1.
Liberty Square (Budapest)
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Liberty Square is a public square located in the Lipótváros neighborhood of Budapest, Hungary. The square is a mix of business and residential, the United States Embassy in Hungary and the headquarters for the Hungarian National Bank are located in the square. The Bank of Hungary building is in the historicist style of architecture, some buildings on the square are designed in the Art Nouveau style. Two buildings were designed by Ignác Alpár, there are monuments for Ronald Reagan and Harry Hill Bandholtz. There is also a monument for Soviet liberation of Hungary in World War II from Nazi German occupation and it was designed by Károly Antal. A barrack-prison that had occupied the space, was the site of the execution of Prime Minister Lajos Batthyány in 1849. The building was destroyed in 1897 and the square was built thereafter
2.
Budapest
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Budapest is the capital and most populous city of Hungary, one of the largest cities in the European Union and sometimes described as the primate city of Hungary. It has an area of 525 square kilometres and a population of about 1.8 million within the limits in 2016. Budapest became a single city occupying both banks of the Danube river with the unification of Buda and Óbuda on the west bank, the history of Budapest began with Aquincum, originally a Celtic settlement that became the Roman capital of Lower Pannonia. Hungarians arrived in the territory in the 9th century and their first settlement was pillaged by the Mongols in 1241–1242. The re-established town became one of the centres of Renaissance humanist culture by the 15th century, following the Battle of Mohács and nearly 150 years of Ottoman rule, the region entered a new age of prosperity, and Budapest became a global city after its unification in 1873. It also became the co-capital of the Austro-Hungarian Empire, a power that dissolved in 1918. Budapest was the point of the Hungarian Revolution of 1848, the Hungarian Republic of Councils in 1919, the Battle of Budapest in 1945. Budapest is an Alpha- global city, with strengths in arts, commerce, design, education, entertainment, fashion, finance, healthcare, media, services, research, and tourism. Its business district hosts the Budapest Stock Exchange and the headquarters of the largest national and international banks and it is the highest ranked Central and Eastern European city on Innovation Cities Top 100 index. Budapest attracts 4.4 million international tourists per year, making it the 25th most popular city in the world, further famous landmarks include Andrássy Avenue, St. It has around 80 geothermal springs, the worlds largest thermal water system, second largest synagogue. Budapest is home to the headquarters of the European Institute of Innovation and Technology, the European Police College, over 40 colleges and universities are located in Budapest, including the Eötvös Loránd University, Central European University and Budapest University of Technology and Economics. Budapest is the combination of the city names Buda and Pest, One of the first documented occurrences of the combined name Buda-Pest was in 1831 in the book Világ, written by Count István Széchenyi. The origins of the names Buda and Pest are obscure, according to chronicles from the Middle Ages, the name Buda comes from the name of its founder, Bleda, brother of the Hunnic ruler Attila. The theory that Buda was named after a person is also supported by modern scholars, an alternative explanation suggests that Buda derives from the Slavic word вода, voda, a translation of the Latin name Aquincum, which was the main Roman settlement in the region. There are also theories about the origin of the name Pest. One of the states that the word Pest comes from the Roman times. According to another theory, Pest originates from the Slavic word for cave, or oven, the first settlement on the territory of Budapest was built by Celts before 1 AD
3.
Hungary
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Hungary is a unitary parliamentary republic in Central Europe. With about 10 million inhabitants, Hungary is a member state of the European Union. The official language is Hungarian, which is the most widely spoken language in Europe. Hungarys capital and largest metropolis is Budapest, a significant economic hub, major urban areas include Debrecen, Szeged, Miskolc, Pécs and Győr. His great-grandson Stephen I ascended to the throne in 1000, converting the country to a Christian kingdom, by the 12th century, Hungary became a middle power within the Western world, reaching a golden age by the 15th century. Hungarys current borders were established in 1920 by the Treaty of Trianon after World War I, when the country lost 71% of its territory, 58% of its population, following the interwar period, Hungary joined the Axis Powers in World War II, suffering significant damage and casualties. Hungary became a state of the Soviet Union, which contributed to the establishment of a four-decade-long communist dictatorship. On 23 October 1989, Hungary became again a democratic parliamentary republic, in the 21st century, Hungary is a middle power and has the worlds 57th largest economy by nominal GDP, as well as the 58th largest by PPP, out of 188 countries measured by the IMF. As a substantial actor in several industrial and technological sectors, it is both the worlds 36th largest exporter and importer of goods, Hungary is a high-income economy with a very high standard of living. It keeps up a security and universal health care system. Hungary joined the European Union in 2004 and part of the Schengen Area since 2007, Hungary is a member of the United Nations, NATO, WTO, World Bank, the AIIB, the Council of Europe and Visegrád Group. Well known for its cultural history, Hungary has been contributed significantly to arts, music, literature, sports and science. Hungary is the 11th most popular country as a tourist destination in Europe and it is home to the largest thermal water cave system, the second largest thermal lake in the world, the largest lake in Central Europe, and the largest natural grasslands in Europe. The H in the name of Hungary is most likely due to historical associations with the Huns. The rest of the word comes from the Latinized form of Medieval Greek Oungroi, according to an explanation the Greek name was borrowed from Proto-Slavic Ǫgǔri, in turn borrowed from Oghur-Turkic Onogur. Onogur was the name for the tribes who later joined the Bulgar tribal confederacy that ruled the eastern parts of Hungary after the Avars. The Hungarians likely belonged to the Onogur tribal alliance and it is possible they became its ethnic majority. The Hungarian endonym is Magyarország, composed of magyar and ország, the word magyar is taken from the name of one of the seven major semi-nomadic Hungarian tribes, magyeri
4.
Geographic coordinate system
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A geographic coordinate system is a coordinate system used in geography that enables every location on Earth to be specified by a set of numbers, letters or symbols. The coordinates are chosen such that one of the numbers represents a vertical position. A common choice of coordinates is latitude, longitude and elevation, to specify a location on a two-dimensional map requires a map projection. The invention of a coordinate system is generally credited to Eratosthenes of Cyrene. Ptolemy credited him with the adoption of longitude and latitude. Ptolemys 2nd-century Geography used the prime meridian but measured latitude from the equator instead. Mathematical cartography resumed in Europe following Maximus Planudes recovery of Ptolemys text a little before 1300, in 1884, the United States hosted the International Meridian Conference, attended by representatives from twenty-five nations. Twenty-two of them agreed to adopt the longitude of the Royal Observatory in Greenwich, the Dominican Republic voted against the motion, while France and Brazil abstained. France adopted Greenwich Mean Time in place of local determinations by the Paris Observatory in 1911, the latitude of a point on Earths surface is the angle between the equatorial plane and the straight line that passes through that point and through the center of the Earth. Lines joining points of the same latitude trace circles on the surface of Earth called parallels, as they are parallel to the equator, the north pole is 90° N, the south pole is 90° S. The 0° parallel of latitude is designated the equator, the plane of all geographic coordinate systems. The equator divides the globe into Northern and Southern Hemispheres, the longitude of a point on Earths surface is the angle east or west of a reference meridian to another meridian that passes through that point. All meridians are halves of great ellipses, which converge at the north and south poles, the prime meridian determines the proper Eastern and Western Hemispheres, although maps often divide these hemispheres further west in order to keep the Old World on a single side. The antipodal meridian of Greenwich is both 180°W and 180°E, the combination of these two components specifies the position of any location on the surface of Earth, without consideration of altitude or depth. The grid formed by lines of latitude and longitude is known as a graticule, the origin/zero point of this system is located in the Gulf of Guinea about 625 km south of Tema, Ghana. To completely specify a location of a feature on, in, or above Earth. Earth is not a sphere, but a shape approximating a biaxial ellipsoid. It is nearly spherical, but has an equatorial bulge making the radius at the equator about 0. 3% larger than the radius measured through the poles, the shorter axis approximately coincides with the axis of rotation
5.
