INTRODUCTION TO GLOBAL FINANCE

AGENDA
●​ Concepts in Global Finance
●​ Key Players in Global Finance
●​ Why Global Finance Matters
●​ Investments
●​ Financial Markets

What is GLOBAL FINANCE?

Global finance refers to the system that enables the exchange of money, goods, services, and capital
across borders. It encompasses a wide range of activities, institutions, and processes that connect
economies around the world. It plays a critical role in shaping economic development, international
trade, investment flows, and financial markets. Understanding global finance is essential for businesses,
investors, policymakers, and individuals alike.

Key Concepts in Global Finance

1. International Financial Markets: These are markets where currencies, bonds, stocks, and
commodities are traded between countries. They provide liquidity, facilitate risk management, and help
allocate capital globally. Examples include the foreign exchange market (Forex), bond markets, and
stock exchanges like the NYSE or the London Stock Exchange.

What is CURRENCY?
Currencies are systems of money that are used as a medium of exchange in trade and commerce. Each
country or region typically has its own currency (e.g., the U.S. Dollar, the Euro, the Japanese Yen) which
is issued and regulated by a central authority, such as a government or a central bank.

Currencies can come in both physical forms, like coins and banknotes, and digital forms, such as
cryptocurrencies (e.g., Bitcoin, Ethereum). The value of a currency can fluctuate based on economic
factors like inflation, interest rates, and market demand.

What are BONDS?

Bonds are a type of debt investment where an investor loans money to an entity (such as a government,
corporation, or municipality) for a fixed period of time at a predetermined interest rate. In return, the
issuer of the bond promises to pay the investor back the principal (the amount borrowed) at the bond's
maturity date, along with periodic interest payments, known as coupon payments.
Here’s a breakdown of key elements of bonds
Issuer: The entity that borrows the money (e.g., government or company).
Face Value (Principal): The amount of money the bondholder will get back when the bond matures.
Coupon Rate: The interest rate the bond pays periodically (usually annually or semi-annually).
Maturity Date: The date when the issuer must repay the principal amount to the bondholder.
Yield: The return the investor gets on the bond, which may be affected by market interest rates and
the bond’s price.

Bonds are often considered safer investments compared to stocks because they provide regular income
and the promise of repayment of the principal at maturity. However, there is always the risk that the
issuer might default (fail to pay back the bond).

2. Exchange Rates: Exchange rates are the prices at which one currency can be exchanged for
another. They are influenced by various factors, including interest rates, inflation rates, political stability,
and economic performance. Fluctuations in exchange rates can impact trade, investment, and economic
growth.

3. Global Institutions: Several international institutions oversee and regulate global finance.
International Monetary Fund (IMF): Provides financial assistance to countries facing
balance-of-payments problems.
World Bank: Provides long-term loans and grants for development projects.
World Trade Organization (WTO): Regulates international trade and ensures smooth trade flows.
Bank for International Settlements (BIS): Promotes financial stability by fostering cooperation between
central banks.

4. Capital Flows: Capital flows are the movement of money across borders for investments. This can
be in the form of foreign direct investment (FDI), portfolio investments, loans, or remittances. Global
finance helps allocate these funds to the regions where they are most needed or where returns are
highest.

5. Global Financial Crises: Global finance can be volatile, and financial crises, such as the 2008 global
financial crisis, can have widespread economic impacts. These crises often result from risky financial
practices, mismanagement of capital, or external shocks like wars or pandemics.

6. Globalization and Financial Integration: As countries become more interconnected through

trade and investment, financial markets have become increasingly integrated. This has led to the growth
of multinational corporations, cross-border investments, and the rise of global supply chains.
7. Risk and Regulation: Global finance involves various risks, including currency risk, interest rate
risk, and geopolitical risk. To manage these risks, financial institutions often rely on hedging strategies,
insurance, and derivatives. Additionally, global financial regulations, like Basel III, aim to ensure financial
stability and prevent crises.

8. Sustainability and ESG (Environmental, Social, and Governance): In recent years, there has
been growing attention to sustainable finance. Investors, governments, and corporations are
increasingly focused on environmental, social, and governance (ESG) factors when making financial
decisions, seeking to align financial returns with ethical and sustainable outcomes.

