SUPERIOR UNIVERSITY, LAHORE

Prof. Dr. Salman Masood Sheikh

CORPORATE FINANCE
Assignment and Projects
 FINAL PROJECT:

Final Project (Literature Based Term Paper)

100 Marks,Weightage 40%

This final project is based on the literature-basedresearch on the study of financial and
economics sector of any country. You have to make an analysis of country wise financial and
economic conditions and situation of financial setups of the country.

Guidelines for the Final Project:

(i) There will be three group members for doing working on the project
(ii) You have to select a country except Pakistan, India, Bangladesh, and Nepal & Sri
Lanka.
(iii) Get registered with your class representative because one group of students can select
only one country and no repetition is allowed in country selection.
(iv) After selecting the country, you have to work on the financial and economic systems
of that country. You have to analyze the followings and have to prepare a derail
report on the findings.

S. No Topics Marks
1 Financial Market & Types of the selected country 10
2 Stock Exchange Discussion of the country 10
3 Introduction to Financial system of the country 05
4 Financial Instruments used in the country 05
5 Foreign Exchange Market in that country 05
6 Reasons for Financial Crises in the country (if any) 05
7 Investment and Investment patterns in the country 05
8 Introduction to Banks 10
9 Banking System of that country 10
10 Commercial Banking in that country 05
11 Structure of Assets and Liabilities of Banks 05
12 Risk Management 05
13 Basel II Accord 05
14 Challenges facing by banks of that country 05
15 Corporate Governance of Banks in that company 05
16 Trading Process of Banking Systems 05
17 References ----

The total marks for the project will be of 100 marks but the weight age in examination will
Be 40%

FINAL PRESENTATION: SLIDES 20 MARKS 10% Weightage

FINANCIAL MARKETS
Financial markets are used by participants to either raise funds (e.g. by issuing securities) or invest savings (by buying securities and other
financial assets). The major markets in the Australian financial system are the credit market, stock market, money market, bond market and
the foreign exchange market. Descriptions and tables indicating prices and activity in various financial markets are provided in this section.
A significant influence in financial markets is the participation of institutional investors controlling large pools of investment funds. These
pools are accumulated by collective investment institutions and are often managed on a fee-for-service basis by investment managers. A
summary of the activities of these institutions is also provided

CREDIT MARKET
Credit may be defined broadly as funds provided to those seeking to borrow. However, analytically useful measures of credit usually exclude
borrowings by financial enterprises because their main role is as an intermediary, that is, they borrow in order to lend. Also, lending and
borrowing between enterprises that have a special relationship, such as between companies in the same group or between government
agencies, are often excluded from credit measures because transactions between these bodies are frequently of a non-market nature.
Similarly, some types of financial instrument, such as trade debts, are not considered to be part of an organised market. All of these types of
transactions are omitted from table 27.15, which presents a summary of the demand for credit in Australia by the non-financial sector. It
includes raisings by the issue of both debt and equity securities. Table 27.16 shows details of household demand for credit. For both tables,
positive numbers indicate an increase in debt and negative numbers indicate repayment or redemption.

Stock MARKET

The stock market is a mechanism for trading equities (shares), units in trusts, options and some fixed interest securities.
Operated nationally by the Australian Stock Exchange (ASX), which is responsible for the day-to-day running and surveillance of trading, the
Australian system is electronic and conducted using the Stock Exchange Automated Trading System (SEATS), allowing buyers and sellers
to be located anywhere in the country.
The ASX classifies listed companies according to their major activity and produces indexes based on these classifications. Table 27.17
summarises the performance of the major indexes.

MONEY MARKET
Liquidity management by Australian corporations, financial institutions and governments is conducted through an informally arranged market
for deposits, loans and placements, and by issuance, purchase and sale of short-term debt securities. Selected rates in the market at 30
June are shown in table 27.19.