Hungarian forint
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The forint is the currency of Hungary. It is divided into 100 fillér, although fillér coins are no longer in circulation, the introduction of the forint on 1 August 1946 was a crucial step of the post-World War II stabilization of the Hungarian economy, and the currency remained relatively stable until the 1980s. Transition to market economy in the early 1990s deteriorated the value of the forint, since 2001, inflation is single digit and the forint was declared fully convertible. As a member of the European Union, the long term aim of the Hungarian government may be to replace the forint with the euro, the forints name comes from the city of Florence, where golden coins were minted from 1252 called fiorino doro. In Hungary, florentinus, also a currency, was used from 1325 under Charles Robert. Between 1868 and 1892 the forint was the used in Hungarian for the currency of the Austro-Hungarian Empire. It was subdivided into 100 krajczár, the forint was reintroduced on 1 August 1946, after the pengő was rendered almost worthless by massive hyperinflation in 1945–46—the highest ever recorded. The process was managed by the Hungarian Communist Party, which held the relevant cabinet seats, the forints success was exploited for political gains, contributing to the Communists takeover of complete power in 1948–49. The forint replaced the pengő at the rate of 1 forint = 4×1029 pengő—dropping 29 zeroes from the old currency, in fact, this was an imaginary exchange rate. With the highest value note being 100 million B. pengő, of more significance was the exchange rate to the adópengő of 1 forint =200 million adópengő. Historically the forint was subdivided into 100 fillér, although coins have been rendered useless by inflation and have not been in circulation since 1999. The Hungarian abbreviation for forint is Ft, which is written after the number with a space between, the name fillér, the subdivision of all Hungarian currencies since 1925, comes from the German word Heller. The abbreviation for the fillér is f, written also after the number with a space in between, after the democratic change of 1989–90, the forint saw yearly inflation figures of app. 35% for three years, but significant market economy reforms helped stabilize it. Since year 2000 the relatively high value of forint handicaps the strongly export-oriented Hungarian industry against foreign competitors with lower valued currencies, in 1946, coins were introduced in denominations of 2,10,20 fillérs and 1,2,5 forints. The silver 5 forint was reissued only in the next year,5 and 50 fillérs coins were issued in 1948. In 1967, a 5 forint coin was reintroduced, followed by a 10 forint in 1971 and 20 forint in 1982. In 1992, a new series of coins was introduced in denominations of 1,2,5,10,20,50,100 and 200 forint, production of the 2 and 5 fillér coins ceased in 1992, with all fillér coins withdrawn from circulation by 1999. From 1996, a bicolor 100 forint coin was minted to replace the 1992 version, since the latter was considered too big and ugly, silver 200 forint coins were withdrawn in 1998, the 1 and 2 forint coins remained in circulation until 29 February 2008
6.
ISO 4217
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The ISO4217 code list is used in banking and business globally. ISO4217 codes are used on tickets and international train tickets to remove any ambiguity about the price. The first two letters of the code are the two letters of the ISO 3166-1 alpha-2 country codes and the third is usually the initial of the currency itself, so Japans currency code is JPY—JP for Japan and Y for yen. This eliminates the problem caused by the dollar, franc, peso and pound being used in dozens of different countries. Also, if a currency is revalued, the currency codes last letter is changed to distinguish it from the old currency. Other changes can be seen, however, the Russian ruble, for example, changed from RUR to RUB and these currency units are denominated as one troy ounce of the specified metal as opposed to USD1 or EUR1. The code XTS is reserved for use in testing, the code XXX is used to denote a transaction involving no currency. There are also codes specifying certain monetary instruments used in international finance, the codes for most supranational currencies, such as the East Caribbean dollar, the CFP franc, the CFA franc BEAC and the CFA franc BCEAO. The predecessor to the euro, the European Currency Unit, had the code XEU, the use of an initial letter X for these purposes is facilitated by the ISO3166 rule that no official country code beginning with X will ever be assigned. Because of this rule ISO4217 can use X codes without risk of clashing with a country code. ISO3166 country codes beginning with X are used for private custom use, consequently, ISO4217 can use X codes for non-country-specific currencies without risk of clashing with future country codes. The inclusion of EU in the ISO 3166-1 reserved codes list, the ISO4217 standard includes a crude mechanism for expressing the relationship between a major currency unit and its corresponding minor currency unit. This mechanism is called the exponent and assumes a base of 10. For example, USD is equal to 100 of its currency unit the cent. So the USD has exponent 2, the code JPY is given the exponent 0, because its minor unit, the sen, although nominally valued at 1/100 of a yen, is of such negligible value that it is no longer used. Usually, as with the USD, the currency unit has a value that is 1/100 of the major unit, but in some cases 1/1000 is used. Mauritania does not use a decimal division of units, setting 1 ouguiya equal to 5 khoums, some currencies do not have any minor currency unit at all and these are given an exponent of 0, as with currencies whose minor units are unused due to negligible value. There is also a code number assigned to each currency
7.
Interest on excess reserves
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In banking, excess reserves are bank reserves in excess of a reserve requirement set by a central bank. In the United States, bank reserves for a bank are held in part as a credit balance in an account for the commercial bank at the applicable Federal Reserve bank. This credit balance is not separated into separate minimum reserves and excess reserves accounts, the total amount of FRB credits held in all FRB accounts for all commercial banks, together with all currency and vault cash, form the M0 monetary base. Holding excess reserves has an opportunity cost if higher risk-adjusted interest can be earned by putting the funds elsewhere, other banks may instead choose, however, to hold their excess reserves to facilitate upcoming transactions or to meet contractual clearing balance requirements. On October 3,2008, Section 128 of the Emergency Economic Stabilization Act of 2008 allowed the Federal Reserve banks to begin paying interest on reserve balances as well as required reserves. The Federal Reserve banks began doing so three days later, in comparison, the increase in reserve balances reached only $65 billion after September 11,2001 before falling back to normal levels within a month. Were going to experiment with this and try to find what the right spread is, the Congressional Budget Office estimated that payment of interest on reserve balances would cost the American taxpayers about one tenth of the present 0. On January 7,2009, the Federal Open Market Committee had decided that and it also will have to scale back the use of emergency lending programs and reduce the size of the balance sheet and level of excess reserves. Some of this scaling back will occur naturally as market conditions improve on account of how these programs have been designed, on April 1,2009, reserve balances had again increased to $806 billion. By August 2011, they had reached $1.6 trillion, on March 20,2013, excess reserves stood at $1.76 trillion. St. Louis Fed president James B, bullard said, paying them something of the order of $50 billion more than the entire profits of the largest banks. Foreign banks have also increased their excess reserves at the Fed which the Financial Times said could aggravate the Fed’s PR problem. By October 2013, the reserves at the Federal Reserve had exceeded $2.3 trillion. Sweden and Denmark have paid negative interest on excess reserves as a monetary policy measure. The Swedish Riksbank had previously paid positive interest rates on all overnight deposits, the Bank of England started to pay interest of 0. 5% on reserves on 5 March 2009. Technically these are not excess reserves, because the United Kingdom does not have reserve requirements, research by personnel at the Fed has resulted in claims that interest paid on reserves helps to guard against inflationary pressures. Now when central bank pays interest on excess reserves the link between the level of reserves and willingness of banks to lend is broken. The post-GFC low interest-rate environment has therefore persisted in spite of, specifically, the demand for risk-free assets has dominated the effect of paying interest on reserves on overall interest rates
8.
Financial regulation
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This may be handled by either a government or non-government organization. Financial regulation has also influenced the structure of banking sectors, by decreasing borrowing costs, reduction of financial crime – reducing the extent to which it is possible for a regulated business to be used for a purpose connected with financial crime. Regulating foreign participation in the financial markets, ati mathunzi // sup // Acts empower organizations, government or non-government, to monitor activities and enforce actions. There are various setups and combinations in place for the regulatory structure around the global. Leaf parts are in any case, Exchange acts ensure that trading on the exchanges is conducted in a proper manner, most prominent the pricing process, execution and settlement of trades, direct and efficient trade monitoring. Financial regulators ensure that companies and market participants comply with various regulations under the trading acts. The trading acts demands that listed companies publish regular financial reports, whereas market participants are required to Publish major shareholder notifications. Asset management supervision or investment acts ensures the frictionless operation of those vehicles, Banking acts lay down rules for banks which they have to observe when they are being established and when they are carrying on their business. These rules are designed to prevent unwelcome developments that might disrupt the functioning of the banking system. Thus ensuring a strong and efficient banking system, the following is a short listing of regulatory authorities in various jurisdictions, for a more complete listing, please see list of financial regulatory authorities by country. Sometimes more than one institution regulates and supervises the banking market, normally because, apart from regulatory authorities, the Eurozone countries are forming a Single Supervisory Mechanism under the European Central Bank as a prelude to Banking union. There are also associations of financial regulatory authorities, in essence, they forced European banks, and, more importantly, the European Central Bank itself e. g. Pr. ISBN 978-0-691-15264-6 Simpson, D. Meeks, G. Klumpes, P. & Andrews, some cost-benefit issues in financial regulation
9.
Money Laundering
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Money laundering is the process of transforming the profits of crime and corruption into ostensibly legitimate assets. Most anti-money laundering laws openly conflate money laundering with terrorism financing when regulating the financial system, some countries define money laundering as obfuscating sources of money, either intentionally or by merely using financial systems or services that do not identify or track sources or destinations. Other countries define money laundering to include money from activity that would have been a crime in that country, the concept of money laundering regulations goes back to ancient times and is intertwined with the development of money and banking. Money laundering is first seen with individuals hiding wealth from the state to avoid taxation or confiscation or a combination of both, in China, merchants around 2000 BCE would hide their wealth from rulers who would simply take it from them and banish them. In addition to hiding it, they would move it and invest it in businesses in remote provinces or even outside China, over the millennia many rulers and states imposed rules that would take wealth from their citizens and this led to the development of offshore banking and tax evasion. One of the methods has been the use of parallel banking or Informal value transfer systems such as hawala that allowed people to move money out of the country avoiding state scrutiny. In the 20th century, the seizing of wealth again became popular when it was seen as a crime prevention tool. The first time was during the period of Prohibition in the United States during the 1930s and this saw a new emphasis by the state and law enforcement agencies to track and confiscate money. Organized crime received a major boost from Prohibition and a source of new funds that were obtained from illegal sales of alcohol. In the 1980s, the war on drugs led governments again to turn to money-laundering rules to try and seize proceeds of crime to catch the organizers. It also had the benefit from a law enforcement point of view of turning rules of evidence upside down, Law enforcers normally have to prove an individual is guilty to get a conviction. But with money laundering laws, money can be confiscated and it is up to the individual to prove that the source of funds is legitimate if they want the funds back and this makes it much easier for law enforcement agencies and provides for much lower burdens of proof. The September 11 attacks in 2001, which led to the Patriot Act in the US and similar legislation worldwide, starting in 2002, governments around the world upgraded money laundering laws and surveillance and monitoring systems of financial transactions. Anti money laundering regulations have become a larger burden for financial institutions. During 2011–2015 a number of major banks faced ever-increasing fines for breaches of money laundering regulations and this included HSBC, which was fined $1.9 billion in December 2012, and BNP Paribas, which was fined $8.9 billion in July 2014 by the US government. For example, in 2006, Australia set up the AUSTRAC system, Money obtained from certain crimes, such as extortion, insider trading, drug trafficking, and illegal gambling is dirty. It needs to be cleaned to appear to have derived from legal activities so that banks. Money can be laundered by many methods, which vary in complexity, some of these steps may be omitted, depending on the circumstances
10.
