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This chapter examines the governance, approach, and the government's industrial and foreign exchange policies that promoted capital formation in the private sector. These offered financial incentives to invest and produce import substitutes and export goods, in addition to the reconstruction of the old and the construction of new social overhead capital, and pioneering new industries with private enterprises. The chapter also analyzes the impact of government property divestiture programs for former Japanese assets, new public enterprises, and their foreign exchange policy which involved the sale of foreign exchange to importers in targeted industries using subsidies. In evaluating these policies, the divestiture bounties, inflation windfalls, and their impact on capital formation in the private sector, the cost of production, private investment, beneficiaries, and resource allocation can be determined.

This chapter discusses the evolution of two essential markets to global banks. Foreign exchange markets allow for the trading of foreign currencies, using instruments such as spot transactions, futures, forwards, and swaps. Money markets link international lenders of short-term funds with borrowers using instruments such as Eurocurrencies and Eurobonds. Such loans are priced using the London Interbank Offered Rate (LIBOR). The chapter details how the money markets froze up during the global financial crisis in 2008 and explains why the foreign exchange market stayed liquid.

This chapter addresses the continuing decline and failure of the London Stock Exchange to adjust to change during the 1960s, when the government rather than the market continued to be the major influence over the way it developed. The first section of the chapter discusses relations with the government. The next discusses relations with the members––where the desire was to create a level playing field for both members and non‐members, and now became an equal desire to ensure that all members had both the training and the capital to enable them to play an active role in the market, whilst not posing a threat to others; however, the members themselves were hostile to the admission of both women and foreigners, both of whom were keen to become members. The third section of the chapter discusses continuing competition with provincial and foreign stock exchanges, and the failure of the London Stock Exchange to capture or retain foreign business. The last section looks at money and capital (securities) markets in the 1960s.

The Big Bang described in the last chapter appeared to have answered the doubts over the future of the London Stock Exchange, but from the late 1980s onwards into the 1990s, it both waned in importance within the British financial system and faced increasing competition from rival foreign stock exchanges. This chapter discusses the reasons for this, starting in the first section with relations with government, since one uncertainty was the level of freedom from government control that the Stock Exchange was to enjoy. With the disappearance of the Stock Exchange's quasi‐official status in the 1990s, there still remained doubts over the role that it had to play in the area of securities market supervision, and the next section of the chapter discusses this situation, the effect of the changing nature of its membership, the disaster over settlement services (the replacement of the successful TALISMAN (Transfer Accounting and Lodgement for Investors, Stock Management for Jobbers) by TAURUS (Transfer and Automated Registration of Uncertificated Stock) and the subsequent failure of TAURUS), and the eventual successful replacement of the SEAQ (Stock Exchange Automated Quotations) trading system by the SEQUENCE trading system from 1993 onwards. The third section of the chapter looks at the provision of the market, and the fact that with the proposed introduction of specialists or sole traders in 1992, the Stock Exchange had once again been brought to the attention of the Office of Fair Trading; competition was also forcing a re‐examination of the way the Stock Exchange's market was organized, and this resulted in the introduction in 1997 of order‐driven trading in the form of SETS (Stock Exchange Trading Service); this section also looks at the abandonment of the traded options market to LIFFE (London International Financials Futures Exchange) and of any pretensions to the futures market, the decline of the USM (Unlisted Securities Market) and its replacement by AIM (Alternative Investment Market), negotiations with various foreign stock markets, and the changing investment environment. The last part of the chapter looks specifically at the changing membership of the Stock Exchange.

Though macroeconomics was developed for developed countries, developing countries often use this corpus of knowledge — with its competing schools of thought — without any significant modification. It is by no means clear that applying these theories to developing countries is either justified or appropriate. This chapter examines the differences in macroeconomic policy between developing and developed countries. The basic macroeconomic aggregates: output, employment, and inflation are, of course, the same for both developed and developing economies. So too are the basic identities and equilibrium conditions: savings must still equal investment, output must equal income, and aggregate demand is the sum of consumption, investment, government expenditures, and net exports. However, systematic differences between the economies of developed and developing countries and between developing countries themselves, such as the relative effectiveness of macroeconomic tools, give rise to large variation in economic outcomes and policy choices.

