Fiancial Regulation

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  • Topic: Islamic banking, Bank, Finance
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AG912 International Financial Markets and Banking

Tutorial 11

Tutorial Questions:

What is meant by “bank-based” and “market-based” financial systems? Give examples of each and also describe the financial system in your country.

Bank-Based=

Banks provide the main funding to companies, which is by equity ownership and lending. The companies tend to have a close, long-term relationship with a particular bank, some examples of countries that apply Bank Bases consists of (Japanese Keiretsu; German Hausbank).

The bank is typically represented on the company’s board. If a company is failing and requires restructuring, the bank will be instrumental in making this happen. Hostile takeovers are relatively rare. Germany and Japan would be typical examples of bank-based financial systems, although both are becoming more market-based

Market Based=

Companies get their financing from public bond and equity markets. Banks facilitate financing such as (IPOs etc) rather than providing the finance themselves. Companies are run in shareholders’ interests, with corporate governance designed to ensure this. There is a market for corporate control. Failing businesses face hostile takeovers and change of management. The UK and US would be typical examples of market-based financial systems.

Define the following terms:

|RIBA |Provision and use of financial services and products that conform to Islamic | | |religious practices and laws which, in particular, prohibit the payment and | | |receipt of interest. It | | |also means addition/extra, however small, over and above the principal; it covers | | |both usury and interest | |GHARAR...
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