Key Players in Global Finance:

1.​ Governments: Governments play a critical role in global finance by regulating financial markets,
managing fiscal policies, and issuing bonds to fund public projects.
2.​ Central Banks: Central banks, such as the U.S. Federal Reserve or the European Central Bank,
regulate money supply, interest rates, and exchange rates to maintain economic stability.
3.​ Financial Institutions: Commercial banks, investment banks, and insurance companies are
vital in the movement of capital and financial services.
4.​ Corporations: Multinational corporations (MNCs) are significant actors in global finance, as they
conduct cross-border business, trade, and investment.
5.​ Investors: Global investors, including hedge funds, pension funds, mutual funds, and individual
investors, drive much of the capital flow across borders.

Why Global Finance Matters:

➢​ Economic Growth: Efficient financial systems support economic growth by ensuring capital
flows to productive areas, enabling businesses to grow and creating jobs.
➢​ Risk Diversification: Investors can spread their risk by investing in different markets,
industries, and asset classes across the globe.
➢​ International Trade: The movement of money facilitates global trade and investment, which is
essential for the functioning of the global economy.
➢​ Financial Inclusion: Access to financial markets can promote global financial inclusion,
allowing individuals and businesses in developing regions to access capital and improve living
standards.

In summary, global finance is the backbone of the global economy. It enables trade, investment, and
economic development, while also posing challenges such as risk management, financial regulation, and
ethical considerations. A well-functioning global financial system is crucial for sustaining global economic
stability and fostering growth across nations.​
Exchange Rates
An exchange rate is the price at which one currency can be exchanged for another. In simpler terms, it
determines how much of one currency you will get in exchange for a unit of another currency. For
example, if the exchange rate between the U.S. dollar (USD) and the peso (PHP) is 1 USD = 57.88 PHP,
it means that for every 1 U.S. dollar, you would receive 57.88 pesos.

Exchange rates play a crucial role in international trade, investment, and financial transactions. They
influence the cost of imports and exports, the value of investments in foreign countries, and the overall
economic stability of countries.

Types of Exchange Rate Systems

1. Fixed Exchange Rate
A country’s currency value is pegged to another major currency, such as the U.S. dollar or the euro, or
to a basket of currencies. The government or central bank actively intervenes in the market to maintain
the exchange rate at a set value.
Example: The Hong Kong dollar (HKD) is pegged to the U.S. dollar.
2. Floating Exchange Rate:​
A currency’s value is determined by market forces—supply and demand in the foreign exchange
market—without direct government control. In this system, the exchange rate can fluctuate freely.
Example: The U.S. dollar (USD) and the euro (EUR) follow a floating exchange rate system.
3. Managed or Dirty Float:
A hybrid system where the currency primarily follows a floating exchange rate, but the government or
central bank occasionally intervenes in the market to stabilize or adjust the currency’s value.
Example: The Indian rupee (INR) is managed to some extent by the Reserve Bank of India.
Several factors influence exchange rates
1.​ Interest Rates: Higher interest rates tend to attract foreign investors seeking higher returns,
increasing demand for the country's currency. This can lead to an appreciation in the value of the
currency.
2.​ Inflation: Countries with lower inflation rates tend to have stronger currencies because their
purchasing power remains stable. Higher inflation can lead to a depreciation of a currency.
3.​ Economic Performance: Strong economic performance, including GDP growth, low
unemployment, and productivity, can strengthen a currency. Investors tend to prefer countries
with robust economies, which increases demand for that country's currency.
4.​ Government Debt: Countries with high levels of debt may see their currency depreciate due to
concerns about their ability to repay the debt. High debt levels can result in higher inflation or
risk of default, leading to a decrease in currency value.
5.​ Political Stability: Political stability is crucial for investor confidence. Countries with stable
governments are more likely to have stronger currencies, while political instability can lead to a
depreciation of the currency.
6.​ Market Speculation: Investors and traders often speculate on currency movements. If they
believe a currency will strengthen, they buy more of it, driving up its value. Conversely, if they
believe a currency will weaken, they sell it, causing its value to drop.
7.​ Trade Balances: A country's balance of trade (exports vs. imports) affects the demand for its
currency. If a country exports more than it imports (a trade surplus), there is typically higher
demand for its currency, leading to appreciation. Conversely, a trade deficit can lead to
depreciation.

