).
Deductive approach is considered proper one for both quantitative and qualitative type so as to
identify deep assumptions thus giving mixed combination positive value.
This thesis consists of six chapters. The first chapter presents context of study. Chapter
two offers review of the theoretical and empirical literature regarding financial liberalisation,
development and economic growth. The interaction of different financial and real sectors with
overview beginning from premises and rationale of financial repression. Chapter 3 deals with
the empirics of study where processes and model specification is presented. Chapter 4 proceeds
to present and analyse findings of tests and at last chapter 5 concludes thesis.
overview beginning from premises and rationale of financial repression. Chapter 3 deals with
the empirics of study where processes and model specification is presented. Chapter 4 proceeds
to present and analyse findings of tests and at last chapter 5 concludes thesis.
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Zhunusova, E. and Herrmann, R., 2018. Development Impacts of International Migration on
“Sending” Communities: The Case of Rural Kyrgyzstan. The European Journal of
Development Research, 30(5), pp.871-891.
Vercueil, J., 2018. Taming the Bear while Riding the Dragon? Central Asia confronts Russian
and Chinese economic influences. Revue de la régulation. Capitalisme, institutions,
pouvoirs, (24).
Chemutai, V. and Escaith, H., 2017. An empirical assessment of the economic effects of WTO
accession and its commitments (No. ERSD-2017-05). WTO Staff Working Paper.
Verdiyeva, S., 2018. The Eurasian Economic Union: Problems and Prospects. The Journal of
World Investment & Trade, 19(4), pp.722-749.
Georgiev, Y., Nagy-Mohacsi, P. and Plekhanov, A., 2017. Structural reform and productivity
growth in Emerging Europe and Central Asia.
Gabdrakhmanov, N.K. and et.al., 2016. Problems of development of halal tourism in
Russia. Journal of Organizational Culture, Communications and Conflict, 20, p.88.
Kuhrt, N. and Buranelli, F.C., 2019. Russia and the CIS in 2018: Regionalism or
Transregionalism?. Asian Survey, 59(1), pp.44-53.
Shaofeng, C., 2017. The Asian Infrastructure Investment Bank: A Watershed of Power
Transition between China and the United States in the Asia Pacific?.
Alotaibi, N., 2015. The WTO’s Dispute Settlement Body and its impact on Developing Countries:
problems and possible solutions (Doctoral dissertation, University of Essex).
Petrick, M. and Pomfret, R., 2016. Agricultural policies in Kazakhstan (No. 155). Discussion
Paper, Leibniz Institute of Agricultural Development in Transition Economies.
Dadush, U. and Osakwe, C. eds., 2015. WTO accessions and trade multilateralism. Cambridge
University Press.
Lee, H.H., Park, D. and Shin, M., 2015. Do Developing‐country WTO Members Receive More
Aid for Trade (AfT)?. The World Economy, 38(9), pp.1462-1485.
Kim, K.R., Sanaev, G. and Babakholov, S., 2018. Journal of Agricultural, Life and
Environmental Sciences. Journal of Agricultural, 30(3), pp.200-225.
Paraphrase This Document
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Sauvé, P. and Soprana, M., 2018. Disciplining Service Sector Subsidies: Where Do We Stand
and Where Can We (Realistically) Go?. Journal of International Economic Law, 21(3),
pp.599-619.
Kaya, A. and Woo, B., 2018. China and the Asian Infrastructure Investment Bank: The
Influence-Legitimacy Tradeoff. In 11th Annual Conference on the Political Economy of
International Organizations. Retrieved from http://wp. peio. me/the-11th-annual-
conference-2.
Kothari, R.K., 2018. POST-SOVIET DYNAMICS IN CENTRAL ASIA: INDIA’S
PERCEPTIONS AND POLICIES.
Bun, M., 2018. The Energy Charter Treaty and Central Asia: Setting an International Standard
for Energy-Related Disputes. In The Belt and Road Initiative (pp. 668-708). Brill Nijhoff.
