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 : 5Comparing 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 ofmade by National Bank and to grant loans and accept deposit to/from the public which is their prime function. In the view of Mehrotraand 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 โAccess Bankโ 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 highlycontributing 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 28.940which 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 theMartin 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 ofAl-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 thediscount 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 uponthe 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 sectorto put their money as investments in the bank. In the view ofMUKANOV 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 ofcountry'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 andWorld 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 toHolston, 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 perAnandan, 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 bothare 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 handYiheyis, 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 โrisk- freeโ 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 handMalkiel, 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 andbond 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 toSharpe, 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 handDu, 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 toCairns, 2018, there are different models used in calculation of fluctuation of interest rates occurringin 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 handKeynes, 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 toAvdjiev, 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 handJobst, 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. ImpactofNegativeInterestRatesonimplementationindifferentbanksorfinancial institutions in Tajikistan According toBrunnermeier, 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. Thisimpacton 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 handClaessens, 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 sideTan, 2016again 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 liberalisationandglobalisationoftheworldeconomy,ithasbenefitedmanybusiness 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 includingpoor 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
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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 properin 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 relatedto the procedure of deregulation of the interest rules thereby having focus on both, andadoptinggradualaswellascautiousapproachsoastomaintainthestabilityand development of the financial system of Tajikistan. On the other hand Jelilov, Waziri and Isik, (2016), disagreesby 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 monetaryauthorities,governmentagencies,departmentwhoareresponsibleforbringing 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-ร -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 processrelated 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 formaking 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 partKhalid, 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 byNwafor, (2018), that financial deregulation and liberalisation activities can have negative impact on the functioning of the financial system of Tajikistan. It can be doneby 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 ratesviz. 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 significantroleintheformulationofmarketequilibriuminterestrate.Allthefinancial 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 beencharacterized 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 servicesby 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. Hรถrdahl,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.
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 nationsuch 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 themost 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 banksโ 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. Mรผller (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 ofthe money credit in the economy needs to be balanced so that economic conditions in the country does not disturbed. Theme : 5Comparing the interest rate liberalization of Tajikistan with the neighbourhood countries As per the views ofZhunusova 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 thisVercueil (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 ofexcessive 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 considerationcurrentsituationsoftheoveralleconomyalongwithmonitorypoliciesof 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 ofGeorgiev, 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 inincreasing 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 bankAlotaibi (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 workingrelations 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,Sauvรฉ 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 ofKaya 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 thisKothari (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 ofBun (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 OโBrien (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 ofXie 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. IntheviewofBuettnerandMadzharova(2018)integratingwithWorldTrade 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 MรผLLER (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 financialand 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 offoreign 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 thehouseholdsectorfacilitatesthebanksinmobilizingthepublicdepositsintocapital 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 itspartners. 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 viewChemutai 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 perSauvรฉ and Soprana (2018) at the time of accession of WTO, a programme was organised in which a training session onโWTO Accessions and their Business Implications - Lessons from Other Countriesโ 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 ofLu (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 ofFigueiredo 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 ofPogoretskyy 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
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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. Tajikistanโs 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 thisLiu, 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 ofGust 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 toprovide 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 contextBruno 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.
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CHAPTER 3 METHODOLOGY 3.0 Introduction Research methodology is defined as process or method for conducting of research study. It isknown 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.BasedonTheoreticalandempiricalliteratureonthefinancesectorandother 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 variablesi.e.financialdevelopmentproxies,financialliberalisationproxies,interestrate, 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 ofsingle 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 forperiod 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 typesInterpretivism 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 inresearch practice. The research has been based on comparative analysis, positivism philosophy which adheres toscientific part of research subject having emphasis on surveys, questionnaire and statistical data collected. Also, emphasis is madeonly on factual knowledge as gained through observationincluding measurement. In comparative analysis studies the role of the researcher is
limited todata collectionandinterpretationthrough 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 ofdeductive approach, whereasinductive research approach typerelates tophenomenology 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 statisticalmeans.Independentmeansasmaintainedminimalinteractionwithresearch participants at the time of carrying onresearch 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 paradigmis 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 20thcentury. 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 ofinterest 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 capitaleffect 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 ofinterest 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. Theeconomic,monetaryandfiscalpolicyimpactoneconomywhichislargely 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 partin 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 fromgeneral 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. Thereiscompetitionbetweenpublicandprivatesectorbanksregardingbetter 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 ofstudy 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 respondentโs 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 Forconductingqualitativeresearchproject,datahastobecollectedaccordingly. 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 articlesrelated 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 latesttrendsofinterestrates.Thusithelptodevelopmorerealisticconclusionsand 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 andinternetsources(Silverman,2016).Allparticipantshaswillinglyparticipatedin 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 qualitativeeffectoffinancialliberalisationon economic growthof developing countries. Research methodology ismanner 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 existingfinancialliberalisationapproachappliedbynumerouscountries(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 frompremises 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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