The Role of Foreign Investors in Debt Market Development : Conceptual Frameworks and Policy Issues
To take full advantage of foreign investors, a host country must provide an appealing environment: a stable economic and political environment; a fair, rational, and, comprehensive legal system; a fair, reasonable, and, balanced tax program; a fair...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2000/08/693245/role-foreign-investors-debt-market-development-conceptual-frameworks-policy-issues http://hdl.handle.net/10986/19810 |
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okr-10986-19810 |
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oai_dc |
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Digital Repository |
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Foreign Institution |
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Digital Repositories |
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World Bank Open Knowledge Repository |
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World Bank |
| language |
English en_US |
| topic |
ACCOUNTING STANDARDS AGENCY PROBLEMS ANNUITIES ARBITRAGE ASSET DIVERSIFICATION ASSET PRICES ASSETS ASYMMETRIC INFORMATION AUDITING BANK FOR INTERNATIONAL SETTLEMENTS BANK RUNS BANKING CRISES BANKING SECTOR BANKING SYSTEM BANKING SYSTEMS BANKRUPTCY BANKRUPTCY PROCEDURES BENCHMARK BORROWING BORROWING COSTS BROKERS BUDGET DEFICITS BUSINESS CYCLES CAPITAL ALLOCATION CAPITAL FLOWS CAPITAL MARKETS CAPITAL MOBILITY CAPITALIZATION CENTRAL BANK CONNECTED LENDING CONTAGION CORPORATE GOVERNANCE CREDIT RISK DEBT DEMONSTRATION EFFECTS DEPOSITS DEVALUATION DEVELOPED COUNTRIES DISCLOSURE DIVIDENDS DOMESTIC INVESTMENT ECONOMETRIC EVIDENCE ECONOMIC GROWTH ECONOMIES OF SCALE EMERGING MARKETS EMPIRICAL EVIDENCE EQUILIBRIUM EXCESSIVE RISK EXCHANGE RATE FINANCIAL CRISES FINANCIAL INNOVATION FINANCIAL INSTITUTIONS FINANCIAL INTEGRATION FINANCIAL MANAGEMENT FINANCIAL MARKET LIBERALIZATION FINANCIAL MARKETS FINANCIAL SECTOR FINANCIAL SERVICES FINANCIAL STABILITY FISCAL POLICIES FIXED INCOME FLOW OF CAPITAL FOREIGN ASSETS FOREIGN BANKS FOREIGN CURRENCY FOREIGN DIRECT INVESTMENT FOREIGN FIRMS FOREIGN INVESTMENT FOREIGN INVESTORS FOREIGN SECURITIES GAMBLING GDP GLOBAL CAPITAL GOVERNMENT BONDS GOVERNMENT SECURITIES HEDGE FUNDS IMPLICIT GUARANTEES INFLATION INFORMATION DISCLOSURE INSURANCE INSURANCE POLICIES INTEREST RATE INTEREST RATES INTERNATIONAL COMPETITION INTERNATIONAL RESERVES INVESTMENT BANKS INVESTMENT SPENDING LAWS LENDER OF LAST RESORT LIQUIDATION LIQUIDITY LITIGATION LONG TERM ASSETS LONG TERM LIABILITIES MACROECONOMIC MANAGEMENT MANDATES MARKET DISCIPLINE MATURITIES MATURITY MATCHING MONETARY POLICY MORAL HAZARD MORTGAGE LOANS MUTUAL FUND MUTUAL FUNDS MUTUALFUNDS NET WORTH NOMINAL INTEREST RATES PAYMENT SYSTEMS PORTFOLIO PORTFOLIO DIVERSIFICATION PORTFOLIOS PRODUCERS PRODUCTIVITY PUBLIC DEBT PUBLIC POLICY REDEMPTION REGULATORY APPROACHES REGULATORY SYSTEMS RISK MANAGEMENT RISK SHARING SAVINGS SECURITIES MARKETS STOCK MARKETS TAXATION TERMS OF TRADE TRADERS TRANSACTION COSTS TRANSPARENCY VALUATION WTO |
