Global Financial System (BFIB233)

Unit I Environment of Global Financial System 6 Hours

Introduction – Global Financial System vs Domestic Financial System, Rise of
Multinational Corporation- Internationalization of Business and Finance-
Participants - Technological Advances and Other Developments

Unit II The Economic Environment 10 Hours

Introduction - Factors Determining Economic Activity- The Economic Cycle and
Economic Policy - Balance of Payments (BoP) and Exchange Rates Country Risk
Analysis Measuring Political
Risk- economic and political factors underlying country risk-Key Indicators of
Country Risk and Economic Health-Country Risk Analysis in International lending

Unit III Global Financial Securities- I 8 Hours

Equities/Stocks- Company Formation and Features and Benefits of Shares- The
Risks of Owning Shares- Corporate Actions- Bonds – Introduction- Characteristics
of Bonds- Types of Bonds- Asset-Backed Securities (ABSs)- International Bonds-
Yields- Other Financial Assets- Cash Deposit
Unit IV Global Financial Securities -II 8 Hours
Investment Funds-: Open-Ended Funds, Closed-Ended Investment Companies,
Exchange-Traded Funds (ETFs), Alternative Investment Funds (AIFs)- Derivatives

Unit V Global Financial Markets 10 Hours

Primary and Secondary Markets- Depositary Receipts- World Stock Markets-
Stock Market Indices- Settlement Systems. Money Markets- Property- Foreign
Exchange (FX)

Unit VI Global Financial Services 10 Hours

Financial Advice- Budgeting- Borrowing- Protection- Critical Illness Insurance
Cover- Investment and Saving- Legal Concepts in Financial Advice- The Financial
Advice Process- Other Financial Service: Wealth Management- Portfolio
Management- Brokerage Services-Credit Rating- Investment Banking- Factoring-
Depositories
Unit VII Regulation and Ethics 8 Hours
Need- Regulatory Principles- Financial Crime- Insider Trading and Market
Abuse- Integrity and Ethics in Professional Practice

Essential Reading:
• Shapiro Alan. C.(2012), Multinational Financial Management(9ed), Prentice
Hall, New Delhi.

Recommended Reading
1. Apte P.G (2011) , International Financial Management(6 ed), Tata McGraw
Hill, New Delhi.
2. Jeevanandam. C. Foreign Exchange and Risk Management. New Delhi: Sultan
Chand & sons.
3. Vij, M (2010). International Financial Management (3 ed). New Delhi: Excel
Books
 Need for regulation and ethics
• It increases the confidence and trust in financial markets, systems and
products.
• It helps establish an environment that encourages economic development
and wealth creation.
• It reduces the risk of market and system failures (along with the economic
consequences of such failures).
• Consumers are better protected, giving them the reassurance they need to
save and invest.
• Financial crime is reduced, if the financial systems are not an ‘easy target’
for criminals to exploit.
Regulatory Principles
 Financial Crime
Money Laundering
• Money laundering is the process of turning money that is derived from criminal
activities – dirty money – into money which appears to have been legitimately
acquired and which can, therefore, be more easily invested and spent – clean
money.

Money laundering can take many forms, including:

• turning money acquired through criminal activity into clean money
• handling the proceeds of crimes such as theft, fraud and tax evasion
• handling stolen goods
• being directly involved with, or facilitating, the laundering of any criminal or terrorist
property, or
• criminals investing the proceeds of their crimes in the whole range of financial
products.
 Stages of money laundering

There are three stages to a successful money laundering operation:

• Placement is the first stage and typically involves placing the criminally
derived cash into an account with a bank or other financial institution.
• Layering is the second stage and involves moving the money around in order
to make it difficult for the authorities to link the placed funds with the
ultimate beneficiary of the money. Disguising the original source of the
funds might involve buying and selling foreign currencies, shares or bonds.
• Integration is the third and final stage. At this stage, the layering has been
successful and the ultimate beneficiary appears to be holding legitimate
funds (clean money rather than dirty money). The money is integrated back
into the financial system and dealt with as if it were legitimate
 Terrorist financing
• There can be considerable similarities between the movement of terrorist
funds and the laundering of criminal property.
• Because terrorist groups can have links with other criminal activities, there
is inevitably some overlap between Anti-Money Laundering provisions
and the rules designed to prevent the financing of terrorist acts.
• Two major differences to note between terrorist financing and other money
laundering activities:
1. Often, only quite small sums of money are required to commit
terrorist acts, making identification and tracking more difficult.
2. If legitimate funds are used to fund terrorist activities, it is difficult to
identify when the funds become terrorist funds. Terrorist organisations
can, however, require significant funding, and will employ modern
techniques to manage the funds and transfer them between
jurisdictions, hence the similarities with money laundering
 Other crimes
• Advanced cybercrime (or high-tech crime) – sophisticated
attacks against computer hardware and software.
• Cyber-enabled crime – many ‘traditional’ crimes have taken a
new turn with the advent of the internet, such as crimes against
children, financial crimes and even terrorism.
 Insider trading
• When directors or employees of a listed company buy or sell shares in that
company, there is a possibility that they are committing a criminal act –
insider dealing.
• Insider trading takes place when an insider acquires, or disposes of,
price-affected securities while in possession of unpublished price-sensitive
information. It also occurs if they encourage another person to deal in
price-affected securities, or to disclose the information to another person
(other than in the proper performance of employment).
 Market Abuse
• Market abuse may arise in circumstances where financial investors have
been unreasonably disadvantaged, directly or indirectly, by others who
behave unlawfully. Certain types of behaviour, such as insider dealing and
market manipulation, can amount to market abuse.
• Market abuse is a civil offence and can be subject to fines and sanctions by
the regulator. Insider dealing and market manipulation may also be a
criminal offence and offences are prosecuted in the courts.
• As an example, UK and European regulation specifically prohibits three
types of behaviour that may lead to market abuse, subject to certain
exemptions, as shown below.
Integrity and Ethics in Professional Practice