Examines the evolution of monetary policy rules and exchange rate regimes in the Philippines over the past two decades. It highlights the importance of recognizing the interdependence of exchange rate and monetary policies in a small open economy, and argues that failure to appreciate this has yielded undesirable consequences. To illustrate, it discusses the macroeconomic performance following regime shifts for various periods: (1) the eighties to early nineties when observed money growth not commensurate with growth in foreign reserve assets under exchange rate targeting caused episodes of peso collapse; (2) capital account liberalization – culminating in full peso convertibility in 1992 – which compromised the ability to conduct an independent monetary policy; and (3) the financial crisis years when it became apparent that fixing the exchange rate in a world of capital mobility was futile. The paper concludes by raising institutional issues and reviewing the conduct of monetary policy in the more recent postcrisis period.

As private capital inflows resurged in Latin America during the later part of the 1980s, Chile was one of the first countries to attract such foreign capital flows and was also the one to attract the largest supply. Although the reemergence of such was in a way embraced because it relaxed the foreign exchange constraint, the composition and the large amount of new capital flows posed certain problems for the unprepared recipient countries. Such countries were faced with problems of domestic absorption since capital inflows are supposed to result in increases in the investment rate. Policy makers were also faced with dilemmas since the absence of regulations causes the real exchange rate to appreciate but intervention would lead to an increased money supply and inflation control. This chapter examines how massive capital inflows were dealt with in Chile during the 1990s, the policy responses, and the effects that were imposed on the domestic economy.

In perfectly efficient markets, managing business exposure to losses associated with currency changes should not result in added value since unanticipated changes cannot be hedged costlessly. In practice, however, many reasons exist for managing such exposure because markets are not perfectly efficient. First, deviations often occur from parity conditions because foreign exchange markets are not perfectly efficient. Second, due to the nature of the costs associated with foreign exchange risks, managing foreign exchange exposure to reduce variability can increase firm value. Third, long-term and recurring exposure to foreign exchange risk cannot be managed using traditional financial market-based hedging techniques because the markets for such products are thin and inefficient. Firms must use more costly marketing, production, and financial strategies to manage economic exposure and protect against losses in value related to long-term changes in exchange rates. Further, this process must be integrated with strategic planning in each of these areas. This chapter discusses these issues and presents currency risk management strategies that account for well-documented agency costs and market imperfections.

After it successfully shifted to democracy, the reintegration of South Africa into the global markets in 1994 ensued about ten years of restricted access to capital markets and international money. After access to these markets were again granted, this led to the rise of capital inflows which posed problems that were similar to those experienced by other developing market economies. Although constraints were relaxed and opportunities for the Reserved Bank to regain its stock of foreign exchange reserves came about, the surge of capital inflows were short-lived because of the problems encountered. In January 1997, however, foreign capital flows in South Africa experienced a significant increase that led to the appreciation of the rand. As such, various macroeconomic policies and those of liberalization affected capital flows to South Africa. This chapter examines how these policies involve the Reserve Bank’s exchange rate policy which favours strong and almost overvalued currency in reducing inflation.

This chapter reviews the foreign exchange losses suffered by LDCs, HIPCs, and SVS through the sustained weakness in relative prices of primary commodities. Falling real prices of commodities have caused lower purchasing power of primary exports, on which most of these countries rely predominantly for financing their imports. The resultant foreign exchange losses relative to the total primary and merchandise exports of many of these countries are quite substantial.

This chapter examines whether East Asia remains vulnerable to financial crises. Section 9.2 reminds us that this question would have received a negative answer even as late as in 1996. Section 9.3 describes how the East Asian countries have endeavored since 1998 to protect themselves from a re-run of the traumatic events that are still haunting them. In particular, it argues that the spectacular build-up of foreign exchange reserves reduces, but does not eliminate, the odds of a crisis. Based on the three generations of crisis models, Section 9.4 seeks to identify the remaining vulnerabilities. The last section wraps up the previous conclusions and examines the policy options.

This chapter explores the national economy and transition strategies of Uzbekistan. At independence Uzbekistan inherited important assets, including the best civil aircraft fleet, the military command, and the best administrative capacity in Central Asia. Indeed, during the 1990s, Uzbekistan was the most successful of all Soviet successor states in terms of limiting the fall in output, and in the early 2000s it became the first former Soviet republic to regain its pre-independence level of GDP. Uzbekistan was fortunate that world cotton prices increased substantially after independence, providing the resources to maintain public services, and when cotton prices fell in 1996 the government overreacted by introducing foreign exchange controls. A new phase of Uzbekistan's economic development dates from the termination of forex controls at the end of 2003.