| spellingShingle |
ACCOUNTING STANDARDS AGENCY PROBLEMS ANNUITIES ARBITRAGE ASSET DIVERSIFICATION ASSET PRICES ASSETS ASYMMETRIC INFORMATION AUDITING BANK FOR INTERNATIONAL SETTLEMENTS BANK RUNS BANKING CRISES BANKING SECTOR BANKING SYSTEM BANKING SYSTEMS BANKRUPTCY BANKRUPTCY PROCEDURES BENCHMARK BORROWING BORROWING COSTS BROKERS BUDGET DEFICITS BUSINESS CYCLES CAPITAL ALLOCATION CAPITAL FLOWS CAPITAL MARKETS CAPITAL MOBILITY CAPITALIZATION CENTRAL BANK CONNECTED LENDING CONTAGION CORPORATE GOVERNANCE CREDIT RISK DEBT DEMONSTRATION EFFECTS DEPOSITS DEVALUATION DEVELOPED COUNTRIES DISCLOSURE DIVIDENDS DOMESTIC INVESTMENT ECONOMETRIC EVIDENCE ECONOMIC GROWTH ECONOMIES OF SCALE EMERGING MARKETS EMPIRICAL EVIDENCE EQUILIBRIUM EXCESSIVE RISK EXCHANGE RATE FINANCIAL CRISES FINANCIAL INNOVATION FINANCIAL INSTITUTIONS FINANCIAL INTEGRATION FINANCIAL MANAGEMENT FINANCIAL MARKET LIBERALIZATION FINANCIAL MARKETS FINANCIAL SECTOR FINANCIAL SERVICES FINANCIAL STABILITY FISCAL POLICIES FIXED INCOME FLOW OF CAPITAL FOREIGN ASSETS FOREIGN BANKS FOREIGN CURRENCY FOREIGN DIRECT INVESTMENT FOREIGN FIRMS FOREIGN INVESTMENT FOREIGN INVESTORS FOREIGN SECURITIES GAMBLING GDP GLOBAL CAPITAL GOVERNMENT BONDS GOVERNMENT SECURITIES HEDGE FUNDS IMPLICIT GUARANTEES INFLATION INFORMATION DISCLOSURE INSURANCE INSURANCE POLICIES INTEREST RATE INTEREST RATES INTERNATIONAL COMPETITION INTERNATIONAL RESERVES INVESTMENT BANKS INVESTMENT SPENDING LAWS LENDER OF LAST RESORT LIQUIDATION LIQUIDITY LITIGATION LONG TERM ASSETS LONG TERM LIABILITIES MACROECONOMIC MANAGEMENT MANDATES MARKET DISCIPLINE MATURITIES MATURITY MATCHING MONETARY POLICY MORAL HAZARD MORTGAGE LOANS MUTUAL FUND MUTUAL FUNDS MUTUALFUNDS NET WORTH NOMINAL INTEREST RATES PAYMENT SYSTEMS PORTFOLIO PORTFOLIO DIVERSIFICATION PORTFOLIOS PRODUCERS PRODUCTIVITY PUBLIC DEBT PUBLIC POLICY REDEMPTION REGULATORY APPROACHES REGULATORY SYSTEMS RISK MANAGEMENT RISK SHARING SAVINGS SECURITIES MARKETS STOCK MARKETS TAXATION TERMS OF TRADE TRADERS TRANSACTION COSTS TRANSPARENCY VALUATION WTO Lee, Jeong Yeon The Role of Foreign Investors in Debt Market Development : Conceptual Frameworks and Policy Issues |
| relation |
Policy Research Working Paper;No. 2428 |
| description |
To take full advantage of foreign
investors, a host country must provide an appealing
environment: a stable economic and political environment; a
fair, rational, and, comprehensive legal system; a fair,
reasonable, and, balanced tax program; a fair, productive,
and, balanced regulatory system; and transparency in
economic, financial, legislative, and regulatory systems.
The country should also liberalize capital account
transactions. To do so successfully, and minimize risks
associated with foreign investors, capital account
liberalization must be properly sequenced. The chief danger
is removing most restrictions on capital account
transactions, before addressing major problems in the
domestic financial system, and hence risking a crisis.