Impact of Exchange Rate

1.​ Imports and Exports: Exchange rates have a direct impact on the price of goods and services
traded internationally. A strong domestic currency makes imports cheaper and exports more
expensive for foreign buyers. A weak domestic currency makes exports cheaper and imports
more expensive.
2.​ Inflation: Currency depreciation can cause inflation by making imported goods and raw
materials more expensive, which can lead to higher prices domestically.
3.​ Travel and Tourism: Exchange rates also affect the cost of international travel. A stronger
domestic currency makes travel abroad cheaper, while a weaker currency makes it more
expensive.
4.​ Foreign Investment: Investors consider exchange rates when making decisions about
investing in foreign markets. A currency that is expected to appreciate will make foreign
investments more profitable, while a currency expected to depreciate can reduce the return on
investment.
CONCLUSION:
Exchange rates are crucial in determining the cost of conducting international business, investing
abroad, and trading currencies. They fluctuate due to a variety of economic and political factors, and
understanding them is vital for global trade, investment, and financial stability.

Group 1: INTEREST RATES, EXPECTATION AND EQUILIBRIUM, DEMAND AND SUPPLY OF

MONEY, EXCHANGE RATES

INTEREST RATES
The interest rate is the amount a lender charges a borrower and is the percentage of the principal—the
amount loaned. The interest rate is the amount charged on top of the principal by a lender to a borrower
for the use of assets.
Assets borrowed can include: Note: Annual Percentage Rate (APR)
• cash
• consumer goods
• vehicles, and
• property.

Because of this, an interest rate can be thought of as the "cost of money"—higher interest rates make
borrowing the same amount of money more expensive. When the borrower is considered to be low risk
by the lender, the borrower will usually be charged a lower interest rate.

COST OF BORROWING
The interest expense - also known as the cost of borrowing money - can be classified into the following
two types:
●​ Simple Interest - is calculated on the original or principal amount of loan. The formula for
calculating simple interest is: Simple Interest = Principal x Interest Rate x Term of the Loan

●​ Compound Interest - is calculated not just on the basis of the principal amount but also on the
accumulated interest of previous periods. This is the reason why it is also called "interest on
interest."

REAL AND NOMINAL INTEREST RATES

A nominal interest rate is one with no adjustments made for inflation. The real interest rate takes the
inflation rate into account. The repayment of principal plus the interest is measured on the basis of real
terms compared against the buying power of the amount at the time it was borrowed, lent, invested, or
deposited.

FACTORS AFFECTING INTEREST RATES

1. Forces of demand and supply
Interest rates are influenced by the demand for, and supply of, credit in an economy. An increase in
demand for credit eventually leads to a rise in interest rates, or the price of borrowing.

2. Inflation
The higher the inflation rate, the higher interest rates rise. That is because interest earned on money
loaned must compensate for inflation.
3. Government
In some cases, the government's monetary policy influences the amount of interest rates. Also, when the
government buys more securities, banks are injected with more money to be used for lending, and thus
interest rates decrease.
EXPECTATIONS THEORY
Expectations theory attempts to predict what short-term interest rates will be in the future based on
current long-term interest rates. known as the "unbiased expectations theory." aims to help investors
make decisions based on a forecast of future interest rates.

DISADVANTAGES OF EXPECTATIONS THEORY

• Overestimates future short-term rates.
• Ignore external factors affecting bond yields (inflation, Fed policies, economic growth).
• Does not consider macroeconomic influences on interest rates.

EXPECTATIONS THEORY vs PREFERRED HABITAT THEORY

●​ Expectations Theory states that the yield on long-term bonds is determined solely by
expectations of future short-term interest rates. Investors are indifferent to bond maturities and
will hold any bond as long as it offers the highest expected return.

●​ Preferred Habitat builds on this by adding the idea that investors have a preference for certain
maturities (a "habitat"). Investors favor short-term bonds unless long-term bonds offer a risk
premium to compensate for the added uncertainty and risk.

EQUILIBRIUM INTEREST RATE

The equilibrium interest rate is the rate at which the quantity of money demanded equals the quantity of
money supplied. The Federal Reserve (Fed) can alter this rate through monetary policy.
This presentation explores the determinants and effects of changes in the money supply on interest
rates. The equilibrium interest rate occurs where the money demand curve intersects the money supply
curve. Denoted as it represents the prevailing market interest rate.

Key factors influencing the equilibrium interest rate:

➢​ Money supply (controlled by the Fed)
➢​ Money demand (affected by income levels, inflation, and economic conditions)

The equilibrium interest rate occurs where the quantity of money demanded is equal to the quantity of
money supplied. Here, the equilibrium interest rate is
If the Federal Reserve increases the money supply, the supply of money shifts to the right. This causes
the equilibrium rate of interest to fall from to i1.

If the Federal Reserve decreases the money supply, the supply of money shifts to the left. The
equilibrium rate of interest will increase from to i2.

