Increasing investment attractivness of CIS countries (ex-USSR Coursework

Increasing investment attractivness of CIS countries (ex-USSR countries) - Coursework Example De novo firms are very instrumental in the development of the transitioning countries. But, the development of the de novo corporations has been relatively lower, illustrating entry barriers. FDI of the energy sector is determined by long term aspects. They are also determined by the general investment climate, like corporate management, rule of law and transparency. Slovakia has significantly attracted FDI, because of the adequate volumes of oil and gas reserves. Inward FDI flows are approximately $790 million annually. Estonia has adequate net FDI inflows in Eastern Europe. This is due to the valuable oil and gas sector (Kudina 2014). Major FDI value originates from Western Europe, United States and Canada. Turkmenistan had an average inward FDI of $227 million. This was achieved through the production sharing arrangements between the oil sector and the non-oil sector joint ventures. Lithuania experienced a huge proportion of inward FDI, originating from the oil pipeline expansion projects, and the energy sector privatization. Latvia has inward FDI that greatly depends on huge mineral resources reserves. Inward FDI of Estonia is more diversified, illustrating the diverse industrial structure (Jakubial & Pacyzynski 2010). The major Latvia sectors getting major inflow FDI food, telecommunication and energy. The main source countries for the FDI are France, Russia and United States. Gazprom, a Russian company, has majority shares in Latgas, a Latvia gas company. The East European governments also make arrangements to cancel foreign debt, in exchange for equity; for example, the 100% equity of Hrazdan thermal plant, in exchange for cancelling debt (Khasson 2012). Some of the CIS countries have not adequately adopted the basic market reforms. This is the explanation for the low levels of FDI inflows, with a clear exception to the Yamal pipeline. The pipeline is owned and operated by Gazprom, but its

Financial intermediation Essay Example | Topics and Well Written Essays - 750 words

Financial intermediation - Essay Example Being an intermediary also means acting as the middleman or go-between among lenders and borrowers; a good example of a financial intermediary are the banks and other financial institutions which accept deposits from people who have extra monies and lend these out to those who need them and willing to pay interest for the use of the money. Financial intermediation is the crucial process in any of free capitalist markets or economies because it allows for capital-raising activities and helps to promote economic growth. This is achieved through a dual savings – investment process. Financial intermediation accomplishes three general objectives which are: convert a short-term liability into a long-term asset (banks do this by reconciling different maturities), a way to mitigate market risks (such as by lending to several borrowers instead of just one) and to re-denominate fund amounts (like bundling several small investors together and lend their monies to one big borrower; conver sely, one big deposit can be lent out to many borrowers). When financial regulation is performed by the concerned government authorities/agency in a prudential manner, it will safeguard the economy from excessive risks and abuses. The primary beneficiaries of financial intermediation are the borrowers who will be able to keep their borrowing costs down as opposed to borrowing directly on the markets and other primary beneficiaries are the lenders who will be insulated from any of probable market failures if done properly, as stated earlier, in a prudent way. The entire nation will benefit if it is well-managed, in the sense that intermediation increases financial efficiency. Using Financial Intermediation to Trade Risks – a good example to trade risks is the insurance industry. What insurance firms do is spread the risks by issuing several life policies, for example, because not all people die at the same time. In other words, only a few people do die in a certain year based on statistics (or probabilities) and so the insurance people can make money based on these probabilities. For example, they issue a thousand life insurance policies and accept premium payments on these policies; however, maybe only 10 people die within a single year and so they are able to earn profits because their payout is much less than revenues from the premium payments they receive. There are also many other ways by which risks can be traded, such as through esoteric investment instruments like credit default sways (CDS) or by selling collateralized debt obligations (CDO) like the sub-prime mortgage markets. The net effect of these opaque and poorly-understood instruments is to transfer the risks to the buyers. Banks, insurance firms and investment companies are example of financial intermediaries that trade risks in the open market and make money by their arbitrage activities. Intermediaries are necessary to mediate or mitigate the risks by credit rationing or diversification (Benner 90). Components of Good Financial Management – the collapse of the sub-prime market in the United States of America brought to the fore the issue of unregulated and opaque types of investment instruments such as derivatives (the CDO and CDS are two examples of these). Other examples of derivative investment instruments are options, futures, swaps and forwards in which the derivatives' values are based on another underlying commodity, hence its name. Its ultimate value is derived from other variables and derivatives are supposed to work by the process in which excessive swings or fluctuations in prices are avoided. A derivative in any of tradeable commodities is simply a contract in which the payoff is dependent on the