Money market securities are short-term, that is, they have an original term to maturity of less than one year, often 30, 90 or 180 days. They
are issued by borrowers at a discount to face value and carry no income payment other than the repayment of face value at maturity. To
enhance liquidity, money market securities conform to standardised attributes concerning risk and discount rates. Because of the
standardisation, the securities of different issuers are often combined in the one parcel of securities for trading purposes. There are two
types of securities: bills of exchange and one name paper, both of which are covered by the Bills of Exchange Act 1909 (Cwlth). The risk of
default of a bill of exchange is reduced by an acceptor or endorser adding their name to the security for a fee. Most bills of exchange traded
in the market are bank-accepted bills. Promissory notes are issued by institutions whose credit worthiness is equal to or better than banks;
they are not accepted by a bank and unlike bills of exchange they are not endorsed by the parties that sell them in the market. The
Australian Government issues treasury notes. State and territory governments and large corporations issue commercial paper, while banks
issue negotiable certificates of deposit. Table 27.20 shows the value of short-term debt securities on issue by sector of issuer and sector of
holde
BOND MARKET
Bonds are issued with original terms to maturity of one or more years. Usually the investors are paid a set periodic interest, called a coupon,
for the life of the bond and receive their initial investment back at maturity. Some bonds have variable interest rates, some have principal
repayments indexed, and there are a small number of zero-coupon or deep discount securities that are issued at a discount to face value.
Governments, trading enterprises and financial institutions issue bonds to finance long-term requirements. For these entities, the bond
market generally provides a cheaper source of funds than borrowing from banks and other financial institutions. Table 27.21 shows selected
market yields at the end of June for a range of bonds.

FOREIGN EXCHANGE MARKET

The foreign exchange market is the means whereby currencies of different countries can be bought and sold. In October 1983, the Australian
Government floated the Australian dollar, allowing its value to be determined by market forces with few exchange controls and little Reserve
Bank intervention. Immediately prior to 1983, the Australian dollar was pegged to a basket of currencies. The currencies in the basket were
weighted according to their trading significance to Australia. Table 27.23 shows the value of the Australian dollar against major currencies.
Over the last few years, there have been significant movements in the Australian dollar against major currencies, including the US dollar, UK
pound and the Euro. In fact, for these currencies, the Australian dollar has climbed to record levels of appreciation.

The Australian Securities Exchange is Australia's primary securities exchange. It is owned by the Australian Securities Exchange Ltd, or ASX Limited, an
Australian public company Prior to December 2006 it was known as the Australian Stock Exchange, which was formed on 1 April 1987, incorporated under
legislation of the Australian Parliament as an amalgamation of the six state securities exchanges. It merged with the Sydney Futures Exchange in 2006.

In the past, ASX had an average daily turnover of A$4.685 billion and a market capitalisation of around A$1.9 trillion, making it one of the world's top 16 listed
exchange groups. ASX[3] is a market operator, clearing house and payments system facilitator. It also oversees compliance with its operating rules, promotes
standards of corporate governance among Australia's listed companies and helps to educate retail investors.

Australia's capital markets

 Financial development – Australia was ranked fifth out of 57 of the world's leading financial systems and capital markets by the World Economic
Forum;
 Equity market – the eighth largest in the world (based on free-float market capitalization) and the second largest in Asia-Pacific, with A$1.2 trillion
market capitalization and average daily secondary trading of over A$5 billion a day;
 Bond market – third largest debt market in the Asia Pacific;
 Derivatives market – largest fixed income derivatives in the Asia-Pacific region;
 Foreign exchange market – the Australian foreign exchange market is the seventh largest in the world in terms of global turnover, while the Australian
dollar is the fifth most traded currency and the AUD/USD the fourth most traded currency pair;
 Funds management – Due in large part to its compulsory superannuation system, Australia has the largest pool of funds under management in the
Asia-Pacific region, and the fourth largest in the world. Its primary markets are the AQUA Markets.

Regulation[edit]
The Australian Securities and Investments Commission (ASIC) has responsibility for the supervision of real-time trading on Australia's domestic licensed financial
markets and the supervision of the conduct by participants (including the relationship between participants and their clients) on those markets. ASIC also
supervises ASX's own compliance as a public company with ASX Listing Rules.

ASX Compliance is an ASX subsidiary company that is responsible for monitoring and enforcing ASX-listed companies' compliance with the ASX operating rules.

The Reserve Bank of Australia (RBA) has oversight of the ASX's clearing and settlement facilities for financial system stability.

Products[edit]
Products and services available for trading on ASX include shares, futures, exchange traded options, warrants, contracts for difference, exchange-traded funds,
unlisted managed funds (mFund), exchange traded managed fund (ETMF), real estate investment trusts, listed investment companies and interest rate securitie
 Financial instruments are monetary contracts between parties. They can be created, traded, modified and settled. They can be cash (currency), evidence of an
ownership interest in an entity or a contractual right to receive or deliver (e.g., Currency; Debt: bonds, loans; Equity: shares;
Derivatives: options, futures, forwards).