DEMAND & SUPPLY OF MONEY

Demand of Money
The demand for money refers to the amount of wealth that households and firms in an economy choose
to hold in the form of money, which includes notes and coins in circulation, as well as very liquid bank
deposits.

There are three main reasons for holding money:

1.​ Transaction demand: Money needed for undertaking transactions like paying employee salaries
and purchasing goods and services. As real GDP increases, demand for money to carry out
transactions also increases.
2.​ Precautionary demand: Money held for unforeseen future needs. The total amount of
precautionary demand for money increases with the size of the economy.
3.​ Speculative demand: Money set aside to take advantage of future investment opportunities.

Factors Affecting Speculative Demand

1.​ Expected returns: Speculative demand is inversely related to returns available in the market.
Higher returns from bonds and other financial instruments reduce speculative money balances.
2.​ Perceived risk: Speculative demand is positively related to perceived risk in the market. When
risk is to be higher. people choose to reduce exposure to risky assets and hold money instead.
3.​ Short-term interest rates: Demand for money for speculative reasons is inversely related to
short-term interest rates. Lower interest rates encourage higher money demand. while higher
interest rates increase the opportunity cost of holding money and lower speculative demand.
SUPPLY OF MONEY
Supply of Money is the sum total of all of the currency and other liquid assets in a country's economy on
the date measured. The money supply includes all cash in circulation and all bank deposits that the
account holder can easily convert to cash.
To keep the economy stable, banking regulators increase or reduce the available money supply through
policy changes and regulatory decisions.

THE MONEY SUPPLY NUMBERS: MI, M2, AND BEYOND

➢​ M1 - also called narrow money. This is a count of all of the notes and coins that are in
circulation, whether they're in someone's wallet or a bank teller's drawer, plus other money
equivalents that can be converted easily to cash.
➢​ M2 - includes MI plus short-term time deposits in banks and money market funds. Generally,
terms of less than a year are considered short-term.
➢​ M3, now discontinued, included M2 plus long-term deposits.
➢​ M0 measures real cash in circulation and bank reserves.
➢​ MB, or money base, is the total supply of currency plus the stored portion of commercial bank
reserves at the central bank.

WHAT ARE THE DETERMINANTS OF THE MONEY SUPPLY?

The large numbers of MI or M2 contain components that economists analyze to determine how money
flows through the system and where problems might arise. Economists speak of these components as
the determinants of the money supply.
➢​ Currency deposit ratio: This is the amount of cash that the public at large is keeping on hand
rather than depositing in banks.
➢​ Reserve ratio: This is the amount of cash that the Central Bank requires a bank to keep in its
vaults to satisfy all potential withdrawals by its customers.
➢​ Excess reserve: This is the amount of money that the banks have available to lend out to
businesses and individuals.

MONEY SUPPLY AND INTEREST RATES: AN INVERSE RELATIONSHIP

A nation's money supply plays a big part in the way interest rates are set but it isn't the only thing that
affects them. Money supply works in conjunction with market risk which also puts pressure on rates.
This branches out into two functions that significantly affect rates. Economists refer to these dual
functions as liquidity preference and risk premium.

LIQUIDITY PREFERENCE- is a theory that suggests that investors are willing to give up liquidity for
higher interest rates.

RISK PREMIUM- the level of risk that investors and lenders are willing to accept.

EXCHANGE RATES
Exchange rate is the value of one currency in terms of another. It impacts international trade, tourism,
and import prices. Exchange rates are influenced by factors like interest rates, economic activity, GDP
and unemployment.
Types of Exchange Rates:
• Free-floating: Determined by supply and demand in the forex market.
• Fixed: Pegged to another currency (e.g.. the Hong Kong dollar is pegged to the U.S. dollar).

Forex Market
A global decentralized marketplace where currencies are traded 24/7. Banks. financial institutions. and
speculators influence currency prices.
Impact on Supply and Demand:
• Affects the cost of imports and exports.
• Influences foreign tourism and investment.
Restricted Currencies:
• Some governments, like China's, control their currency's value and restrict exchange outside their
borders.

Group 2: THE INFLATION AND EXCHANGE RATE DYNAMICS

What is Inflation?
Inflation is the rate at which the general level of prices for goods and services is rising, and
subsequently, purchasing power is failing.

In other words high inflation tends to lead to a weaker exchange rate, meaning the domestic currency
depreciates against foreign currencies; conversely, low inflation can support a stronger exchange rate.

