Financial Markets and Instruments Assignment Example | Topics and Well Written Essays - 1500 words

Financial Markets and Instruments - Assignment ExampleUnder the restrictive instrument, emphasis is on the drill f commercial message paper by larger corporations or companies who devour had the backing of an issuing bank, promising to make settlement for the quotation on the face of the commercial out front or on the date specified. Like in most other financial jurisdictions, the issuance of commercial paper is not guaranteed by a collateral and so the need for strict regulations that ensure that such instruments on the money market atomic number 18 used only by corporations that have been rated with excellent assign rating status (Fombrun, 2012). 2. At different times in the economic management of the country, the government of the country has had the need to generate both long term and short term financial support. As far as short term financing is concerned, emphasis has always been on the use of short term financing to take care of short term debt financing. One of the commonest instruments used in this case is overdraft, whereby it transmits cash that are beyond available funds (Greenley and Foxall, 2011). On the long term also, the use of equity investment ranks as the commonest form of financing that the government undertakes. Often, this is done by targeting local industries and buying and holding shares of the stocks of such businesses for communicate capital gains and dividend growth. Commonly, equity investment has been selected in cases where investments have been proven to have high information asymmetries and honorable hazard (Drumwright and Murphy, 2001). 3. With a global rank of 40, the Macro Economy Meter (2013) rates the total swell debt of the Kingdom of Saudi Arabia as $134 billion. Of this total outstanding debt, the share of public debt has been cypher to be 12.9% of the down-to-earth domestic product of the country, feeler up to $6.6 billion. According to the CIA World Factbook, the Kingdom of Saudi Arabia as of 31 Decemb er 2012 had a total outstanding external debt of $127.4 billion. By this, it means the government of the Kingdom owed this come to public and private entities that were nonresident of the country and thus repayment had to be done in all foreign currency, goods or services (Fombrun, 2005). Because these external debts are paid through foreign currency, they are calculated based on exchange rate base rather than the use of purchasing power semblance terms. 4. Since 2001, the annual total value of new adoption by the Kingdom of Saudi Arabia has generally been experiencing and upwardly sneak trend. This means that the rate of borrowing done by the government has been increasing consistently by the year. In the graph below, it would be noted that but for the periods from 2003 to 2005, and 2008 to 2009, the annual total value of debt has been increasing, indicating a rise in new borrowing. Source Marco Economy Meter (2013) Based on readings from the graph, McAlister and Ferrell (201 2) have argued that the new borrowing that is done by the Saudi government on a monthly basis is US $1.2 billion, coming up to an annual total of $14.4 billion. With this value, the debt-to-income ratio of Saudi Arabia has been estimated to be very high, leading to annual per capita income of $25,000. 5. The use of stripped coupons is not illegitimate in the Kingdom of Saudi Arabia but not a usually preferred form of debt financing or financial capital generator. This is because in the use of stripped coupons, thither are often two stripped parties, one of which receives the principle as zero-coupon bond when the bond is