Financial Innovations and the Welfare of Nations - How Cross-Border Transfers of Financial Innovations Nurture Emerging Capital Markets

The central question addressed in Financial Innovations and the Welfare of Nations is how the transfer of financial innovations from developed to developing economies can nurture the dynamics of emerging capital markets. National capital markets can be positioned along a continuum ranging from embryonic to mature and emerged markets according to a decreasing "national cost of capital" criterion. In the introductory chapter Laurent Jacque argues that newly emerging countries are handicapped by a high cost of capital due to "incomplete" and inefficient financial markets. As capital markets graduate to higher level of "emergedness", their national firms avail themselves of a lower cost of capital that makes them more competitive in the global economy and spurs economic growth. Skillful transfer of financial innovations to emerging markets often encourages the deregulation of the country's financial services sector. This results into new conduits for a more efficient capital allocation process such as commercial paper, securitized consumer finance and other disintermediated modes of financing which out-compete traditional financial intermediaries (mostly commercial banks), reduce households' cost of living and conjointly fuel the dynamics of emerging markets. Our response to the central question of how the transfer of financial innovations can enhance the Wealth of Nations is to show that it reduces the cost of capital while not unduly increasing systemic risk. Part I examines the relationship between financial innovations and systemic risk of the international financial system.

List of contents

Financial Innovations and the Dynamics of Emerging Capital Markets.- I: Financial Innovations and Systemic Risk.- Fads and Fashions in the Policy Response To Financial Market Crises.- Towards a Global Financial Architecture.- The New Capital Adequacy Framework and the Need for Consistent Risk Measures for Financial Institutions.- Systemic Risk.- II: Financial Innovations and Capital Market Integration.- The Secondary Market for Latin American Debt.- The Role of American Depositary Receipts in the Development of Emerging Markets.- Screening for Blue-Chip Potential During the 'Genesis' of Equity Markets.- Privatization and Business Valuation in Transition Economies.- III: International Securitization Innovations.- Cross-Border Securitization.- ATale of Two Citis.- The Promise and Limits of Financial Engineering in Emerging Markets.- Engineering a Way Around the Sovereign Ceiling.- Chargeurs Wool: A Case Study in Securitization.- IV: Financial Derivatives Innovations.- Insurance: From Underwriting to Derivatives.- Insurance Derivatives.- Credit Derivatives and Emerging Markets.

About the author

Laurent L. Jacque is a Professor of International Finance and Banking and Director of the Program of International Business Relations at the Fletcher School (Tufts University). He is also Professor of Finance and International Business at the HEC School of Management (France).

Paul M. Vaaler is Assistant Professor of International Business, and Director of the Hitachi Center for Technology and International Affairs at the Fletcher School (Tufts University).

Summary

The central question addressed in Financial Innovations and the Welfare of Nations is how the transfer of financial innovations from developed to developing economies can nurture the dynamics of emerging capital markets. National capital markets can be positioned along a continuum ranging from embryonic to mature and emerged markets according to a decreasing "national cost of capital" criterion. In the introductory chapter Laurent Jacque argues that newly emerging countries are handicapped by a high cost of capital due to "incomplete" and inefficient financial markets. As capital markets graduate to higher level of "emergedness", their national firms avail themselves of a lower cost of capital that makes them more competitive in the global economy and spurs economic growth. Skillful transfer of financial innovations to emerging markets often encourages the deregulation of the country's financial services sector. This results into new conduits for a more efficient capital allocation process such as commercial paper, securitized consumer finance and other disintermediated modes of financing which out-compete traditional financial intermediaries (mostly commercial banks), reduce households' cost of living and conjointly fuel the dynamics of emerging markets. Our response to the central question of how the transfer of financial innovations can enhance the Wealth of Nations is to show that it reduces the cost of capital while not unduly increasing systemic risk. Part I examines the relationship between financial innovations and systemic risk of the international financial system.

Additional text

Praise for Financial Innovations and the Welfare of Nations
`In an increasingly connected world financial flows and innovation have taken center stage. For anyone who wants to understand how this new international arrangement affects one's life, business, and nation, this book is a must read.'
Walter B. Wriston, Former CEO, Citigroup
`This is a first-rate conference volume that covers all of the salient dimensions of innovation in modern financial markets. For innovations to contribute to the System in a durable way, they must be perceived as value-adding for both intermediaries and end-users, and the innovative structures must carry acceptable systemic risks. The essays in this collection provide a compelling overview of the innovation process and its impact on the financial dynamics of the global economy.'
Ingo Walter, Charles Simon Chair in Applied Financial Economics and Director, New York University Solomon Center

Report

Praise for Financial Innovations and the Welfare of Nations
`In an increasingly connected world financial flows and innovation have taken center stage. For anyone who wants to understand how this new international arrangement affects one's life, business, and nation, this book is a must read.'
Walter B. Wriston, Former CEO, Citigroup
`This is a first-rate conference volume that covers all of the salient dimensions of innovation in modern financial markets. For innovations to contribute to the System in a durable way, they must be perceived as value-adding for both intermediaries and end-users, and the innovative structures must carry acceptable systemic risks. The essays in this collection provide a compelling overview of the innovation process and its impact on the financial dynamics of the global economy.'
Ingo Walter, Charles Simon Chair in Applied Financial Economics and Director, New York University Solomon Center

Product details

• Assisted by: Laurent L. Jacque (Editor), Lauren L Jacque (Editor), Laurent L Jacque (Editor), M Vaaler (Editor), M Vaaler (Editor), Paul M. Vaaler (Editor)
• Publisher: Springer, Berlin
• Languages: English
• Product format: Hardback
• Released: 26.06.2009
• EAN: 9780792373285
• ISBN: 978-0-7923-7328-5
• No. of pages: 367
• Weight: 721 g
• Illustrations: XII, 367 p.
• Subjects: Social sciences, law, business > Business > Economics; B, Finance, Finance, general, Public Economics, Economics and Finance, International Economics, Financial Economics, Management science, Public finance