Key Factors influencing high inflation rate

1.​ Demand-Pull Inflation: This occurs when aggregate demand exceeds the economy's ability to
supply goods and services.
2.​ Cost-Push Inflation: This happens when the costs of production increase, leading businesses
to raise prices.
3.​ Monetary Policy: Excessive expansion of the money supply by a central bank can lead to
inflation.
4.​ Geopolitical Factors: Wars or trade disputes can create uncertainty and disrupt the flow of
goods, leading to price increases.
5.​ Inflationary Expectations: If people expect inflation to rise, they may demand higher wages,
and businesses may raise prices in anticipation, creating a self-fulfilling prophecy.

What is Exchange rate?

Exchange rate dynamics encompasses the continuous fluctuations in the value of one currency relative
to another. These movements are influenced by a multitude of economic factors, such as interest rate
differentials and inflation rates.

Market speculation and investor sentiment further contribute to the volatility observed in exchange rates.
The study of exchange rate dynamics is essential for understanding global financial markets and the
impact of currency fluctuations on international trade.

Key Factors Influencing Exchange Rate Dynamics:

1.​ Economic Factors:
➢​ Interest Rates: Higher interest rates in a country can attract foreign investment, increasing
demand for its currency.
➢​ Inflation: High inflation can erode a currency's value, causing it to depreciate.
➢​ Economic Growth: Strong economic performance can boost investor confidence and
increase demand for a currency.
➢​ Government Debt: High government debt can raise concerns about a country's economic
stability, weakening its currency.
➢​ Trade Balances: A country with a trade surplus (exports exceeding imports) tends to see
its currency appreciate.

2.​ Political Factors: Political stability or instability can significantly impact investor confidence and
currency values. Government policies, such as monetary and fiscal policies, play a crucial role.
 3.​ Market Psychology: Speculation and investor sentiment can drive short-term exchange rate
fluctuations. "Safe-haven" currencies may see increased demand during times of global
uncertainty.

4.​ Supply and Demand: Like any market, exchange rates are influenced by the forces of supply
and demand. Increased demand for a currency will cause its value to rise, while increased supply
will cause it to fall.

Understanding the Dynamics

Exchange rate dynamics are complex and involve interactions between numerous factors.
These dynamics can be short-term (day-to-day fluctuations) or long-term (trends over months or years).

Short-term: ➢ Example: A news report that a country's leader made an unexpected statement might
cause its currency to quickly drop or rise within hours. That's a short-term fluctuation, like a sudden gust
of wind.
Long-term: ➢ Example: If a country consistently has higher inflation than its neighbors for several
years, its currency will likely steadily weaken over that time. This is a long-term trend, like the gradual
change of seasons.

The International Capital Market and Gains from Trade

The international capital market is a global system where money, investments, and financial assets
move across borders. It includes banks, stock markets, bond markets, and institutions that help
businesses, governments, and individuals raise or invest money internationally.

How It Relates to Gains from Trade:

Gains from trade refer to the economic benefits that countries get from exchanging goods, services, and
capital. The international capital market plays a big role in this by:
1.​ Providing Capital for Investment – Countries with excess savings can lend to those needing
funds for development, boosting global economic growth.
2.​ Reducing Cost of Capital – Businesses can borrow money at lower interest rates, leading to
more investment and expansion.
3.​ Enhancing Efficiency – Capital flows to places where it can be used most productively,
increasing overall wealth.
4.​ Facilitating Risk Sharing – Investors can spread their money across different countries,
reducing the impact of economic downturns in any single country.

In short, the international capital market helps countries trade not just goods but also investments,
leading to higher productivity, better financial stability, and economic growth.
Here are some examples of how the international capital market contributes to gains from trade:
1.​ Foreign Direct Investment (FDI) – When a U.S. company like Tesla builds a factory in China, it
brings capital, technology, and jobs, boosting both economies.
2.​ International Stock Markets – A Filipino investor buys shares in Apple through the New York
Stock Exchange (NYSE), benefiting from U.S. company growth while bringing foreign capital into
the U.S. market.
3.​ Government Borrowing – Developing countries like the Philippines issue bonds in international
markets (e.g., through the Asian Development Bank) to fund infrastructure projects, improving
trade efficiency.
4.​ Cross-Border Bank Loans – A Japanese bank lends money to an Indian startup, helping it
expand and compete globally.
 5.​ Cryptocurrency and Digital Investments – Investors from different countries trade Bitcoin and
other cryptocurrencies, allowing capital to flow freely across borders without traditional banking
restrictions.

