Argument for privatization
High competition and call for efficiency have been some of the factors that have propelled processes of privatizing state owned enterprises. Many state owned enterprises have of late been characterized by poor management and political controls which have threatened their success. Privatization process involves transfer of ownership of the state owned enterprises to private sectors through allocation of shares or direct sale. William (2003) postulate that in many European countries, great privatization of state owned enterprises have occurred since 1990. He asserts that the main drives to privatization have been
1. Market efficiency objectives
The exposure of the privatized enterprises to the market forces ensure market efficiency objectives are achieved. Thus the economic efficiency and growth can easily become a reality. Efficient markets will ensure resources are allocated in the best way through market mechanism where forces of demand and supply dictate transactions.
2. Capital market development and attraction of foreign investment
Privatization of state owned enterprises offers a chance to the private sector to buy shares from these enterprises and become owners of these enterprises. This also increases liquidity in equity markets. Foreigners can also come in and be part of those buying those shares
3. Fiscal objectives
It has become a policy of many governments to cut expenditures so as to avoid deficits in their budget. Since the state owned enterprises have usually been allocated some funds to ensure their survival then their privatization have been a great relieve to the government. The budget deficit is therefore narrowed.
Political objectives
The privatization process ensures accountability and reduces cases of corruption reported from the state owned enterprises. It also offers a chance to the citizens to own and control their economy. Patriotism and association to the government on the part of the citizens is thus created.
The emergent of the current financial market have played a great role towards the privatization of the state owned enterprises. Their structures mixed with the prevailing institutions have enabled the process of privatization.
Financial markets include all mechanism involved in transactions of buying and selling. Selling and buying may involve commodities such as manufactured and agricultural goods, financial securities such as bonds, treasury bills and bonds, all services with an economic value or any other item that has a value attached to it. Financial markets therefore enable transfer of risk and capital raising as well as international trade. Financial markets may entail commodity markets, capital markets or money markets.
Key issues and concepts that explain why emerging financial markets behave differently from developed financial markets
The behavior of current financial markets has variation from that of already developed financial markets. As postulated by David and Charles (2001), the cause of this can been attributed to various factors. Some of these factors include
1. Law
Various rules and regulations have been formulated to guide the financial markets. The past experience of poor financial markets have increased the quest for creating rules that will ensure that the causes of poor financial markets performance will not be repeated. Old rules and regulations are modified while some are done away with to give existence of new promising rules. The rules concerning contracts, property rights (the copy rights, patinents and trade secrets), acquisition and mergers rules and corporation procedures have entailed new changes in the financial markets. Laws formulations have also been influenced by behavior and norms prevailing in these financial markets.
1. Institutions of information and control
Information technology has been changing rapidly. Today market information can be accessed by various economic actors. This information is very essential to market players as far as making is concerned. In our contemporary world, processing of market data to obtain sensible information can be achieved through a click of the computer mouse with the support of various information systems soft wares. Various institutions which are financial markets information based have been formed to provide the essential information to market players.
Control institutions have also been part of current financial markets. Capital markets and money markets are usually controlled by various institutions. Capital market authorities have the role of ensuring that the stock markets runs smoothly. The central banks federal reserves also have some control on money market. They ensure smooth flow of currency and that the exchange rates are conducive for financial markets. It is these banks which issue currency and or coins which are a major medium of exchange in financial markets.
In todays financial markets players are well informed and even they can predict the next market trends. Their expectations dictated by the information available have a great influence on financial markets. Businesses reporting dailies, websites and information systems have become available to the economic agents. Nowadays consumers with common interests can share information in an effort to solve their problem.
3. Inflation and currency stability
Inflation can be defined as the persistence increase in price. The prevailing inflation rates have greatly influenced the economic actors decisions. The current financial markets are characterized by changing rates of inflation. No any economic agent will wish to make a decision that will lead to losses. When prices are high, buyers will rather hold their wealth in liquid form than purchasing assets like stocks and other capital assets. On the other hand when inflation rates are low buyers will be willing to buy assets with intention of making capital gains. All this decisions and their consequent results such as increase or decrease in circulation of money makes the current financial markets to behave differently as compared to the already developed financial markets. The currency stability is usually determined by the world market. These will have effect on international financial markets.