International Financial Reporting Standards
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International Financial Reporting Standards are designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries. They are a consequence of growing international shareholding and trade and are important for companies that have dealings in several countries. They are progressively replacing the different national accounting standards. They are the rules to be followed by accountants to maintain books of accounts which are comparable, understandable, reliable, IAS29 and IFRIC7 are authorized in terms of the units of constant purchasing power paradigm. IFRS began as an attempt to harmonize accounting across the European Union, however, it has been debated whether or not de facto harmonization has occurred. Standards that were issued by IASC are still within use today and go by the name International Accounting Standards, IAS were issued between 1973 and 2001 by the Board of the International Accounting Standards Committee. On 1 April 2001, the new International Accounting Standards Board took over from the IASC the responsibility for setting International Accounting Standards, during its first meeting the new Board adopted existing IAS and Standing Interpretations Committee standards. The IASB has continued to develop standards calling the new standards International Financial Reporting Standards, in making that judgement, IAS8.11 requires management to consider the definitions, recognition criteria, and measurement concepts for assets, liabilities, income, and expenses in the Framework. Financial statements are a representation of the financial positions and financial performance of an entity. Financial statements also show the results of the stewardship of the resources entrusted to it. Going concern, Financial statements are present on a going concern basis unless management either intends to liquidate the entity or to trading, or has no realistic alternative. Materiality and aggregation, Every material class of items has to be presented separately. Items that are of a nature or function shall be presented separately unless they are immaterial. Offsetting, Offsetting is generally forbidden in IFRS, however certain standards require offsetting when specific conditions are satisfied. Frequency of reporting, IFRS requires that at least annually a set of financial statements is presented. However listed companies generally also publish interim financial statements for which the presentation is in accordance with IAS34 Interim Financing Reporting, comparative information, IFRS requires entities to present comparative information in respect of the preceding period for all amounts reported in the current periods financial statements. In addition comparative information shall also be provided for narrative and descriptive information if it is relevant to understanding the current periods financial statements and this for example occurred with the adoption of the revised standard IAS19 or when the new consolidation standards IFRS 10-11-12 were adopted. e. Equity, Nominal equity is the residual interest in the nominal assets of the entity after deducting all its liabilities in nominal value
11.
Bank run
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When they transfer funds to another institution it may be characterised as a capital flight. As a bank run progresses, it generates its own momentum, as more people withdraw cash and this can destabilize the bank to the point where it runs out of cash and thus faces sudden bankruptcy. A systemic banking crisis is one where all or almost all of the capital in a country is wiped out. The resulting chain of bankruptcies can cause an economic recession as domestic businesses. According to former U. S. Federal Reserve chairman Ben Bernanke, the Great Depression was caused by the Federal Reserve System, and much of the economic damage was caused directly by bank runs. The cost of cleaning up a banking crisis can be huge, with fiscal costs averaging 13% of GDP. Several techniques have been used to try to prevent bank runs or mitigate their effects. S, Federal Deposit Insurance Corporation, and after a run has started, a temporary suspension of withdrawals. These techniques do not always work, for example, even with deposit insurance, Bank runs first appeared as part of cycles of credit expansion and its subsequent contraction. In the 16th century onwards, English goldsmiths issuing promissory notes suffered severe failures due to bad harvests, plummeting parts of the country into famine and unrest. Other examples are the Dutch Tulip manias, the British South Sea Bubble, the French Mississippi Company, the post-Napoleonic depression, Bank runs have also been used to blackmail individuals or governments. In 1832, for example, the British government under the Duke of Wellington overturned a majority government on the orders of the king, William IV, to prevent reform. Wellesleys actions angered reformers, and they threatened a run on the banks under the rallying cry Stop the Duke, many of the recessions in the United States were caused by banking panics. The Great Depression contained several banking crises consisting of runs on multiple banks from 1929 to 1933, in December, New York City experienced massive bank runs that were contained to the many branches of a single bank. Philadelphia was hit a week later by bank runs that affected several banks, but were contained by quick action by the leading city banks. Withdrawals became worse after financial conglomerates in New York and Los Angeles failed in prominently-covered scandals, much of the US Depressions economic damage was caused directly by bank runs, though Canada had no bank runs during this same era due to different banking regulations. Bank runs continued to plague the United States for the several years. City-wide runs hit Boston, Chicago, Toledo, and St. Louis, among others. Institutions put into place during the Depression have prevented runs on U. S. commercial banks since the 1930s, even under such as the U. S. savings
12.
Too big to fail
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The colloquial term too big to fail was popularized by U. S. Congressman Stewart McKinney in a 1984 Congressional hearing, discussing the Federal Deposit Insurance Corporations intervention with Continental Illinois, the term had previously been used occasionally in the press. Proponents of this believe that some institutions are so important that they should become recipients of beneficial financial. The global economic system must also deal with states being too big to fail. The term has emerged as prominent in public discourse since the 2007–08 global financial crisis, critics see the policy as counterproductive and that large banks or other institutions should be left to fail if their risk management is not effective. Some critics, such as Alan Greenspan, believe that such large organisations should be broken up, If theyre too big to fail. More than fifty prominent economists, financial experts, bankers, finance industry groups, in 2014, the International Monetary Fund and others said the problem still had not been dealt with. If the crisis has a lesson, it is that the too-big-to-fail problem must be solved. As a result, too-big-to-fail firms will tend to more risk than desirable. It creates an uneven playing field between big and small firms, the firms themselves become major risks to overall financial stability, particularly in the absence of adequate resolution tools. The failures of smaller, less interconnected firms, though certainly of significant concern, have not had substantial effects on the stability of the system as a whole. Since banks lend most of the deposits and only retain a fraction in the proverbial vault, during the Depression, hundreds of banks became insolvent and depositors lost their money. As a result, the U. S. enacted the 1933 Banking Act, sometimes called the Glass-Steagall Act, in exchange for the deposit insurance provided by the federal government, depository banks are highly regulated and expected to invest excess customer deposits in lower-risk assets. They also are market makers in that they serve as intermediaries between two investors that wish to take opposite sides of a financial transaction, the Glass-Steagall Act separated investment and depository banking until its repeal in 1999. Investment banks, along with innovations in banking and finance referred to as the shadow banking system. They became subject to the equivalent of a run in 2007 and 2008. This run became known as the mortgage crisis. In addition, the government provided bailout funds via the Troubled Asset Relief Program in 2008, Fed Chair Ben Bernanke described in November 2013 how the Panic of 1907 was essentially a run on the non-depository financial system, with many parallels to the crisis of 2008
13.
Ponzi scheme
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Operators of Ponzi schemes usually entice new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent. Ponzi schemes occasionally begin as legitimate businesses, until the business fails to achieve the returns expected, the business becomes a Ponzi scheme if it then continues under fraudulent terms. Whatever the initial situation, the perpetuation of the high returns requires a flow of money from new investors to sustain the scheme. The scheme is named after Charles Ponzi, who became notorious for using the technique in 1920. The idea, present in novels, was performed in real life by Ponzi who with his operation took in so much money that it was the first to become known throughout the United States. Ponzis original scheme was based on the arbitrage of international reply coupons for postage stamps, however, he soon diverted investors money to make payments to earlier investors, Ponzi schemes sometimes commence operations as legitimate investment vehicles, such as hedge funds. A wide variety of investment vehicles or strategies, typically legitimate, have become the basis of Ponzi schemes, for instance, Allen Stanford used bank certificates of deposit to defraud tens of thousands of people. Certificates of deposit are usually low-risk and insured instruments, but the Stanford CDs were fraudulent, initially the promoter will pay out high returns to attract more investors, and to lure current investors into putting in additional money. Other investors begin to participate, leading to a cascade effect, the return to the initial investors is paid out of the investments of new entrants, rather than solely from profits. This maintains the deception that the scheme is an investment with high returns, promoters also try to minimize withdrawals by offering new plans to investors, often where money is frozen for a longer period of time, in exchange for higher returns. The promoter sees new cash flows as investors are told they cannot transfer money from the first plan to the second. When a Ponzi scheme is not stopped by the authorities, it sooner or later falls apart for one of the reasons, The promoter vanishes. Such liquidity crises often trigger panics, as people start asking for their money. External market forces, such as a decline in the economy. However, several characteristics distinguish these schemes from Ponzi schemes, In a Ponzi scheme, in a pyramid scheme, those who recruit additional participants benefit directly. A pyramid scheme typically collapses much faster because it requires exponential increases in participants to sustain it, by contrast, Ponzi schemes can survive simply by persuading most existing participants to reinvest their money, with a relatively small number of new participants. An economic bubble, A bubble is similar to a Ponzi scheme in that one participant gets paid by contributions from a subsequent participant, a bubble involves ever-rising prices in an open market where prices rise because buyers bid more and buyers bid more because prices are rising. Bubbles are often said to be based on the greater fool theory, as with the Ponzi scheme, the price exceeds the intrinsic value of the item, but unlike the Ponzi scheme, there is no single person misrepresenting the intrinsic value
14.