The Banking and Financial Fragility

Definition of Banking and Financial Fragility
Banking and financial fragility refer to the vulnerability of financial institutions and systems to crises,
instability, and collapse. It occurs when banks and other financial institutions face liquidity shortages,
solvency issues, or external shocks that lead to economic downturns.

Causes of Banking and Financial Fragility

1.​ Poor Risk Management – When banks fail to properly assess and manage risks, they become
vulnerable to financial shocks. High exposure to risky loans or investments can lead to losses.
2.​ Liquidity Shortages – If banks do not have enough liquid assets to meet withdrawal demands,
they may experience bank runs, leading to insolvency.
3.​ Excessive Leverage – When banks borrow too much relative to their capital, they become
highly sensitive to market fluctuations and financial downturns.
4.​ Macroeconomic Factors – Economic recessions, inflation, and exchange rate fluctuations can
weaken banking institutions, making them more susceptible to crises.
5.​ Regulatory Failures – Weak financial regulations and poor oversight by central banks and
financial authorities can lead to systemic weaknesses.

Case Studies of Banking Fragility

1.​ The 2008 Global Financial Crisis – Triggered by excessive subprime mortgage lending in the
U.S., it led to the collapse of major banks like Lehman Brothers, requiring massive government
bailouts.
2.​ 1997 Asian Financial Crisis – Started in Thailand due to currency devaluation, causing banking
collapses in multiple Asian countries.
3.​ Philippine Banking Crisis (Early 2000s) – Several rural banks collapsed due to
mismanagement and fraudulent practices, leading to tighter banking regulations by the Bangko
Sentral ng Pilipinas (BSP).

Measures to Prevent Banking and Financial Fragility

1.​ Stronger Regulatory Framework – Governments and financial authorities should enforce
stricter regulations on banking practices.
2.​ Improved Risk Management – Banks should adopt better risk assessment models to avoid
overexposure to risky assets.
3.​ Maintaining Adequate Liquidity Reserves – Banks must ensure they have enough liquid
assets to meet sudden withdrawals.
4.​ Transparency and Accountability – Financial institutions must be transparent in their
operations to build public trust.
5.​ International Cooperation – Global financial institutions like the IMF and World Bank play a role
in monitoring and stabilizing financial systems.

Group 3: INCOME, WEALTH, AND GROWTH IN THE WORLD ECONOMY

Economic growth, income distribution and money accumulation are central to understanding the
dynamics of the global economy. While economic development has excluded millions from poverty, it
has increased the inequalities within and also within the nations.
The analysis is structured around three major subjects:
(1) global economic development,
(2) income and wealth inequality, and
(3) policy implications for sustainable development.

Global Economic Growth

According to our world data, with quick growth in the period after World War I, there has been a
significant increase in global GDP since the Industrial Revolution. This growth is inspired by
technological progress, globalization and improvement in education and healthcare.
High -income countries have experienced continuous growth, while many low-income countries have
fought for equal progress. Inequality in growth rate underlines uneven benefits of globalization and
challenges of achieving inclusive growth.

Income and Wealth Inequality

While economic development has reduced complete poverty, it has also given rise to increasing income
and wealth inequality. Our world's data in Pew Research Center and data shows that the gap between
the richest and poorest has become quite wide in recent decades.
●​ Income Inequality - Income inequality within countries has increased in many areas, especially
in advanced economies. Globalization, technological change and policy options (eg, tax reforms)
have contributed to this deviation.
●​ Wealth Inequality Money inequality is even more clear than income inequality. The
concentration of money between the top 1% has reached historical levels, with a significant
implication for social mobility and economic stability. Inequality of money is inspired by factors
such as heritage, capital gains and access to financial markets.
●​ Global Inequality China and India are the countries that have declined due to the rapid growth.
However, inequality has increased within countries, causing complex patterns of inequality.
Emperor activity between global and national inequalities faces challenges for policy makers who
want to promote equal development.

Drivers of Inequality and Growth

Several factors contribute to the observed trends in income, wealth, and growth:
●​ Tological change: Automation and digitization have created the winner and loser, who benefit
skilled workers and capital owners.
●​ Globalization: While globalization has promoted growth, it has also given rise to job
displacement and stagnation of wages in some areas.
●​ Policy options: Taxes play an important role in shaping the disputes and development results in
investment inequality and development results in Education.