Typical major problems include shaky, inconsistent
macroeconomic management; severe asymmetric information
problems (such as inadequate accounting, auditing, and
disclosure practices) in the financial, and corporate
sectors; implicit government guarantees; and inadequate
prudential supervision, and regulation of domestic financial
markets, and institutions. Essential infrastructure must be
developed if domestic debt instruments are to be opened to
international portfolio investment. Developing countries
should implement well-synchronized settlement, and
depository arrangements. The risks from short-term debt -
which could threaten financial stability - are best through
sound financial management, and prudential regulation. A
case could de made for additional policy measures aimed at
curbing over-reliance on short-term debt. (Chile, Colombia,
and Israel, for example, have adopted measures to influence
the level, and composition of portfolio capital inflows).
Arguably, liberalization of trade in financial services is
integral to full liberalization of capital markets. Foreign
firms operating in a domestic market may transfer useful
technology, and know-how. Concern that hedge funds can
dominate, or manipulate markets, can be dealt with through
measures to strengthen supervision, regulation, and market
transparency - as well as by strengthening reporting
requirements for larger traders, and positions. The ability
of hedge funds, and other foreign investors to take
positions in domestic financial markets, could also be
limited to: a) Taxing short-term capital flows (as Chile
does). b) requiring banks, and brokers to raise margin, and
collateral requirements. c) Limiting financial institutions;
ability to provide the domestic credit needed to short the
currency, and their ability to loan the securities needed to
short equity, and fixed-income markets. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Lee, Jeong Yeon |
| author_facet |
Lee, Jeong Yeon |
| author_sort |
Lee, Jeong Yeon |
| title |
The Role of Foreign Investors in Debt Market Development : Conceptual Frameworks and Policy Issues |
| title_short |
The Role of Foreign Investors in Debt Market Development : Conceptual Frameworks and Policy Issues |
| title_full |
The Role of Foreign Investors in Debt Market Development : Conceptual Frameworks and Policy Issues |
| title_fullStr |
The Role of Foreign Investors in Debt Market Development : Conceptual Frameworks and Policy Issues |
| title_full_unstemmed |
The Role of Foreign Investors in Debt Market Development : Conceptual Frameworks and Policy Issues |
| title_sort |
role of foreign investors in debt market development : conceptual frameworks and policy issues |
| publisher |
World Bank, Washington, DC |
| publishDate |
2014 |
| url |
http://documents.worldbank.org/curated/en/2000/08/693245/role-foreign-investors-debt-market-development-conceptual-frameworks-policy-issues http://hdl.handle.net/10986/19810 |
| _version_ |
1764441450608590848 |
| spelling |
okr-10986-198102021-04-23T14:03:46Z The Role of Foreign Investors in Debt Market Development : Conceptual Frameworks and Policy Issues Lee, Jeong Yeon ACCOUNTING STANDARDS AGENCY PROBLEMS ANNUITIES ARBITRAGE ASSET DIVERSIFICATION ASSET PRICES ASSETS ASYMMETRIC INFORMATION AUDITING BANK FOR INTERNATIONAL SETTLEMENTS BANK RUNS BANKING CRISES BANKING SECTOR BANKING SYSTEM BANKING SYSTEMS BANKRUPTCY BANKRUPTCY PROCEDURES BENCHMARK BORROWING BORROWING COSTS BROKERS BUDGET DEFICITS BUSINESS CYCLES CAPITAL ALLOCATION CAPITAL FLOWS CAPITAL MARKETS CAPITAL MOBILITY CAPITALIZATION CENTRAL BANK CONNECTED LENDING CONTAGION CORPORATE GOVERNANCE CREDIT RISK DEBT DEMONSTRATION EFFECTS DEPOSITS DEVALUATION DEVELOPED COUNTRIES DISCLOSURE DIVIDENDS DOMESTIC INVESTMENT ECONOMETRIC EVIDENCE ECONOMIC GROWTH ECONOMIES OF SCALE EMERGING MARKETS EMPIRICAL EVIDENCE EQUILIBRIUM EXCESSIVE RISK EXCHANGE RATE FINANCIAL CRISES FINANCIAL INNOVATION FINANCIAL INSTITUTIONS FINANCIAL INTEGRATION FINANCIAL MANAGEMENT FINANCIAL MARKET LIBERALIZATION FINANCIAL MARKETS FINANCIAL