Central banks
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A central bank, reserve bank, or monetary authority is an institution that manages a states currency, money supply, and interest rates. Central banks also usually oversee the commercial banking system of their respective countries, Central banks in most developed nations are institutionally designed to be independent from political interference. Still, limited control by the executive and legislative bodies usually exists, prior to the 17th century most money was commodity money, typically gold or silver. However, promises to pay were widely circulated and accepted as value at least five hundred years earlier in both Europe and Asia. The Song dynasty was the first to issue generally circulating paper currency, in 1455, in an effort to control inflation, the succeeding Ming Dynasty ended the use of paper money and closed much of Chinese trade. The Bank of Amsterdam, established in the Dutch Republic in 1609, is considered to be the forerunner to modern central banks. The Wisselbanks innovations helped lay the foundations for the birth and development of the banking system that now plays a vital role in the worlds economy. Along with a number of local banks, it performed many functions of a central banking system. Lucien Gillard calls it the European guilder, and Adam Smith devotes many pages to explaining how the bank guilder works, the model of the Wisselbank as a state bank was adapted throughout Europe, including the Bank of Sweden and the Bank of England. Established by Dutch-Latvian Johan Palmstruch in 1668, Sveriges Riksbank is often considered by many as the worlds oldest central bank, the lenders would give the government cash and also issue notes against the government bonds, which could be lent again. A Royal Charter was granted on 27 July through the passage of the Tonnage Act 1694, the bank was given exclusive possession of the governments balances, and was the only limited-liability corporation allowed to issue banknotes. The £1. 2M was raised in 12 days, half of this was used to rebuild the Navy and these modern central banking functions evolved slowly through the 18th and 19th centuries. The currency crisis of 1797, caused by panicked depositors withdrawing from the Bank led to the government suspending convertibility of notes into specie payment. The bank was accused by the bullionists of causing the exchange rate to fall from over issuing banknotes. Nevertheless, it was clear that the Bank was being treated as an organ of the state, henry Thornton, a merchant banker and monetary theorist has been described as the father of the modern central bank. An opponent of the real bills doctrine, he was a defender of the bullionist position, thorntons process of monetary expansion anticipated the theories of Knut Wicksell regarding the cumulative process which restates the Quantity Theory in a theoretically coherent form. Until the mid-nineteenth century, commercial banks were able to issue their own banknotes, many consider the origins of the central bank to lie with the passage of the Bank Charter Act of 1844. Under this law, authorisation to issue new banknotes was restricted to the Bank of England, at the same time, the Bank of England was restricted to issue new banknotes only if they were 100% backed by gold or up to £14 million in government debt
15.
Securities commission
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Securities commission is a general term used for a government department or agency responsible for financial regulation of securities products within a particular country. Its powers and responsibilities vary greatly from country to country, but generally cover the setting of rules as well as enforcing them for financial intermediaries, as long as there have been securities there have been regulations. However, in the days this consisted primarily of self-regulated groups or societies. External government regulation has primarily been driven by financial crises or scandals, in 1720 the British Parliament passed the Bubble Act which had specific regulations for securities. However the motive of this act was more to support the ‘South Sea bubble’ than protect consumers, However this was the first time that prospectuses and disclosure in the modern sense were used. There was widespread distrust of brokers as the scams collapsed, after common feeling that investors in these areas of the country were being victimized by capitalists in the east. Some countries like the UK, created one large agency that covered all financial products, However, some countries use a different model where there are separate agencies for different financial products. Typically, securities, banking and insurance are split, but there may also be separate agencies for futures, options, with the advent of derivatives and new financial products it has not always been easy to see who has jurisdiction and what their responsibilities are. A fact, that some financial companies have used to their advantage to skirt existing regulation. Most securities commissions are semi-independent government organisations that have a board of commissioners and they are often fully or partially funded by the organisations that are regulated through charges such as registration and licensing fees. There is no name for securities commission or financial regulatory agency in each country. Naming has become complicated as some governments have consolidated or merged organisations. They sometimes contain the term securities and commission, such as the Securities and Exchange Commission of the US or Securities and Futures Commission. A number also have names based on Financial Authority, such as the Financial Services Authority of the UK or Financial Supervisory Authority or variations such as the Financial Services Agency. Most securities commissions have a mandate to protect consumers, make sure there is an orderly and stable financial market, often local stock exchanges as well as brokers are covered by the commission. Most financial regulators are members of the International Organization of Securities Commissions, the main way that securities commission cooperate is through the IOSCO Memorandum of Understanding, or through bilateral agreements between securities commissions. U. S. However, there are plans to establish a national commission, to be called the Canadian Securities Regulatory Authority
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Financial Action Task Force on Money Laundering
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In 2001 the purpose expanded to act on terrorism financing. It monitors countries progress in implementing the FATF Recommendations by ‘peer reviews’ of member countries, the FATF Secretariat is housed at the headquarters of the OECD in Paris. The Financial Action Task Force on Money Laundering was established during the 1989 G7 Summit in Paris to combat the problem of money laundering. At the time of its creation, the organisation had 16 original members, in its first year, the FATF issued a report containing forty recommendations to more effectively fight money laundering. These standards were revised in 2003 to reflect evolving patterns and techniques in money laundering, the mandate of the organisation was expanded to include terrorist financing following the September 11 terror attacks. The FATFs primary policies issued are the Forty Recommendations on money laundering from 1990 and they set out the principles for action and allow countries a measure of flexibility in implementing these principles according to their particular circumstances and constitutional frameworks. Both sets of FATF Recommendations are intended to be implemented at the level through legislation. The FATF completely revised the Forty Recommendations in 1996 and 2003, among the measures, “Special Recommendation VIII” was targeted specifically at nonprofit organizations. In February 2004 the FATF published a reference document Methodology for Assessing Compliance with the FATF40 Recommendations, the 2009 Handbook for Countries and Assessors outlines criteria for evaluating whether FATF standards are achieved in participating countries. In addition to FATFs Forty plus Nine Recommendations, in 2000 FATF issued a list of Non-Cooperative Countries or Territories and this was a list of 15 jurisdictions that, for one reason or another, FATF members believed were uncooperative with other jurisdictions in international efforts against money laundering. As of October 2006, there are no Non-Cooperative Countries and Territories in the context of the NCCT initiative, however FATF issues updates as countries on High-risk and non-cooperative jurisdictions list have made significant improvements in standards and cooperation. The FATF also issues updates to identify additional jurisdictions that pose Money Laundering/Terrorist Financing risks, the effect of the FATF Blacklist has been significant, and arguably has proven more important in international efforts against money laundering than has the FATF Recommendations. While, under law, the FATF Blacklist carried with it no formal sanction, in reality. As of 2016 FATF consists of thirty-five member jurisdictions and two regional organisations, the EU and the Gulf Co-operation Council, the FATF also works in close co-operation with a number of international and regional bodies involved in combating money laundering and terrorism financing. The FATF welcomed the Kingdom of Saudi Arabia as an observer to the FATF
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Bank for International Settlements
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The BIS carries out its work through its meetings programmes and through the Basel Process – hosting international groups pursuing global financial stability and facilitating their interaction. It also provides banking services, but only to central banks and it is based in Basel, Switzerland, with representative offices in Hong Kong and Mexico City. The BIS was established in 1930 by an agreement between Germany, Belgium, France, the United Kingdom, Italy, Japan, the United States. It opened its doors in Basel, Switzerland on 17 May 1930, the need to establish a dedicated institution for this purpose was suggested in 1929 by the Young Committee, and was agreed to in August of that year at a conference at The Hague. A charter for the bank was drafted at the International Bankers Conference at Baden-Baden in November, according to the charter, shares in the bank could be held by individuals and non-governmental entities. The BIS was constituted as having corporate existence in Switzerland on the basis of an agreement with Switzerland acting as headquarters state for the bank and it also enjoyed certain immunities in the contracting states. The BIS’s original task of facilitating World War I reparation payments quickly became obsolete, reparation payments were first suspended and then abolished altogether. Instead, the BIS focused on its second statutory task, i. e. fostering the cooperation between its member central banks and it acted as a meeting forum for central banks and provided banking facilities to them. For instance, in the late 1930s, the BIS was instrumental in helping continental European central banks shipping out part of their reserves to London. At the same time, the BIS fell under the spell of the appeasement illusion, however, as the war dragged on evidence mounted that the BIS conducted operations that were helpful to the Germans. Also, throughout the war, the BIS accepted gold from the German Reichsbank in payment for prewar obligations linked to the Young Plan and this in spite of repeated Allied warnings not to accept gold or other assets from Nazi Germany. It later transpired that much of gold had been looted by the Germans from the central banks in occupied territories. Some of this remelted gold included gold rings and other items from labor, operations conducted by the BIS were viewed with increasing suspicion from London and Washington. H. The 1944 Bretton Woods Conference recommended the liquidation of the Bank for International Settlements at the earliest possible moment and this resulted in the BIS being the subject of a disagreement between the U. S. and British delegations. The liquidation of the bank was supported by other European delegates, as well as the United States, but opposed by John Maynard Keynes, head of the British delegation. Fearing that the BIS would be dissolved, Keynes went to Morgenthau hoping to prevent the dissolution, or have it postponed, however, the liquidation of the bank was never actually undertaken. In April 1945, the new U. S. president Harry S. Truman and the British government suspended the dissolution, after the Second World War, the BIS retained an outspoken European focus. It acted as Agent for the European Payments Union, an intra-European clearing arrangement designed to help the European countries in restoring currency convertibility and free, multilateral trade
