International Financial Markets and Institutions

International Financial Markets
and Institutions

Table of Content
INTRODUCTION...........................................................................................................................3
1...................................................................................................................................................3
2 Impact of Brexit on UK stock market and pound sterling........................................................4
Factors that affects movements in both stock and currency market............................................5
3 Determinates of short and long term interest rates...................................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Financial market referred as the marketplace where the creation & trading of the financial
assets takes place that includes debentures, bonds, shares, currencies and derivatives. It plays a
vital role in allocating the limited resources in country’s economy and acts as intermediary
between investors and the savers through mobilizing the funds into it. Such market facilitates
platform to sellers and buyers in meeting for the trading assets at the price identified by the
market forces. The present study is based on analysis of the financial crisis occurred and
importance of financial regulation in bringing stability. Further, it highlights the Basel 3
regulation norms that help the banks in remaining as safe and also provides overview of interest
rate and its role in economy.
1.
The financial crisis resulted in the year 2008-09 was seen as worst economic case since
great depression present in 1929. It has occurred despite efforts of Federal Reserve & department
of US of treasury. Further, crisis led to great recession in the areas where prices of housing
dropped higher than the price plunge at time of great depression. 2 years after recession ends,
unemployment remained above 9% and this does not counted to those who discouraged the
workers who have given up in looking for job. In the year 2006, the prices of housing started to
decline for first time in the decades and in this situation firstly realtors has applauded. They
thought that the market of real estate will return towards more of sustainable level. They do not
realize that there were so many homeowners having questionable credit. In addition to it, banks
approved the loans for the 100% and more of home’s value. Many of the economist blamed
community reinvestment related that pushed the banks in making investments within the
subprime areas (Abreu, Alves and Gulamhussen, 2019). Other economist has blamed Fannie
Mae & Freddie Mac for an entire crisis. For them the solution is close or privatizing 2 agencies.
In case they were been shut down, housing market will collapse as they guarantees majority of
the mortgages. Two main laws have deregulated financial system as they allowed the banks for
investing in the housing relating derivatives. Such complex financial products were seen as so
much profitable that they motivated banks in lending towards ever-risky borrowers. This kind of
instability results to the financial crisis in the year 2008-09 and counted as major cause.
It has been argued that there is a need for various regulations and policies which
addresses different channels & kind of contagion. Financial regulation act as the major tool for
regulating the banks in the recent years. This had been coordinated worldwide by way of the
Basel agreements that act as the major tool in ensuring the stability within the financial system
internationally (Ashfaq, 2016). The traditional related justification in academic literature for the
capital regulation is seen as that which is required to offset the moral hazards from the deposit
insurance. As banks have an access to the low cost finance that is guaranteed by government,
they would have incentive in taking significant level of risk. In case risks pay off, it would
receive upside, whereas if they do not then the losses are been borne or introduced by