Implications for Sustainable Development

There are deep implications for the sustainable development of income, money and development trends.
Increasing inequality can reduce harmony, increase political instability and disrupt economic A versatile
approach is required to solve these
●​ Progressive taxation: Applying systems to rebuild funds and fund public services.
●​ Activity in education and healthcare: Increasing human capital to promote inclusive
development.
●​ Global Cooperation: They address tax evasion, illegal financial flow, and climate change
through international cooperation.

DEVELOPING COUNTRIES BORROWING AND DEBT.

Developing countries are facing an unprecedented debt crisis, in which record-high loan payments are
reducing stress and development efforts in public finance. In 2023, these countries paid $ 1.4 trillion in
foreign debt servicing, removing resources from important areas such as health, education and
infrastructure.
The global economy is struggling with a rising debt crisis, especially in developing countries. Increased
costs, economic shocks and structural challenges have pushed many countries to the verge of debt
crisis. In 2023, developing countries paid $ 1.4 trillion in foreign debt servicing, which highlights the
severity of the crisis.

The Scale of Debt Crisis

The debt burden in developing countries has reached dangerous levels. According to the World Bank,
these countries paid $ 1.4 trillion in foreign debt servicing in 2023, a significant growth from previous
years. This figure represents sufficient stake in government revenue, limiting countries' capacity to invest
in priorities of development. UNCTAD that there is a high risk of debt crisis in more than 50 developing
countries, some are already missing their obligations. Covid-19 epidemic, global inflation, and rising
rates have increased the crisis, causing an ideal storm for dem stability.

Drivers of the Debt Crisis

Several factors have contributed to the current debt crisis:
1.​ Rising Borrowing Costs - Especially advanced economies have increased global interest rate
increase by central banks, increased costs for developing countries. Many nations are now
paying much more to remove resources from essential public services, to serve their debt.
2.​ Economic Shocks - Covid-19 epidemic and later economic disruption have stressed public
finance. Governments borrowed heavy borrowings to fund epidemics response measures,
causing a sharp increase in debt level. Additionally, disruption of global inflation and supply chain
has weakened economic flexibility.
3.​ Structural Challenges - Many developing countries limit structural issues such as revenue,
weak institutions and dependence on commodity exports. These challenges make it difficult to
manage loans and respond to external shocks.
4.​ Climate Change - Climate related disasters have added to debt burden, especially in weak
countries. The need for climate adaptation and mitigation measures has increased lending, while
natural disasters have disrupted economic activity and reduced revenue.
Implications of the Debt Crisis
The debt crisis has far-reaching implications for developing countries and the global economy:
1.​ Reduced Public Investment - High debt servicing costs have forced governments to cut
spending on important areas such as health, education and infrastructure. It reduces long -term
growth and increases poverty and inequality.
2.​ Economic Instability - Debt crisis currency devaluation, capital flight and financial crisis can
further destabilize economies.
3.​ Social and Political Consequences - Debt crisis can promote social unrest and political
instability, as citizens take up the measures of penance and reduce public services.
4.​ Global Spillover Effects - Developing countries pose risk to the debt crisis, global economy,
including low trade, financial fingering, and increased migration pressure.
Pathways to Debt Sustainability
Addressing the debt crisis requires a multifaceted approach involving national, regional, and global
efforts:
1.​ Debt Restructuring and Relief - Comprehensive debt reorganization initiative is required to
reduce the debt burden on developing countries. Cantos such as G20 Common Framework
should be strengthened to ensure timely and justified debt relief.
2.​ Increased Financing for Development - Developing countries need access to cheap financing
to support and support investment in sustainable development. Multilateral development banks
and international financial institutions should increase discounted loans and grants.
3.​ Strengthening Domestic Revenue Mobilization- Governments should improve tax collection
and reduce illegal financial flow to increase fiscal stability. International cooperation is necessary
for multinational corporations to combat tax evasion and change in profit.
4.​ Climate Finance - Developed countries should fulfill their commitments to provide climate
finance to developing countries. This includes money for adaptation, mitigation and loss and
damage due to climate change.
5.​ Global Economic Reforms - The international community should address structural issues in
the global financial system, including the lack of representation for developing countries in
decision -making bodies and require a more equitable debt solution mechanism.

Group 4:
●​ GENERAL OVERVIEW OF TRADITIONAL BANKING
●​ GENERAL OVERVIEW OF BANKING AND HISTORY OF BANKING
●​ E-BANKING

GENERAL OVERVIEW OF TRADITIONAL BANKING

➢​ A BANK is a financial institution licensed to receive deposits and make loans.
➢​ There are several types of banks including retail, commercial, and investment banks.
➢​ In most countries, banks are regulated by the national government or central bank.