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World Bank
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The World Bank is an international financial institution that provides loans to countries of the world for capital programs. It comprises two institutions, the International Bank for Reconstruction and Development, and the International Development Association, the World Bank is a component of the World Bank Group, which is part of the United Nations system. The World Banks stated official goal is the reduction of poverty, the president of the World Bank is, traditionally, an American. The World Bank and the IMF are both based in Washington, D. C. and work closely with each other, although many countries were represented at the Bretton Woods Conference, the United States and United Kingdom were the most powerful in attendance and dominated the negotiations. Before 1974 the reconstruction and development loans provided by the World Bank were relatively small, the Banks staff were aware of the need to instill confidence in the bank. Fiscal conservatism ruled, and loan applications had to meet strict criteria, the first country to receive a World Bank loan was France. The Banks president at the time, John McCloy, chose France over two other applicants, Poland and Chile, the loan was for US$250 million, half the amount requested, and it came with strict conditions. France had to agree to produce a budget and give priority of debt repayment to the World Bank over other governments. World Bank staff closely monitored the use of the funds to ensure that the French government met the conditions. In addition, before the loan was approved, the United States State Department told the French government that its members associated with the Communist Party would first have to be removed, the French government complied with this diktat and removed the Communist coalition government - the so-called tripartisme. Within hours, the loan to France was approved, when the Marshall Plan went into effect in 1947, many European countries began receiving aid from other sources. Faced with this competition, the World Bank shifted its focus to non-European countries, in 1960, the International Development Association was formed, providing soft loans to developing countries. From 1974 to 1980 the bank concentrated on meeting the needs of people in the developing world. The size and number of loans to borrowers was greatly increased as loan targets expanded from infrastructure into social services and these changes can be attributed to Robert McNamara, who was appointed to the presidency in 1968 by Lyndon B. Johnson. McNamara implored bank treasurer Eugene Rotberg to seek out new sources of capital outside of the banks that had been the primary sources of funding. Rotberg used the bond market to increase the capital available to the bank. One consequence of the period of poverty alleviation lending was the rise of third world debt. From 1976 to 1980 developing world debt rose at an annual rate of 20%
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Fractional reserve banking
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Fractional-reserve banking is the practice whereby a bank accepts deposits, makes loans or investments, and holds reserves equal to a fraction of its deposit liabilities. Reserves are held as currency in the bank, or as balances in the accounts at the central bank. Fractional-reserve banking is the current form of banking practiced in most countries worldwide, however, a bank can experience a bank run if depositors wish to withdraw more funds than the reserves held by the bank. In most countries, the central bank regulates bank credit creation, imposing reserve requirements and this can limit the amount of money creation that occurs in the commercial banking system, and helps to ensure that banks are solvent and have enough funds to meet demand for withdrawals. However, rather than controlling the money supply, central banks usually pursue an interest rate target to adjust the rate of inflation. In the past, savers looking to keep their coins and valuables in safekeeping depositories deposited gold and silver at goldsmiths and these notes gained acceptance as a medium of exchange for commercial transactions and thus became an early form of circulating paper money. This generated income for the goldsmiths but left them with notes on issue than reserves with which to pay them. A process was started that altered the role of the goldsmiths from passive guardians of bullion, charging fees for safe storage, if creditors lost faith in the ability of a bank to pay their notes, however, many would try to redeem their notes at the same time. If, in response, a bank could not raise funds by calling in loans or selling bills. Such a situation is called a run and caused the demise of many early banks. The Swedish Riksbank was the worlds first central bank, created in 1668, the emergence of central banks reduced the risk of bank runs which is inherent in fractional-reserve banking, and it allowed the practice to continue as it does today. In the course of enacting such policy, central banks have from time to time attempted to manage interest rates, reserve requirements, in most legal systems, a bank deposit is not a bailment. In other words, the funds deposited are no longer the property of the customer, the funds become the property of the bank, and the customer in turn receives an asset called a deposit account. That deposit account is a liability on the sheet of the bank. Relatively few depositors demand payment at any time, and banks maintain a buffer of reserves to cover depositors cash withdrawals. A bank can raise funds from additional borrowings, by selling assets, thus the fear of a bank run can actually precipitate the crisis. Fractional-reserve banking allows banks to credit in the form of bank deposits. The banks also provide loans to borrowers, and act as financial intermediaries for those funds
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Tax haven
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A tax haven is a jurisdiction that offers favorable tax or other conditions to its taxpayers as relative to other jurisdictions. There is no accepted definition of what renders a country or jurisdiction a tax haven. The term most commonly refers to countries or jurisdictions that have a low-tax or no-tax regime or which offer generous tax incentives. Some refer to secrecy jurisdictions as an alternative to tax havens to emphasise the element. Earnings from income generated from real estate can also be eliminated in this way, if taxes are paid in the tax haven jurisdiction, companies can avoid taxes in their home jurisdiction because the tax had already been paid in the lower tax rate jurisdiction. The only thing that can be done is picking a country that has the smallest rates on these taxes before buying any real estate, individuals or corporate entities may establish shell subsidiaries or move themselves to areas with reduced or no taxation levels relative to typical international taxation. This creates a situation of tax competition among jurisdictions, different jurisdictions may be havens for different types of taxes, and for different categories of people or companies. Sovereign jurisdictions or self-governing territories under international law have the power to tax laws affecting their territories. A2012 report by the British Tax Justice Network estimated that between US$21 trillion and $32 trillion is sheltered from taxes in unreported tax havens worldwide. If such wealth earns 3% annually and such capital gains were taxed at 30%, if such hidden offshore assets are considered, many countries with governments nominally in debt are shown to be net creditor nations. Another recent study estimated the amount of global offshore wealth at the smaller—but still sizable—figure of US$7.6 trillion and this estimate included financial assets only, My method probably delivers a lower bound, in part because it only captures financial wealth and disregards real assets. After all, high-net-worth individuals can stash works of art, jewelry, and gold in freeports, warehouses that serve as repositories for valuables—Geneva, Luxembourg, high-net-worth individuals also own real estate in foreign countries. A study of 60 large US companies found that they deposited $166 billion in offshore accounts during 2012, there are several definitions of tax havens. In 2002 The Economist adopted the description by Geoffrey Colin Powell, the Economist points out that this definition would still exclude a number of jurisdictions traditionally thought of as tax havens. Similarly, an Australian journalist suggested that any country which modifies its tax laws to attract foreign capital could be considered a tax haven. According to other definitions, the feature of a haven is that its laws. This prevents the transmittance of information about taxpayers who are benefiting from the low tax jurisdiction, lack of transparency – A lack of transparency in the operation of the legislative, legal or administrative provisions is another factor used to identify tax havens. The OECD is concerned that laws should be applied openly and consistently, lack of transparency in one country can make it difficult, if not impossible, for other tax authorities to apply their laws effectively
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Global financial system
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In the late 1800s, world migration and communication technology facilitated unprecedented growth in international trade and investment. At the onset of World War I, trade contracted as foreign exchange markets became paralyzed by money market illiquidity, efforts to revamp the international monetary system after World War II improved exchange rate stability, fostering record growth in global finance. A series of currency devaluations and oil crises in the 1970s led most countries to float their currencies, the world economy became increasingly financially integrated in the 1980s and 1990s due to capital account liberalization and financial deregulation. A series of crises in Europe, Asia, and Latin America followed with contagious effects due to greater exposure to volatile capital flows. The global financial crisis, which originated in the United States in 2007, a market adjustment to Greeces noncompliance with its monetary union in 2009 ignited a sovereign debt crisis among European nations known as the Eurozone crisis. A countrys decision to operate an economy and globalize its financial capital carries monetary implications captured by the balance of payments. Both individuals and groups may participate in the financial system. Consumers and international businesses undertake consumption, production, and investment, governments and intergovernmental bodies act as purveyors of international trade, economic development, and crisis management. Regulatory bodies establish financial regulations and legal procedures, while independent bodies facilitate industry supervision, research institutes and other associations analyze data, publish reports and policy briefs, and host public discourse on global financial affairs. While the global system is edging toward greater stability, governments must deal with differing regional or national needs. Some nations are trying to orderly discontinue unconventional monetary policies installed to cultivate recovery, while others are expanding their scope, Nations inability to align interests and achieve international consensus on matters such as banking regulation has perpetuated the risk of future global financial catastrophes. The world experienced substantial changes prior to 1914, which created an environment favorable to an increase in, principal among such changes were unprecedented growth in capital flows and the resulting rapid financial center integration, as well as faster communication. Before 1870, London and Paris existed as the only prominent financial centers. Soon after, Berlin and New York grew to major financial centres. An array of smaller financial centers became important as they found market niches, such as Amsterdam, Brussels, Zurich, London remained the leading international financial center in the four decades leading up to World War I. During the mid-nineteenth century, the system in Europe dissolved as rail transport expanded rapidly. Most countries issuing passports did not require their carry, thus people could travel freely without them, the standardization of international passports would not arise until 1980 under the guidance of the United Nations International Civil Aviation Organization. From 1870 to 1915,36 million Europeans migrated away from Europe, approximately 25 million of these travelers migrated to the United States, while most of the rest reached Canada, Australia, Argentina, and Brazil
