Isnin, September 22, 2008

Industry Participants of Financial Services

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Derivatives Markets
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Derivatives markets trade a range of complex products based on underlying instruments, including currencies, interest rates, equities, commodities and credit risk. Derivatives based on these underlying elements are available on both the exchange-traded market and the over-the-counter market (OTC).
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Turnover on north American and European derivatives exchanges increased four-fold between 2000 and 2005. US exchanges account for over half of global turnover; the largest of the exchange-traded derivatives markets is the Chicago Mercantile Exchange. Europe dominates trading in the OTC derivatives markets worldwide.
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Based on the value of the notional amounts outstanding, the OTC derivatives markets worldwide are about four times the size of stock quoted on stock exchanges. Interest rate derivatives contracts account for three-quarters of outstanding derivatives contracts, mostly through interest rate swaps.
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In terms of currencies, the interest rate derivatives market is dominated by the euro and the dollar, which have accounted for most of the growth in this market since 2001. The growth in the market came about as a reaction to the 2000 stock market crash as traders sought to hedge their position against interest rate risk.
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The UK enjoys the largest share of over-the-counter foreign exchange derivatives turnover. After the UK, the US and Japan, Singapore remains the next largest market for foreign exchange derivatives, ahead of Germany, Hong Kong, Switzerland and Australia.
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Fund Management
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Fund management is the investment management of portfolios for pension funds, insurance companies and mutual funds. Figures for 2006 show that the US and Europe dominate the investment funds market with a combined total of over US$40 trillion of funds under management.
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Japan’s net assets have remained largely flat over the past six years; as a result, Australia and Canada have overtaken it to become the third and fourth largest holders of mutual fund assets. Hong Kong has also seen strong growth in its investment fund assets on the back of Chinese economic growth and, on current trends, will soon overtake Japan.
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Other areas of fund management include private wealth management and the provision of investment management services to institutional entities such as companies, charities and local government authorities. The area also includes hedge funds, these being one of the fastest growing forms of institutional asset management.
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Insurance Markets
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Insurance markets specialise in the management of risk. In 2004, the world’s insurance market was worth US$3.2 trillion based on the value of insurance premiums written. The majority of these are life insurance premiums. The EU and the US are the largest players in the insurance market.
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Lloyd's of London is the largest insurance organisation in the world. It is said that anything can be insured on Lloyd’s, from mainstream assets such as buildings, to footballers’ legs and master wine tasters’ taste buds. Lloyd’s names join together in syndicates and each syndicate will write insurance, ie, take on all or part of an insurance risk.
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There are many syndicates and each name will belong to one or more. Each syndicate hopes that premiums received will exceed claims paid out, in which case each name will receive a share of profits (after deducting administration expenses). For most of Lloyd’s 300 year existence, names were wealthy individuals who were prepared to risk their money in the insurance market.
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In recent years, it has become possible to invest in Lloyd’s with limited liability. This change came a little too late for a number of names who lost everything as some syndicates suffered heavy losses.
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Investment Banks
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Investment banks provide advice and arrange finance for companies who want to float on the stock market, raise additional finance by issuing further shares or bonds, or carry out mergers and acquisitions. They also provide services for those who might want to invest in shares and bonds, in particular pension funds and asset managers.
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Typically, an investment banking group provides some or all of the following services, either in divisions of the bank or in associated companies within the group:
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• Corporate finance and advisory work, normally in connection with new issues of securities for raising finance, takeovers, mergers and acquisitions.
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• Banking, for governments, institutions and companies.
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• Treasury dealing for corporate clients in currencies, with financial engineering services to protect them from interest and exchange rate fluctuations.
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• Investment management for sizeable investors such as corporate pension funds, charities, and private clients. They may do this either via direct investment for the wealthier, or by way of collective investment schemes. In larger firms, the value of funds under management runs into many billions of pounds.
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• Securities trading in equities, bonds and derivatives and the provision of broking and distribution facilities. Only a few investment banks provide services in all these areas. Most others tend to specialise to some degree and concentrate on only a few product lines.
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A number of banks have diversified their range of activities in response to the downturn between 2000 and 2002 by developing businesses such as proprietary trading, servicing hedge funds or making private equity investments.
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Consolidation in the investment banking sector has created a small number of global companies which dominate the industry. In the first half of 2005, the top 10 investment banks generated more than half of global revenue. Within that group, the top three alone accounted for 20% of the income.

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