Technology
Technological innovations have greatly influenced the financial markets. The inventions of credit and debit cards have influenced the purchasing behavior of many economic agents. The internet has also become an important forum to buyers and sellers. Selling and buying can be conducted online without the physical contact of the seller and the buyer. The informediaries have also played a great role in the current financial markets. Innovations have also lead to production of very high quality products. This has enhanced competition among the producers and the process of learning has become very essential for any producer wishing to survive in this markets.
Michael etal (2003), postulate that the process of globalization has also played a big role in economic growth. The globalization process has an indirect and a direct influence. Globalization in terms of labor market, commodity markets, and capital markets has greatly influenced the behavior of today financial markets. Varieties of commodities from various countries are available in the local markets. Labor mobility across the borders has also increased. The capital markets have also been internationalized. These entire occurrences have affected demand and supply forces in the market. Consequently prices have been changing every day.
Luigi (2005) asserts that many current economies are characterized by high technological investments, risks and new equity financing. The issue of risks is another characteristic that is influencing the current market behavior. Risks can be associated to various financial markets. The chances of getting loss in capital markets, commodities market or the money market have been varying everyday. The insurance companies have intercepted to cover most of these risks. This has greatly influenced the behavior of economic players who are risk averse. The current financial markets have also experienced growth of small and medium size enterprises.
The economic and legal foundations associated with the design and regulation of financial systems in emerging markets
Various economic and legal institutions have been formulated to design and regulate financial systems in emerging markets. According to Jeffrey (1994) the capital markets have been influenced by the law governing internationalization of equity. Banking laws and International Monetary Funds (IMF) have acted as one of big foundations of todays financial markets and also to the promotion of international trade. Thorston (2003) postulate that, legal institutions governing enforcement of contracts, private rights and efficient allocation of capitals has been vital in the current financial markets.
James etal (1998) asserts any bank restriction can be very lethal to financial markets. Changes in supervisory and regulations standards should be enhanced to ensure financial crisis does not replicate. Randal (2000) asserts that, regulatory reforms is one of great foundations to the financial markets. Since technology has ever been changing then the prevailing regulations should be changed to accommodate these changes.
James and Glenn (2009) postulate some financial conditions about China. The financial markets in China are characterized by large banking sector, reduction of non performing loans while improving their efficiency. There has been non standard sector consisting of alternative financing channels, institutions and governance mechanism. Two bodies are involved in capital markets. These are Shangai Stock Exchange and Shenzhen Stock Exchange. The company law covering firms with limited liabilities, publicly traded and listed companies, keeping of accounting records, mergers and acquisitions and bankruptcy has been instituted. China is also a member of World Trade Organization (WTO) and has signed the General Agreement of Tariffs and Trade (GATT) which constitute two institutions that have a big say as far as international financial markets are concerned.
The current financial markets in China are under transition to more liberalized markets. The technology is also a big influencing factor in China. Competition is very high since production technology is highly emphasized. The markets have been partially liberalized although much needs to be done. Asli and Ross (2003) postulate that inflation, bank regulations and financial intermediation usually reflects the broad national approach to private ownership, policies institutions, interest margins as well as competition.
Key strategies associated with the management of risks in financial development
Risks in financial markets are as a result of uncertainties associated these markets. The chances getting loss is all what entails risk. Risk management will involve transfer of those risks to another party, loss mitigation, completely avoiding the risk or being ready to accept consequences associated with a particular risk.
The insurance companies have been managing risks of various economic agents. Simone (2001) postulates that efficiency and emphasize of productivity as well as optimization can play a big role in risk management. Decisions based on optimization will ensure risks are managed to the lowest possible levels. Optimization culture and systems should be directed at producing healthy enterprises. Proactive measures will also be a great contribution to risk management. Michael etal (2007) asserts that sellers should identify the customers needs, attain a strategic competitiveness and aim at above average return. The prevailing external and internal environment, available resources and information should be used in making optimal decisions.
Conclusion
Financial markets are ever changing phenomena. Economic actors will seek to optimize their choices given the current technology and available information. The sellers will seek to satisfy their customers needs profitably. The resultant situation is a very competitive market through which inefficient sellers will be wiped out. Innovation will be a strategic advantage to any player. In such an environment in our present financial markets then changes are inevitable. The ever inefficient, corruption eroded and accountability lacking state owned enterprises and organizations cannot survive in such an environment. Their privatizations will be a great relief.