pdfLecture chapter 13

pdfLecture chapter 13 - MODULE 13 Global Debt and Country...

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1 MODULE 13 – Global Debt and Country Risk Introduction In this Module, we will discuss the impact of globalization, international trade and the capital market in relation to the operation of the IB system. The consequences of the global debt crisis, especially among developing nations and emerging markets, will be discussed. We will elaborate upon the country risk issue and recommended guidelines by the Basel Committee on Banking Supervision. Furthermore, the assessment of economic and industrial policies of the nations by the IB system will be elaborated upon. Finally, we will cover the operational risk guidelines recommended by the Basel II Accord. Objectives Upon successful completion of this module, the student should be able to: • Elaborate on the issue of globalization and its impact on the IB system. • Examine the consequences of the global debt crisis. • List guidelines provided by the Basel II Accord concerning bank supervision. • Discuss operational risk and the Basel II Accord’s recommended guidelines. T he globalization process increased international trade and lending activities in the capital market worldwide. It would seem as though industrial nations and large economies have been the only beneficiaries of the increased activity in the capital market. However, there may be some fallacy concerning this matter, since the international capital market is also utilized by the banking system to provide the necessary funds to emerging market nations, upon qualification. Borrowing by emerging market nations resulted from a series of global debt crises whose ripple effects impacted many regions beyond their original boundaries. This is a serious issue for developing nations, especially when loans become due and the nations default on their loan, due to a lack of capital formation. For developing nations and emerging market societies, it appears that the cycle of not being able to form capital is repeating itself, and if there has been any progress, it is not significant. Continuation of this process is posing a great obstacle for participation of all nations in the global financial market to the fullest extent. Obviously, this issue impacts the operation of IB significantly when it comes to cross-border borrowing and lending activity. Since there have been many financial crises caused by loan defaults on the part of various nations, international bankers are very prudent and take cross- border lending risk very seriously. The international financial market is dynamic, so ceteris paribus does not apply. Therefore, it is important that international bankers manage their risks, since they cannot eliminate them. There are many different risks involved with cross-border
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pdfLecture chapter 13 - MODULE 13 Global Debt and Country...

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