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Systemically important financial institution
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A systemically important financial institution is a bank, insurance company, or other financial institution whose failure might trigger a financial crisis. They are colloquially referred to as too big to fail, in November 2011, the Financial Stability Board published a list of global systemically important financial institutions. The Basel Committee on Banking Supervision introduced new regulations that specifically target SIFIs. The main focus of the regulations is to increase bank capital requirements and it is important to note that both the Financial Stability Board and the Basel Committee are only policy research and development entities. They do not establish laws, regulations or rules for any financial institution directly and they merely act in an advisory capacity. It is up to each countrys specific lawmakers and regulators to enact whatever portions of the recommendations they deem appropriate, each countrys internal financial regulators make their own determination of what is a Systemically Important Financial Institution. Once those regulators make that determination, they may set specific laws, regulations, virtually every Systemically Important Financial Institution operates at the top level as a holding company made up of numerous subsidiaries. It is not unusual for the subsidiaries to number in the hundreds, each subsidiary is then subject to potential regulation by every country where it actually conducts business. At present there is no such thing as a global regulator, likewise there is no such thing as global insolvency, global bankruptcy, or the legal requirement for a global bail out. Each legal entity is treated separately, each country is responsible for containing a financial crisis that starts in their country from spreading across borders. The degree of interconnectedness between financial institutions is almost completely unknown at any point in time. When trouble breaks out, fear and contagion effects are extremely unpredictable, therefore, determining exactly what entities are significant is a difficult assignment, as the real certainty is determinable only well after the fact. As of November 2011, a definition of systemically important financial institution had not been decided. In some cases, the assessments of experts, independent of the indicators, Banks in Japan deemed systemically important are stress tested by the International Monetary Fund. Banks in China are mostly run and are stress tested by the national banking authority. Global Systemically Important Banks are determined based on four criteria, size, cross-jurisdiction activity, complexity. The list of G-SIBs is published annually by the Financial Stability Board, the G-SIBs must maintain a higher capital level – capital surcharge – compared to other banks. In the USA, the largest banks are regulated by the Federal Reserve and these regulators set the selection criteria, establish hypothetical adverse scenarios and oversee the annual tests
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Financial market
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A financial market is a market in which people trade financial securities, commodities, and other fungible items of value at low transaction costs and at prices that reflect supply and demand. Securities include stocks and bonds, and commodities include precious metals or agricultural products, in economics, typically, the term market means the aggregate of possible buyers and sellers of a certain good or service and the transactions between them. The term market is used for what are more strictly exchanges, organizations that facilitate the trade in financial securities. This may be a location or an electronic system. Another common use of the term is as a catchall for all the markets in the financial sector, capital markets which to consist of, Stock markets, which provide financing through the issuance of shares or common stock, and enable the subsequent trading thereof. Bond markets, which provide financing through the issuance of bonds, commodity markets, which facilitate the trading of commodities. Money markets, which provide short term debt financing and investment, derivatives markets, which provide instruments for the management of financial risk. Futures markets, which provide standardized forward contracts for trading products at some future date, Foreign exchange markets, which facilitate the trading of foreign exchange. Spot market Interbanks market The capital markets may also be divided into primary markets, newly formed securities are bought or sold in primary markets, such as during initial public offerings. Secondary markets allow investors to buy and sell existing securities, the transactions in primary markets exist between issuers and investors, while secondary market transactions exist among investors. Liquidity is an aspect of securities that are traded in secondary markets. Liquidity refers to the ease with which a security can be sold without a loss of value, securities with an active secondary market mean that there are many buyers and sellers at a given point in time. Investors benefit from liquid securities because they can sell their assets whenever they want, Financial markets attract funds from investors and channel them to corporations—they thus allow corporations to finance their operations and achieve growth. Money markets allow firms to borrow funds on a term basis. Without financial markets, borrowers would have difficulty finding lenders themselves, intermediaries such as banks, Investment Banks, and Boutique Investment Banks can help in this process. Banks take deposits from those who have money to save and they can then lend money from this pool of deposited money to those who seek to borrow. Banks popularly lend money in the form of loans and mortgages, a good example of a financial market is a stock exchange. A company can raise money by selling shares to investors and its shares can be bought or sold
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Financial market participants
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There are two basic financial market participant categories, Investor vs. Speculator and Institutional vs. Retail. Action in financial markets by central banks is usually regarded as rather than participation. This equation originated from Keynesian Advocates, the theory explains that a given market may have excess cash, hence the supplier of funds may lend it, and those in need of cash may borrow the funds supplied. Hence, the equation, aggregate savings equals aggregate investments, the demand side consists of, those in need of cash flows, those in need of interim financing, those in need of long-term funds for special projects. The supply side consists of, those who have aggregate savings that can be used in favor of demand side, the origin of the savings can be local savings or foreign savings. So much pensions or savings can be invested for school buildings, orphanages, the earnings go to owner and the margin goes to the banks. When the principal and interest are added up, it will reflect the amount paid for the user of the funds, thus, an interest percentage for the cost of using the funds. An investor is any party that makes an Investment, less frequently the term is applied to parties who purchase real estate, currency, commodity derivatives, personal property, or other assets. Speculation or agiotage represents one of three roles in western financial markets, distinct from hedging, long term investing and arbitrage. Speculators in an asset may have no intention to have long term exposure to that asset, because of their sophistication, institutional investors may often participate in private placements of securities, in which certain aspects of the securities laws may be inapplicable. A retail investor is an individual investor possessing shares of a given security, Retail investors can be further divided into two categories of share ownership. A Beneficial Shareholder is an investor who holds shares of their securities in the account of a bank or broker. A Registered Shareholder is an investor who holds shares of their securities directly through the issuer or its transfer agent. Many registered shareholders have physical copies of their stock certificates, in the United States, as of 2005 about 57 million households owned stocks, and in total individual investors owned 26% of equities
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Corporate finance
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The primary goal of corporate finance is to maximize or increase shareholder value. Investment analysis is concerned with the setting of criteria about which value-adding projects should receive investment funding, the terms corporate finance and corporate financier are also associated with investment banking. The typical role of an investment bank is to evaluate the financial needs. Thus, the corporate finance and corporate financier may be associated with transactions in which capital is raised in order to create, develop. Financial management overlaps with the function of the Accounting profession. The primary goal of management is to maximize or to continually increase shareholder value. Managers of growth companies will use most of the capital resources. When companies reach maturity levels within their industry, managers of companies will use surplus cash to payout dividends to shareholders. Choosing between investment projects will be based upon several inter-related criteria, Corporate management seeks to maximize the value of the firm by investing in projects which yield a positive net present value when valued using an appropriate discount rate in consideration of risk. These projects must also be financed appropriately, if no growth is possible by the company and excess cash surplus is not needed to the firm, then financial theory suggests that management should return some or all of the excess cash to shareholders. This capital budgeting is the planning of value-adding, long-term corporate financial projects relating to investments funded through, Management must allocate the firms limited resources between competing opportunities. Investments should be made on the basis of value-added to the future of the corporation, projects that increase a firms value may include a wide variety of different types of investments, including but not limited to, expansion policies, or mergers and acquisitions. Achieving the goals of corporate finance requires that any corporate investment be financed appropriately, the sources of financing are, generically, capital self-generated by the firm and capital from external funders, obtained by issuing new debt and equity. As above, since both hurdle rate and cash flows will be affected, the mix will impact the valuation of the firm. Financing a project through debt results in a liability or obligation that must be serviced, equity financing is less risky with respect to cash flow commitments, but results in a dilution of share ownership, control and earnings. Management must attempt to match the long-term financing mix to the assets being financed as closely as possible, other techniques, such as securitization, or hedging using interest rate- or credit derivatives, are also common. See Asset liability management, Treasury management, Credit risk, Interest rate risk, however economists have developed a set of alternative theories about how managers allocate a corporations finances. Also, Capital structure substitution theory hypothesizes that management manipulates the capital such that earnings per share are maximized
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Personal finance
