International Financial Market and Banking Assignment
Added on 2019-12-03
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INTERNATIONALFINANCIALMARKET ANDBANKING1 | P a g e
Table of ContentsIntroduction................................................................................................................................1(1). Roles of Banks in the economic development of the country:.......................................1(2). Purchasing Power and Interest Rate Parity:....................................................................4CONCLUSION:.........................................................................................................................7REFERENCES:..........................................................................................................................82 | P a g e
INTRODUCTIONFinancial institutions such as banks play a very important role in economicdevelopment. Central banks are termed as reserve bank and also the banker's bank of everycountry. The primary function of the central bank is the monitoring and controlling the creditand money supply and interest rates of the country (Hardie and Howarth, 2013). This reporthelps in identifying that how central bank control the inflation and deflation in the economy.Moreover, it throws light on manner in which purchasing power affects the country’sdevelopment. Finally, the interest rate parity is discussed that aims at making no arbitraryposition of investment in domestic and foreign land.(1). Roles of Banks in the economic development of the country:Banks act as an active part in the economic development of the country. If thebanking system in a country is effective and disciplined then it brings a rapid growth in thevarious sectors of the country. Oman lies in UAE where Islamic is adopted. However, Omanbanks have no Islamic financial institutions and its financial sector comprises domesticbanks. Banks in Oman having a business model strongly focused on corporate and retaillending with limited investment banking. Moreover, derivative exposure is very small and therole of wholesale funding is also limited (Park and Essayyad, 2012). Role of Banks:Oman commercial banks play a vital role in developing the country. The role ofOman banks can be explained in the following points: Capital Formation: Oman Commercial banks accept deposits from individuals andbusinesses. These deposits are then available for businesses for the productive purpose of thecountry. Therefore, the banks are not only to the collect the financial resources but it alsoprovides the financial assistance for Oman's economic development. Hence, it is clear thatbanks take part in the capital formation by accepting deposits and lending operations.Investment in new enterprises: Organizations do not invest their money in new sectorsbecause of involvement of risks. Oman banks provide the short term as well as medium termloans to fulfil their investment requirements. Thus, entrepreneurs invest in new enterprises(Valdez and Molyneux, 2010). In turn, time credit and the productive capacity will beincreased also the investment will be encouraged.Promotion of trade and industry: In all the countries, banks promote the trade withinindustries. Oman banks also promote the trade by providing various services to them. The useof bank drafts, check and bills of exchange also the letter of credit promotes both national as3 | P a g e
well as international trade. Therefore, it will greatly help to expand the Oman trade andindustry.Development of agriculture: Agriculture in Oman is very important for centuries. Thegovernment's economic development policy emphasizes the expansion of agricultural sectors.Therefore, the banks of Oman are providing credit facilities for the development ofagriculture and small scale industries in rural areas. This in turn helps in increasing theagricultural production of the economy (Buckle and Beccalli, 2011). Balanced development: Commercial Banks play an important role so as to achievebalanced development in different regions of the country. Oman banks transfer the amount ofsurplus capital from developed regions to less developed regions. Therefore, the trader willbe able to get adequate amount of capital for meeting their business requirements(Eichengreen, Barry and Hausmann, 2010). This in turn increases the trade and production inthe economy also the country's economic development.Influencing economic activity: Oman banks can influence the economic activity of thecountry by influencing the credit availability and the interest rate. It directly affects the Omaneconomic development because low interest rate encourages the investment. Moreover, creditcreation activities can raise demand as well as economic production.Therefore, it can be concluded that in Oman; banks highly encourage the trade andinvestment and the economic production of the country in order to make economicdevelopment. Moreover, banks also take part in virtual banking now days (Cetorelli andGoldberg, 2011). It provides the banking services by the use of information technologywithout direct recourse of customer and the bank. It includes the internet banking facilitiesand use of electronic machines such as ATM. Hence, it can be said that in Oman banks aretaking part for the development of the country.Types of Bank: There are different types of banks situated in Oman. As themonitoring authority, there is a central bank of Oman (CBO) established in December, 1974and began operations on 1st April, 1975. The central bank of Oman is headquartered in Ruwi.It is responsible for maintaining the stability of the country's currency Omani rial. It ensuresfinancial stability in the country. The CBO also administers and participates in the bankdeposit insurance systems as it provides high level of security of deposit to commercialbanks. Moreover, there are some commercial banks situated in Oman such as National Bankof Oman, Oman Arab Bank, Oman international Banks, Bank Muscat, Bank Dhofar andBank Sohar. The Minimum capital requirement for commercial banks is RO 50 million(Beck, Demirgüç-Kunt and Levine, 2010). In addition to it, there are also some foreign banks4 | P a g e
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