This chapter describes the development strategy in the post-Independence era, and the ideology guiding it. . Idealistic political leadership of post-Independence India started a unique and historically untried and untested experiment of democratic socialism in a low-income economy. This new institutional matrix consisted of a regulatory regime comprising three elements: public sector expansion, discretionary controls over markets and private economic activities, and stringent foreign exchange and import controls. The tightening of the regulatory regime on ideological grounds without regard to its effectiveness in obtaining the socialist goals provoked the basic incompatibility of the three elements of the new institutional matrix with the mixed economy institutional environment. Self-reliance under the influence of the ideology of economic nationalism was wrongly equated with self-sufficiency. This institutional matrix throws into sharp relief the remarkable institutional transformation in reverse that began with the post-1991 reforms.

This chapter discusses Japanese law on international relations. Topics covered include the Nationality Law, the status of aliens, foreign exchange and foreign trade law, rules on the conflict of laws, marriage and divorce, and problems relating to transactional disputes.

This chapter provides a general overview of the international markets for foreign exchange (FX) and FX derivatives as well as the theoretical relationships that tie these markets together with interest rates and central bank policies. The chapter begins by summarizing the FX markets and discussing their current size and uses. It then details and distinguishes the various markets and FX products. The chapter also examines the FX derivative markets and presents the Garman and Kohlhagen pricing model. The theoretical relationships among returns, exchange rates, and interest rates are discussed, specifically examining equilibrium conditions and the Taylor rule. The chapter concludes by reviewing several recent developments in the global currency markets.

This chapter analyzes Hong Kong's monetary problems and the growing problem of inflation since 1974. It argues that the Hong Kong government could not stop the currency slide through intervention in the foreign exchange markets because the government had been treating the symptoms of monetary and financial problems, instead of dealing with the underlying causes. It begins by discussing the four major instruments of monetary policy (liquid assets, interest rates, government borrowing scheme, intervention in foreign exchange policy) and explains why each of them did not work. It concludes by reviewing the two key proposals for reforming the monetary system — either to control the quantity of money by converting the Exchange Fund, Hong Kong's monetary authority, into a central bank, or to manage the exchange rate with a central bank or modified Exchange Fund.

While foreign exchange dealings have been taking place since the fifteenth century, the past 30 years have been especially marked by new developments, growth, and change in money‐market instruments and methods. The most important involve Eurocurrencies, Euro‐CDs (certificates of deposit), new forms of commercial paper, floating rate notes, note issuance facilities, and revolving underwriting facilities. Explains how these have affected foreign exchange trading practices.

This chapter explores the resultant incentive structure in the period 1950–1 to 1980–1 that emerged from the interaction of the new institutional matrix (comprising public sector expansion, controls over the market, and foreign exchange and import controls) with the existing environment. It then addresses the incentive effects of the regulation of markets and the private sector including the industrial investment licensing mechanism. It explains how the three elements of the new institutional matrix considerably reduced the scope for competition in terms of costs, quality, and productivity. The blue-collar workers in the organized factory manufacturing segment were the passive beneficiaries of autarkic industrialization with the support of the activist state. The period experienced low growth despite the doubling of the rate of gross domestic savings due to the combined result of competition-limiting policies and growth-constricting direct discretionary controls, as well as the distortion of prices arising out of differentiated excise and customs duties and other quantitative controls that managed to maintain fiscal and external payment stability.

During the recent precipitate slide of the Hong Kong dollar against the US currency, the Hong Kong government had intervened to support the local currency on the foreign exchange market. This chapter discusses the steps the authorities had taken that had undermined their ability to hold the exchange rate steady at some specified nominal rate against the US$. It begins by examining how a normal central bank and banking system operates and how intervention in the foreign exchange market can be made effective. It then examines how Hong Kong's automatic adjustment mechanism under a fixed exchange rate operated in effect like any orthodox central bank would have done and how errors of policy caused Hong Kong's banking system to come off the rails in 1972–74. It also describes how the system now differs from orthodox banking systems around the world. Finally, it explains why operations in the foreign exchange market by the government or Exchange Fund under present institutional arrangements neither tighten the money market nor reduce monetary growth.