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The earliest known research in personal finance was done in 1920 by Hazel Kyrk. Her dissertation at University of Chicago laid the foundation of consumer economics, margaret Reid, a professor of Home Economics at the same university, is recognized as one of the pioneers in the study of consumer behavior and Household behavior. In 1947, Herbert A. Simon, a Nobel laureate, suggested that a decision maker did not always make the best financial decision because of limited educational resources and personal inclinations. Therefore, personal education is needed to help an individual or a family make rational financial decisions throughout their life. Before 1990, mainstream economists and business faculty paid little attention to personal finance and these institutions have published several works in journals such as The Journal of Financial Counseling and Planning and the Journal of Personal Finance. Research into personal finance is based on theories such as social exchange theory. Attendances of the two societies mainly come from faculty and graduates from business and home economics colleges, AFCPE has since offered several certifications for professionals in this field such as Accredited Financial Counselor and Certified Housing Counselors. Meanwhile, AFS cooperates with Certified Financial Planner, the educational programmes are frequently known as financial literacy. However, there was no standardised curriculum for personal finance education until after the 2008 financial crisis, the United States President’s Advisory Council on Financial Capability was set up in 2008 in order to encourage financial literacy among the American people. It also stressed the importance of developing a standard in the field of financial education, the key component of personal finance is financial planning, which is a dynamic process that requires regular monitoring and reevaluation. In general, it involves five steps, Assessment, A persons financial situation is assessed by compiling simplified versions of financial statements including balance sheets, a personal balance sheet lists the values of personal assets, along with personal liabilities. A personal income statement lists personal income and expenses, goal setting, Having multiple goals is common, including a mix of short- and long-term goals. For example, a goal would be to retire at age 65 with a personal net worth of $1,000,000. Setting financial goals helps to direct financial planning, goal setting is done with an objective to meet specific financial requirements. Plan creation, The financial plan details how to accomplish the goals and it could include, for example, reducing unnecessary expenses, increasing the employment income, or investing in the stock market. Execution, Execution of a financial plan often requires discipline and perseverance, many people obtain assistance from professionals such as accountants, financial planners, investment advisers, and lawyers. Monitoring and reassessment, As time passes, the plan is monitored for possible adjustments or reassessments. Net worth is a balance sheet, calculated by adding up all assets under that persons control, minus all liabilities of the household
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Public finance
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Public finance is the study of the role of the government in the economy. The purview of public finance is considered to be threefold, governmental effects on efficient allocation of resources, distribution of income, the proper role of government provides a starting point for the analysis of public finance. In theory, under circumstances, private markets will allocate goods. If private markets were able to provide efficient outcomes and if the distribution of income were socially acceptable, in many cases, however, conditions for private market efficiency are violated. For example, if people can enjoy the same good at the same time. National defense is one example of consumption, or of a public good. Market failure occurs when private markets do not allocate goods or services efficiently, the existence of market failure provides an efficiency-based rationale for collective or governmental provision of goods and services. Externalities, public goods, informational advantages, strong economies of scale, Public provision via a government or a voluntary association, however, is subject to other inefficiencies, termed government failure. Under broad assumptions, government decisions about the efficient scope and level of activities can be separated from decisions about the design of taxation systems. In practice, government budgeting or public budgeting is substantially more complicated, Government can pay for spending by borrowing, although borrowing is a method of distributing tax burdens through time rather than a replacement for taxes. A deficit is the difference between government spending and revenues, the accumulation of deficits over time is the total public debt. Deficit finance allows governments to smooth tax burdens over time, deficits can also narrow the options of successor governments. Public finance is closely connected to issues of distribution and social equity. Governments can reallocate income through transfer payments or by designing tax systems that treat high-income and low-income households differently, the public choice approach to public finance seeks to explain how self-interested voters, politicians, and bureaucrats actually operate, rather than how they should operate. Collection of sufficient resources from the economy in an appropriate manner along with allocating, resource generation, resource allocation and expenditure management are the essential components of a public financial management system. Public Finance Management basically deals with all aspects of resource mobilization, just as managing finances is a critical function of management in any organization, similarly public finance management is an essential part of the governance process. Public finance management includes resource mobilization, prioritization of programmes, the process, efficient management of resources. Rising aspirations of people are placing more demands on financial resources, at the same time, the emphasis of the citizenry is on value for money, thus making public finance management increasingly vital
28.
Banking
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A bank is a financial institution that accepts deposits from the public and creates credit. Lending activities can be performed either directly or indirectly through capital markets, due to their importance in the financial stability of a country, banks are highly regulated in most countries. Most nations have institutionalized a system known as fractional reserve banking under which banks hold liquid assets equal to only a portion of their current liabilities. In the history of banking, a number of banking dynasties — notably, the Medicis, the Fuggers, the Welsers, the Berenbergs, the oldest existing retail bank is Banca Monte dei Paschi di Siena, while the oldest existing merchant bank is Berenberg Bank. Banking began with the first prototype banks of merchants of the ancient world and this began around 2000 BC in Assyria and Babylonia. Later, in ancient Greece and during the Roman Empire, lenders based in temples made loans, archaeology from this period in ancient China and India also shows evidence of money lending activity. The origins of modern banking can be traced to medieval and early Renaissance Italy, to the cities in the centre and north like Florence, Lucca, Siena, Venice. The Bardi and Peruzzi families dominated banking in 14th-century Florence, establishing branches in other parts of Europe. One of the most famous Italian banks was the Medici Bank, the earliest known state deposit bank, Banco di San Giorgio, was founded in 1407 at Genoa, Italy. Modern banking practices, including fractional reserve banking and the issue of banknotes, merchants started to store their gold with the goldsmiths of London, who possessed private vaults, and charged a fee for that service. The goldsmith paid interest on these deposits, since the promissory notes were payable on demand, and the advances to the goldsmiths customers were repayable over a longer time period, this was an early form of fractional reserve banking. Thus, the goldsmiths of London became the forerunners of banking by creating new money based on credit, the Bank of England was the first to begin the permanent issue of banknotes, in 1695. The Royal Bank of Scotland established the first overdraft facility in 1728, by the beginning of the 19th century a bankers clearing house was established in London to allow multiple banks to clear transactions. The Rothschilds pioneered international finance on a scale, financing the purchase of the Suez canal for the British government. The word bank was borrowed in Middle English from Middle French banque, from Old Italian banca, meaning table, from Old High German banc, bank bench, counter. Benches were used as makeshift desks or exchange counters during the Renaissance by Jewish Florentine bankers, the definition of a bank varies from country to country. See the relevant country pages under for more information, the business of banking is in many English common law countries not defined by statute but by common law, the definition above. In other English common law there are statutory definitions of the business of banking or banking business
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Agricultural policy
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Agricultural policy describes a set of laws relating to domestic agriculture and imports of foreign agricultural products. Governments usually implement agricultural policies with the goal of achieving an outcome in the domestic agricultural product markets. Outcomes can involve, for example, a guaranteed supply level, price stability, product quality, product selection, encouraging agricultural growth is therefore an important aspect of agricultural policy in the developing world. Use of animal vaccines can create new viruses that kill people, H5N1 is an example of where this might have already occurred. The spread of H5N1 and its reintroduction to domestic poultry increase the need for good agricultural vaccines. In fact, the cause of the continuing H5N1 pandemic threat may be the way the pathogenicity of H5N1 viruses is masked by co-circulating influenza viruses or bad agricultural vaccines. Dr. Robert Webster explains, If you use a good vaccine you can prevent the transmission within poultry, but if they have been using vaccines now for several years, why is there so much bird flu. There is bad vaccine that stops the disease in the bird but the bird goes on pooping out virus and maintaining it, and I think this is what is going on in China. Either there is not enough vaccine being used or there is substandard vaccine being used and we can’t blame China for substandard vaccines. I think there are substandard vaccines for influenza in poultry all over the world, in response to the same concerns, Reuters reports Hong Kong infectious disease expert Lo Wing-lok indicating that vaccines have to take top priority. Julie Hall, who is in charge of the WHOs outbreak response in China, in the UK, the country worst affected,179,000 cattle were infected and 4.4 million killed as a precaution. The disease can be transmitted to human beings who eat or inhale material from infected carcasses, between 460,000 and 482,000 BSE-infected animals had entered the human food chain before controls on high-risk offal were introduced in 1989. The origin of the disease remains unknown. Another contributory factor was the feeding of infected protein supplements to very young calves instead of milk from their mothers, foot-and-mouth disease is a highly contagious and sometimes fatal viral disease of cattle and pigs. It can also infect deer, goats, sheep, and other bovids with cloven hooves, as well as elephants, rats, humans are affected only very rarely. FMD occurs throughout much of the world, and while some countries have been free of FMD for some time, its wide host range, in 1996, endemic areas included Asia, Africa, and parts of South America. North America, Australia, New Zealand and Japan have been free of FMD for many years, most European countries have been recognized as free, and countries belonging to the European Union have stopped FMD vaccination. The clothes and skin of animal handlers such as farmers, standing water, cows can also catch FMD from the semen of infected bulls
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Economic policy
