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Glossary

By Melanie Matthews,2014-06-27 10:30
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Glossary ...

GLOSSARY (highlighted terms in text)

    Alternative Currencies: local, national or transnational medium of transaction or exchange, typically without

    government intervention. Examples include the Bia Kud Chum in Thailand; Tianguis Tlaloc in Mexico; Toronto

    Dollar, Canada; Value Dollar, USA; Tauschring Hinterupfing, Germany; Bons de Travail, Dakar, Senegal.

Balance of Payments (BoP): balance between “Current Account” (export of goods and services minus imports,

    debt servicing and remittances) and “Capital Account” (Direct foreign and domestic investment and loans minus

    amortisation of foreign assets and capital outward investment) less errors or emissions.

Bancor: Keynes had the idea that a fully international financial system that would require a global currency of

    transaction. The “Bancor” would be a neutral unit of currency with an international clearinghouse. All trade would

    be measured in Bancors. The budget would remain within small range of balance. And an equal obligation would

    exist between debtor and creditors to maintain this balance. If import exceeded exports a country would pay

    interest to the clearing union and similarly vice versa to prevent excessive deficit/surplus.

Capital Liquidity: access to assets that are readily available to cash and use in financial transactions

    Commodity-backed Reference Currency: See Global Currencies

     Commodity-valued Reference Currency: See Global Currencies

Contingent Credit Lines: Credit facility available to a borrower, given on condition to a specified event e.g.

    short-term capital liquidity problems

Corruption: 1.Political corruption: internal, domestic or foreign parties with a strong influence on a governing

    party’s fiscal policy (as well as elsewhere) e.g. bribes, intimidation etc. 2. Economic corruption: exploitation of

    flaws present in financial instruments and institutions for personal/ institutional gain.

    Exchange Rate/Currencies systems: 1. Fixed currencies: controlled by central government, managed by changing levels of money supply. 2. Pegged currencies: currency value is fixed to foreign exchange markets e.g. to the dollar, or a basket of currencies. A “Crawling peg”, allows some change according to inflation. 3. Floating

    exchanges: entirely open to markets. “Dirty floating” occurs where a government intervenes to slow exchange rate movements

Debt Workout: 1. Rescheduling: Under the Toronto Terms (1988) borrowers and lenders can mutually agree to

    reschedule debts, move the date of payment and reduce total debt and servicing levels. Toronto Terms were

    amended in London and recently more recently in Naples (now up to 80% debt relief can be offered to countries

    during crises). 2. Standstill: Halts debt service payments and imposes temporary control over foreign exchange to

    reorganise capital account transactions e.g. US Bankruptcy code. Ex-ante criteria in Article 4 of IMF Articles of

    Amendment include provision for debt standstills. Article 8 also provides the statutory basis for a unilateral

    decision by a debtor country to take the standstill option, if it faces both international capital liquidity problems

    and bank insolvency, through submission to an independent panel.

Derivatives: Financial instruments who’s value is based on the prices of commodities, currencies or other

    financial instruments. Common derivatives are Futures and Options. Derivatives markets trade in futures and

    options e.g. London International Financial Futures and Options Exchange. Leveraged derivatives, or “geared”

    derivatives are instruments that receive investments through borrowed capital.

    Domestic Financial Architecture: 1. Industrialised countries: generally have an integrated public/private financial system. Financial authorities issue currency, monitor and manage foreign reserves. Central banks manage

    government and domestic bank finances. Legislation and monitoring of monetary & fiscal policy is well

    established. 2. Developing countries: financial systems tend to be dominated by foreign banks and large informal

    credit and economic systems. Currency boards are common, with strong central government influence. 3.

    Transitional economies: may have a central bank but governments maintain a strong role. 4. Other structures

    include: “supra-national” central banks that service a group of countries e.g. Central Africa. “Currency enclaves”

    where an agreements exists between a developing country and trading partner e.g. Panama and USA, and the

    trading partner tends to dominate domestic policy. Finally some countries have open financial markets, dominated

    by commodity/capital flows e.g. Singapore, Saudi Arabia.

