Exactly what is a financial market?
An economic marketplace is a spectrum term meaning a marketplace where consumers exchange assets by means of stock, currencies and derivatives. The supply and demand forces determine the cost of those assets.
Based on what’s traded, you will find mainly two kinds of markets:
1. Capital market – where securities like bonds, stock, etc. are traded. They’re for lengthy-term investment.
2. Money market – where high-liquidity products like US Treasury bills, currencies, etc. are traded. They’re for brief-term investment with equal likelihood of big gains and large losses.
Exactly why is financial market important?
The markets mobilize domestic savings and foreign capital for productive investments. The economical development of any country depends upon the efficiency of their markets. An ineffective financial market means that you’re not exploiting all possibilities as well as an inefficient you will cripple you and also not allow you to compete on the global scale.
Its degree of sophistication:
• Encourages Foreign Direct Investment (FDI)
• Enables domestic corporations to boost funds for growth and expansion
GCC Market Structure Overview
Developing their markets is a priority for GCC since 2002. Their vision has mainly visited promote the introduction of local marketplaces like UAE market structure and Kuwait market structure, and to help make the GCC countries an economic hub in the area. Using the oil prices shedding and also the depletion from the oil reserves, the GCC region doesn’t have choice but to diversify its economy for any sustainable growth.
Current GCC Market Structure
The Saudi Arabia market structure, though solid (no banks collapsed as a direct consequence from the Global Financial Trouble in 2008-09), still lacks sophistication. Most domestic companies even today use their retained earnings or traditional loans from banks to invest in their growth activities. In comparison with their Asian and South America counterparts, the location forms only .8% from the global capital volume states a Deutsch Bank report.
The proportion of GCC countries is even lower with simply 1% states an IMF report. The weak share from the UAE market structure is a result of the government’s heavy engagement within the economic activities and also the weak private sector.
To be able to appraise the financial marketplace development, the number of financial assets towards the GDP can be used. The GCC’s .8% share from the global financial sell to its 1.7% be part of the worldwide GDP shows a skewed size the financial sector.
The Kuwait market structure, however, implies that the financial sector plays a considerably greater role, 14% more specifically, in the share of GDP. For GCC, on the whole, finance chips in just 6% of GDP.
The present GCC capital structure implies that not just would be the countries behind when it comes to economic potential worldwide, but additionally in accordance with the event in the area.
Identified issues with the GCC Market Structure
• High banking concentration, mainly in the Saudi Arabian market structure, because of limited access web hosting players. Domestic and public monopoly has brought to poor investment atmosphere and restrictive policies. Progressively though, the coverage is being revoked to inspire liberalization.
• The weak competition that has brought to high costs, less types of financial instruments, poor services, etc.
• Stock markets in GCC happen to be far behind when it comes to worldwide standards having a focus on the biggest sector in Saudi Arabia. The stockmarket plays a significant role in Saudi Arabia capital structure, adding to 61% from the total domestic financial asset.
• Since you can easily make money using government projects, individual entrepreneurship isn’t supported and banking institutions don’t play operator in allocating investment capital and risk.
Although the liberalization and privatization from the GCC market structure happen to be arrived, the GCC region continues to have to visit a lengthy way. According to an IMF report, they ought to concentrate on the following financial sector reforms:
• Strengthen supply and demand
• Reduce government participation and speak in confidence to foreign competition
• Boost the bank regulatory and supervisory framework
• Develop effective and efficient capital instruments for financing