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Economic policy refers to the actions that governments take in the economic field. Such policies are often influenced by international institutions like the International Monetary Fund or World Bank as well as political beliefs, almost every aspect of government has an important economic component. Trade policy, which refers to tariffs, trade agreements and the institutions that govern them. Fiscal policy, often tied to Keynesian economics, uses government spending, fiscal stance, The size of the deficit or surplus Tax policy, The taxes used to collect government income. It is concerned with the amount of money in circulation and, consequently, interest rates, sometimes other objectives, like military spending or nationalization are important. These are referred to as the goals, the outcomes which the economic policy aims to achieve. To achieve these goals, governments use policy tools which are under the control of the government and these generally include the interest rate and money supply, tax and government spending, tariffs, exchange rates, labor market regulations, and many other aspects of government. Government and central banks are limited in the number of goals they can achieve in the short term, for instance, there may be pressure on the government to reduce inflation, reduce unemployment, and reduce interest rates while maintaining currency stability. This dilemma can in part be resolved by using microeconomics, supply-side policy to help adjust markets, for instance, unemployment could potentially be reduced by altering laws relating to trade unions or unemployment insurance, as well as by macroeconomic factors like interest rates. For much of the 20th century, governments adopted discretionary policies like demand management designed to correct the business cycle and these typically used fiscal and monetary policy to adjust inflation, output and unemployment. However, following the stagflation of the 1970s, policymakers began to be attracted to policy rules, a discretionary policy is supported because it allows policymakers to respond quickly to events. This makes policy non-credible and ultimately ineffective, a rule-based policy can be more credible, because it is more transparent and easier to anticipate. Examples of rule-based policies are fixed exchange rates, interest rate rules, the stability and growth pact, some policy rules can be imposed by external bodies, for instance the Exchange Rate Mechanism for currency. A compromise between strict discretionary and strict rule-based policy is to grant discretionary power to an independent body. For instance, the Federal Reserve Bank, European Central Bank, Bank of England and Reserve Bank of Australia all set interest rates without government interference, another type of non-discretionary policy is a set of policies which are imposed by an international body. This can occur as a result of intervention by the International Monetary Fund, the first economic problem was how to gain the resources it needed to be able to perform the functions of an early government, the military, roads and other projects like building the Pyramids. Early governments generally relied on tax in kind and forced labor for their economic resources, however, with the development of money came the first policy choice. A government could raise money through taxing its citizens, however, it could now also debase the coinage and so increase the money supply
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Energy policy
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Energy policy is the manner in which a given entity has decided to address issues of energy development including energy production, distribution and consumption. The attributes of energy policy may include legislation, international treaties, incentives to investment, guidelines for energy conservation, taxation, although research is ongoing, the human dimensions of energy use are of increasing interest to business, utilities, and policymakers. Using the social sciences to gain insights into energy consumer behavior can empower policymakers to make decisions about broad-based climate. This could facilitate more efficient energy use, renewable energy commercialization, a national energy policy comprises a set of measures involving that countrys laws, treaties and agency directives. These policies have been consistent since the 1990s, despite changes in governments. The pace and form of industry liberalization and privatization has been highly controversial, with rapid change of global as well as domestic situation, the policy was updated in 2004. Australias energy policy features a combination of power stations and hydro electricity plants. The Australian government has decided not to nuclear power plants. Catherine Wolfram, Robert Gross, Nathan S. Lewis, and M. V, the Frontiers of Energy, Nature Energy, Vol 1,11 January 2016. Climate and Clean Energy Policy, State Institutions and Economic Implications, fouquet, Roger, and Peter JG Pearson. Seven Centuries of Energy Services, The Price and Use of Light in the United Kingdom, north versus South, Energy transition and energy intensity in Europe over 200 years. American Energy Policy in the 1970s 322 pages, Nye, David E. Consuming power, A social history of American energies Pratt, Joseph A. Exxon, Transforming Energy, 1973-2005 600pp Smil, the role of energy in economic growth. Annals of the New York Academy of Sciences, Energy use and economic development, A comparative analysis of useful work supply in Austria, Japan, the United Kingdom and the US during 100 years of economic growth
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Industrial policy
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The government takes measures aimed at improving the competitiveness and capabilities of domestic firms and promoting structural transformation. A countrys infrastructure is a part of the manufacturing sector that often has a key role in IP. Industrial policies are sector-specific, unlike broader macroeconomic policies, examples of the latter, which are horizontal, economy-wide policies, are tightening credit and taxing capital gains. Traditional examples of industrial policy that involves vertical, sector-specific policies, include protecting textiles from imports, more contemporary industrial policies include measures such as support for linkages between firms and support for upstream technologies. Industrial policies are interventionist measures typical of mixed economy countries, many types of industrial policies contain common elements with other types of interventionist practices such as trade policy and fiscal policy. An example of an industrial policy is import-substitution-industrialization, where trade barriers are temporarily imposed on some key sectors. By selectively protecting certain industries, these industries are given time to learn, once competitive enough, these restrictions are lifted to expose the selected industries to the international market. The traditional arguments for industrial policies go back as far as the 18th century, in the early nineteenth century, for example, it is quite clear that the laissez faire label is an inappropriate one. These early examples are followed by interventionist ISI strategies pursued in Latin American countries such as Brazil, the success of these state-directed industrialization strategies are often attributed to developmental states and strong bureaucracies such as the Japanese MITI. Many of these domestic policy choices, however, are now seen as detrimental to trade and are hence limited by various international agreements such as WTO. Instead, the recent focus for industrial policy has shifted towards the promotion of local business clusters, during the Reagan administration, an economic development initiative called Project Socrates was initiated to address US decline in ability to compete in world markets. President Reagan was satisfied that this objective was fulfilled in the Socrates system, however contemporary industry policy generally accepts globalisation as a given, and focuses less on the decline of older industries, and more on the growth of emergent industries. It often involves government working collaboratively with industry to respond to challenges and opportunities, the main criticism against industrial policy arises from the concept of government failure. Despite existing criticism, there is a consensus in recent development theory that state interventions are often necessary when market failures prevail. Market failures often exist in presence of externalities and natural monopolies and these market failures hinder the emergence of a well-functioning market and corrective industrial policies are required to ensure the allocative efficiency of a free market. Even relatively sceptical economists now recognise that public action can boost certain development factors beyond what market forces on their own would generate, in practice, these interventions are often aimed at regulating networks, public infrastructure, R&D or correcting information asymmetries. While the current debate has shifted away from dismissing industrial policies overall, one key question is which kinds of industrial policy are most effective in promoting economic development. Much debate also surrounds the issue whether government failures are more pervasive
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Social policy
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Social policy is a term which is applied to various areas of policy, usually within a governmental or political setting. It can refer to guidelines, principles, legislation and activities that affect the living conditions conducive to human welfare, such as a persons quality of life. Social policy might also be described as actions that affect the well-being of members of a society through shaping the distribution of and access to goods, Social policy often deals with wicked problems. The earliest example of direct intervention by government in human welfare dates back to Umar ibn al-Khattābs rule as the caliph of Islam in the 6th century. He used zakat collections and also other governmental resources to establish pensions, income support, child benefits, Social policy in the 21st century is complex and in each state it is subject to local and national governments, as well as supranational political influence. For example, membership of the European Union is conditional on member states adherence to the Social Chapter of European Union law, Social policy is an academic discipline focusing on the systematic evaluation of societies responses to social need. It was established in the part of the 20th century as a complement to social work studies. One can reasonably argue there is not a clear and comprehensive definition of social policy. This is probably because social policy is more an area of study than a discipline, scholars studied and categorized social security systems on the basis of their modes of intervention. Of course, each state system includes a mixture of these elements. Others emphasize social insurance mechanisms, i. e. Germany, still other focus on social assistance for the poor, i. e. the United Kingdom. Social policy aims to human welfare and to meet human needs for education, health, housing. Moreover, Social Darwinism helped mold Americas ideas of capitalism and the survival of the fittest mentality, the Catholic Churchs social teaching has also been considerably influential to the development of social policy. The programs were in response to the Great Depression affecting the United States in the 1930s, an American education policy proposal from a Republican president is the No Child Left Behind Act. This Act took effect on January 8,2002, and was put in place to raise standards in education so different individuals can have better educational outcomes, the No Child Left Behind Act requires every state to assess students on basic skills to receive federal funding. However, this Act did not create a standard since each state develops their own set of standards. Critics of most all social policies point toward a depiction of a state on the make of a Hobbesian Leviathan. Social Policy & Administration Titmuss, R. M, the three worlds of welfare capitalism
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Trade policy
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A commercial policy is a governmental policy governing economic transactions across international borders. These are sometimes agreed by treaty within a customs union, in the case of the European Union, commercial policy has been governed in common since the EU was created in 1957. A common commercial policy is also an aim of Mercosur, commerce minister European Commissioner for Trade Free trade Protectionism Trade policy of Japan Trade policy of the United States
Members of Euro Banking Association