Environmental Management Systems (EMS): Environmental assessment based on international principles e.g.

    the ISO 14000 series. EMS describe approaches for environmental auditing, accounting, reporting (Internal and

    external), Life Cycle Analysis, Environmental Impact Assessment.

Fiat Currency: see Global currencies

Financial Risks: includes credit, market, liquidity, legal, operational risks and settlement of risks. For example,

    operational risks include financial losses through unforeseen internal (technical, physical, human) or external

    (natural disaster, conflict, political changes) events. Company philosophy and understanding of risk management

    are also important.

Financial Services: Includes insurance services (life, accident health, brokerage), banking, money transmission

    services, guarantees, trading on money markets, foreign exchange, derivatives (futures and options), exchange and

    interest rate instruments, securities, financial assets e.g. bullion, asset management, clearing houses, financial

    information services etc…

     Global Currencies: 1. Fiat currency: similar to Special Drawing Rights. The currency value is based on a basket

    of currencies and managed to prevent excessive issuances and tied to global economic activity. The currency has

    no intrinsic value but is backed by government securities rather than gold. 2. Commodity-valued reference

    currency: linked to a commodity basket of key commodities e.g. manufacturing, gold, plutonium. The currency

    value determined by a moving average as commodities are traded with periodic revision of the commodity basket

    to ensure the best performers are included. 3. Commodity-backed reference currency: entirely backed by a basket

    of commodities and charged for demurrage, where a demurrage charge reduces the value of the currency over time.

    This creates a disincentive to save currency but an incentive to mobilise transactions through capital flows and

    investment in long term, productive assets.

    Global Public Goods/Bads: definitions vary but in general “public goods are commodities, services or resources with shared benefits”, both “non-excludable” i.e. no one can be prevented access and “non-rivalrous” i.e. one

    person’s consumption does not impact another’s. Global public goods/bads are transboundary e.g. clean air,

    vaccination research, arms proliferation, air pollution. Local public goods/bads exist in a limited zone.

     Government Procurement: government purchasing of goods and services using public money

     Leverage Derivatives: See Derivatives

Microcredit: very small loans less than $150 for community groups or individuals e.g. farmers who need buffer

    loans to cope with seasonal slumps or entrepreneurs requiring small sums of money to initiate a venture.

     Moral hazard: Incentive to trick the system in absence of penalties for doing so. For example, the use of

    insurance against financial risks can create a disincentive to guard against the risk and encourage risk-taking.

    Off balance sheet activities: assets and financial activities that do not appear on a company’s official balance sheet

Rescheduling: See Debt Workout

Special Drawing Rights (SDR): are national reserves placed with IMF as an international reserve currency. SDR

    value is based on a basket of currencies (e.g. ?, $, Yen, Mark). Ex-ante conditions in IMF Article 4 could give

    provision for use of SDR as a last resort loans.

Standstills: See Debt Workout

Sustainability Impact Assessments: integrated assessment of financial investments in terms of macro and micro-

    economic, social, cultural, environmental, institutional criterion.

Sustainability Indices: Indicators of sustainability that can be use within impacts assessments e.g. % people living

    on less than US $1 a day as an (social) indicator of poverty.

World Bank Group: International Bank for Reconstruction and Development, International Development

    Association. World Bank has emergency debt/liquidity instruments e.g. the International Financial Corporation

    offers loans to private sector and Multilateral Investment Guarantee Agency offers foreign investors guarantees

    against “risky” investments.

    WTO principles: 1. Most Favoured Nation: Non-discrimination between member governments over trade in goods or services i.e. if benefits are offered to one trading partners they must apply to all members 2. Non-

    discrimination: (see 1). 3. National treatment: An imported product (good or service) must receive treatment no less favourable than a domestic product receives i.e. no additional taxes can be applied to foreign goods. Also rules

    of purchase, distribution, use and regulation of products must be the same for domestic and foreign products.

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