Martin-Ortega, O. and O’Brien, C.M. eds., 2019. Public Procurement and Human Rights.
Edward Elgar Publishing.
Aid, A., 2019. Aid for Trade in Asia and the Pacific: Promoting Economic Diversification and
Empowerment.
Xie, T. and Han, D., 2019. In the Shadow of Strategic Rivalry: China, America, and the Asian
Infrastructure Investment Bank. Journal of Contemporary China, pp.1-16.
Arveladze, G. and Smeets, M., 2017. Georgia's post-accession structural reform challenges (No.
ERSD-2017-10). WTO Staff Working Paper.
Chemutai, V. and Escaith, H., 2017. An empirical assessment of the economic effects of WTO
accession and its commitments (No. ERSD-2017-05). WTO Staff Working Paper.
Sauvé, P. and Soprana, M., 2018. Disciplining Service Sector Subsidies: Where Do We Stand
and Where Can We (Realistically) Go?. Journal of International Economic Law, 21(3),
pp.599-619.
Lu, H., 2018. Deepening Economic Cooperation in the Shanghai Cooperation Organization:
Opportunities, Barriers and Approaches. China Int'l Stud., 71, p.39.
Georgiev, Y., Nagy-Mohacsi, P. and Plekhanov, A., 2017. Structural reform and productivity
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emerging and developing economies?. Journal of Macroeconomics. 54. pp.373-392.
Gust, C. and et.al., 2017. The empirical implications of the interest-rate lower bound. American
Economic Review. 107(7). pp.1971-2006.
Guthmann, K. and Fill, A., 2020. Who cares? The limited effect of liberalization on satisfaction with
democracy in Europe. In The European Social Model under Pressure (pp. 461-479). Springer
VS, Wiesbaden.
Hausman, D., McPherson, M. and Satz, D., 2016. Economic analysis, moral philosophy, and public
policy. Cambridge University Press.
Heagney, J., 2016. Fundamentals of project management. Amacom.
Hefeker, C., 2018. Interest groups and monetary integration: The political economy of exchange regime
choice. Routledge.
Holston, K., Laubach, T. and Williams, J. C., 2017. Measuring the natural rate of interest: International
trends and determinants. Journal of International Economics. 108. pp.S59-S75.
Jelilov, G., Waziri, F. and Isik, A., 2016. Interest Rate Behaviour and its Relationship with Economic
Growth in Nigeria: An Error Correction Model Approach. The Empirical Economics Letters.
pp.245-255.
Jobst, A. and Lin, H., 2016. Negative interest rate policy (NIRP): implications for monetary
transmission and bank profitability in the euro area. International Monetary Fund.
Keynes, J. M., 2018. The general theory of employment, interest, and money. Springer.
Khalid, R., Shehzad, C. T. T. and Naqvi, B., 2019. Impact of Capital Account Liberalization on Stock
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Contemporary Education and Society Development (ICCESD 2019). Atlantis Press.
Wu, J. C. and Xia, F. D., 2016. Measuring the macroeconomic impact of monetary policy at the zero
lower bound. Journal of Money, Credit and Banking. 48(2-3). pp.253-291.
Yiheyis, Z. and Musila, J., 2018. The dynamics of inflation, exchange rates and the trade balance in a
small economy: The case of Uganda. International Journal of Development Issues. 17(2).
pp.246-264.
Zhao, Y. and Wang, B., 2017. Short-term interest rate models: An application of different models in
multiple countries.
Online
Interest Rate – An approach to Liberalisation. 2017. [Online]. Available through:
<https://www.imf.org/external/pubs/ft/fandd/1997/06/pdf/mehran.pdf>.
The Case for Liberalization and Some Drawback. 2019. [Online]. Available through:
<https://www.imf.org/external/pubs/ft/fandd/1997/06/pdf/mehran.pdf.>.
The Impact of Interest Rate Liberalization on Chinese Commercial Banks. 2015. [Online]. Available
through: <https://www.ijsr.net/archive/v6i9/9091701.pdf>.
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