Basic Bank Services

●​ Checking Accounts
●​ Savings Accounts
●​ Loan Services

How are Banks regulated

The Bangko Sentral ng Pilipinas (BSP) (or the Philippine Central Bank) is the central monetary authority
in charge of regulating money, banking and credit in the Philippines. The BSP is an independent
government-owned corporation with the primary responsibility of supervising and regulating finance
companies, bank operations, non-bank financial institutions performing quasi-banking functions, and
other institutions performing similar functions.

Types of Banks
1.​ Commercial Banks
2.​ Universal Banks
3.​ Thrift Banks
4.​ Rural Banks
5.​ Cooperative Banks
6.​ Islamic banks

In 2020, the BSP’s Monetary Board approved the inclusion of digital banks as another distinct type.
How Traditional Banks operates
Traditional banks are essential financial institutions known for their reliability and longstanding presence
in the financial sector. They offer various services that cater to both individuals and businesses, ensuring
financial stability and fostering trust.

1.​ Branches - Bank branches serve as physical locations where customers can access financial
services. They allow for direct interaction with bank representatives, offering services such as
opening accounts, processing loans, and providing financial advice.
2.​ Automated Teller Machine (ATM) - ATMs provide a convenient way for customers to perform
various banking transactions without visiting a branch. These machines allow cash withdrawals,
deposits, balance inquiries, and bill payments
3.​ Face to face services - Emphasize personal interactions through in-branch banking services.
Account Opening - Deposits and Withdrawals - Loan Applications - Foreign and Currency -
Financial Advisory and Investment Services

Advantages of Traditional Banking Disadvantages of Traditional Banking

Personal face to face service Limited banking hours

Safe place for Money Slow service speed

Offers physical services High Transaction fees

Easy local access Less Accessibility in rural areas

Provides Financial Risk of physical theft

General Overview of Banking and History of Banking

The sector of the economy known as banking manages credit, currency, and financial transactions for
people, companies,and governments.

History of Banking
The history of banking spans thousands of years, evolving from rudimentary systems in ancient
civilizations to the global networks and digital innovations we see today. This article traces the
development of banking from its origins to the present day, highlighting the significant milestones and
innovations that have shaped the industry.

Ancient Mesopotamia
●​ First lending
●​ temples- first bank
●​ Stored valuables and grains
●​ priests loan to local farmers and merchants
●​ Bookkeeping- Records of transactions
●​ Moneylender and private depositors
●​ System of coinage
●​ Bills of exchange- could transfer money from one place to another.

Medieval and Renaissance Europe

●​ Florence, Venice, and Genoa- major banking centers.
●​ Double-entry Bookkeeping system- Medici bank by Florence
●​ Bank of Amsterdam, Bank of England and Sveriges Riksbank- Central bank
The Expansion Of Banking
●​ Joint-stock banks- investors buy shares and participate in profits.
●​ Bank of New York- First bank in U.S (1791)
●​ Federal Reserve System- Maintain financial stability and serve as the central banking authority in
the US.

Innovations and the Evolution of Banking

●​ Telegraph- faster communication between banks
●​ Telephone- revolutionized communication
●​ ATMs, electronic banking and online banking
●​ International payments and currency exchange

E-Banking - Electronic Banking (e-banking) refers to the use of digital platforms such as websites and
mobile applications to conduct financial transactions and access banking services without visiting a
physical branch.

How does E-Banking start?

Timeline of E-Banking
1960s: Banks started using mainframe computers
1967: The first ATM was installed
1980: United American Bank launched the first home banking service
1994: Stanford Federal Credit Union launched the first Internet banking website
2000s: The internet boom
2006: Approximately 80% of all U.S. banks were providing internet banking services
2011: Google introduced Google Wallet
2022: Approximately 80% of banking customers globally were regular users of mobile banking
technology

E-Banking Services
1.​ Online Banking - Accessing banking services through a website using a computer or mobile
browser.
2.​ Mobile Banking – Accessed via specialized apps, emphasizing convenience and features
tailored for mobile device users
3.​ Electronic Fund Transfers (EFTs) – Digital money transfers between banks
4.​ Point-of-Sale (POS) Transactions – Debit/credit card transactions for purchases with cashless
transactions.
5.​ Digital Wallets – Allow users to store money electronically and make transactions online or
in-store.

Advantages Disadvantages

Convenience Cyber Risks

Fast Transactions Technical Issues

Financial Inclusion Limited Support

Security Features Tech Dependence