SECTOR FINANCIAL SERVICES FINANCIAL STABILITY FISCAL POLICIES FIXED INCOME FLOW OF CAPITAL FOREIGN ASSETS FOREIGN BANKS FOREIGN CURRENCY FOREIGN DIRECT INVESTMENT FOREIGN FIRMS FOREIGN INVESTMENT FOREIGN INVESTORS FOREIGN SECURITIES GAMBLING GDP GLOBAL CAPITAL GOVERNMENT BONDS GOVERNMENT SECURITIES HEDGE FUNDS IMPLICIT GUARANTEES INFLATION INFORMATION DISCLOSURE INSURANCE INSURANCE POLICIES INTEREST RATE INTEREST RATES INTERNATIONAL COMPETITION INTERNATIONAL RESERVES INVESTMENT BANKS INVESTMENT SPENDING LAWS LENDER OF LAST RESORT LIQUIDATION LIQUIDITY LITIGATION LONG TERM ASSETS LONG TERM LIABILITIES MACROECONOMIC MANAGEMENT MANDATES MARKET DISCIPLINE MATURITIES MATURITY MATCHING MONETARY POLICY MORAL HAZARD MORTGAGE LOANS MUTUAL FUND MUTUAL FUNDS MUTUALFUNDS NET WORTH NOMINAL INTEREST RATES PAYMENT SYSTEMS PORTFOLIO PORTFOLIO DIVERSIFICATION PORTFOLIOS PRODUCERS PRODUCTIVITY PUBLIC DEBT PUBLIC POLICY REDEMPTION REGULATORY APPROACHES REGULATORY SYSTEMS RISK MANAGEMENT RISK SHARING SAVINGS SECURITIES MARKETS STOCK MARKETS TAXATION TERMS OF TRADE TRADERS TRANSACTION COSTS TRANSPARENCY VALUATION WTO To take full advantage of foreign investors, a host country must provide an appealing environment: a stable economic and political environment; a fair, rational, and, comprehensive legal system; a fair, reasonable, and, balanced tax program; a fair, productive, and, balanced regulatory system; and transparency in economic, financial, legislative, and regulatory systems. The country should also liberalize capital account transactions. To do so successfully, and minimize risks associated with foreign investors, capital account liberalization must be properly sequenced. The chief danger is removing most restrictions on capital account transactions, before addressing major problems in the domestic financial system, and hence risking a crisis. Typical major problems include shaky, inconsistent macroeconomic management; severe asymmetric information problems (such as inadequate accounting, auditing, and disclosure practices) in the financial, and corporate sectors; implicit government guarantees; and inadequate prudential supervision, and regulation of domestic financial markets, and institutions. Essential infrastructure must be developed if domestic debt instruments are to be opened to international portfolio investment. Developing countries should implement well-synchronized settlement, and depository arrangements. The risks from short-term debt - which could threaten financial stability - are best through sound financial management, and prudential regulation. A case could de made for additional policy measures aimed at curbing over-reliance on short-term debt. (Chile, Colombia, and Israel, for example, have adopted measures to influence the level, and composition of portfolio capital inflows). Arguably, liberalization of trade in financial services is integral to full liberalization of capital markets. Foreign firms operating in a domestic market may transfer useful technology, and know-how. Concern that hedge funds can dominate, or manipulate markets, can be dealt with through measures to strengthen supervision, regulation, and market transparency - as well as by strengthening reporting requirements for larger traders, and positions. The ability of hedge funds, and other foreign investors to take positions in domestic financial markets, could also be limited to: a) Taxing short-term capital flows (as Chile does). b) requiring banks, and brokers to raise margin, and collateral requirements. c) Limiting financial institutions; ability to provide the domestic credit needed to short the currency, and their ability to loan the securities needed to short equity, and fixed-income markets. 2014-08-28T15:05:38Z 2014-08-28T15:05:38Z 2000-08 http://documents.worldbank.org/curated/en/2000/08/693245/role-foreign-investors-debt-market-development-conceptual-frameworks-policy-issues http://hdl.handle.net/10986/19810 English en_US Policy Research Working Paper;No. 2428 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research |