International Accounting Standards IAS 32 and 39 define a financial instrument as "any contract that gives rise to a financial asset of one entity and a financial
liability or equity instrument of another entity".[1]

Financial instruments may be categorized by "asset class" depending on whether they are equity-based (reflecting ownership of the issuing entity) or debt-based
(reflecting a loan the investor has made to the issuing entity). If the instrument is debt it can be further categorized into short-term (less than one year) or long-
term. Foreign exchange instruments and transactions are neither debt- nor equity-based and belong in their own category.

Financial instruments can be either cash instruments or derivative instruments:

 Cash instruments – instruments whose value is determined directly by the markets. They can be securities, which are readily transferable, and
instruments such as loans and deposits, where both borrower and lender have to agree on a transfer.
 Derivative instruments – instruments which derive their value from the value and characteristics of one or more underlining entities such as an asset,
index, or interest rate. They can be exchange-traded derivatives and over-the-counter (OTC) derivatives.[2] Some of the more common derivatives
include forwards, futures, options, swaps, and variations of these such as synthetic collateralized debt obligations and credit default swaps.

Introduction
Activity in Australia's foreign exchange and derivatives markets has continued to increase at a rapid pace in recent years. The Bank for International
Settlements (BIS) 2007 Triennial Survey of Foreign Exchange and Derivatives Market Activity [ 2 ]  shows that total turnover in the Australian foreign
exchange market was more than 65 per cent higher than in the previous survey in 2004. Growth was recorded across almost all instruments,
counterparties and currencies.

In terms of global turnover, the AUD/USD is the fourth most traded currency pair and the Australian dollar is the sixth most traded currency. The
Australian foreign exchange market is the seventh largest in the world.

The Australian Foreign Exchange Market [3]

Foreign exchange turnover in all currencies in the Australian market averaged US$170 billion per day in April 2007, an increase of 66 per cent from the
time of the previous BIS Triennial Survey conducted in April 2004 (Graph 1). Growth in global turnover over the same period was broadly similar to
that in the Australian market, at 71 per cent.[ 4 ]  Australia's market share of global turnover was 4.3 per cent in 2007, making it the seventh largest in
the world (Table 1).

Financial assets

 Cash at bank and deposits;

 Trade receivables and other debtors;
 Loans and other receivables;
 Bonds and convertible notes;
 Equity interests in other entities; and.
 Derivatives, such as options, swaps and forward contracts.

 The Australian financial system remains resilient and its ability to

withstand shocks continues to strengthen. Banks' capital ratios are
much higher than they were a decade ago and high compared with
international peers. They are also now sufficient to withstand a shock
of equivalent magnitude to the majority of historical bank crises.
Capital ratios have been supported by high profit levels, although
 profits have not grown much in recent years as banks divested non-
interest income-generating businesses. However, divestments of
these capital-intensive subsidiaries support capital ratios. Asset
quality remains strong – supported by stronger lending standards
over recent years – though the share of non-performing housing
loans is edging higher, particularly in mining-exposed areas. Banks'
management of their funding and liquidity needs has settled in a new
dynamic following an extended transition to more stable forms of
funding and increased holding of liquid assets. A key focus in recent
years has been increasing defences against rising threats from cyber
attacks.
 Addressing deficiencies around culture and governance revealed by
the Royal Commission into Misconduct in the Banking,
Superannuation and Financial Services Industry poses a challenge for
the financial system. While positive steps have already been taken by
institutions and regulators, more needs to be done to ensure services
meet public expectations and risks of future misconduct are reduced.
Managing the large number of changes stemming from the Royal
Commission is a substantial task for some financial institutions.
Because of the scale of this task, there is a risk that implementation
is delayed or piecemeal, issues around misconduct are not
adequately addressed, or that it distracts banks from appropriately
managing other risks. The costs of implementing these changes and
reimbursing mistreated customers will impact the profits of financial
institutions, though this impact appears manageable and, in effect,
corrects for past profits being inflated by poor practices. The life
insurance industry faces substantial challenges. Regulatory reform to
address issues revealed by the Royal Commission and other inquiries,
as well as structural issues around underpricing and loose product
definitions, could have a sizeable impact on profitability.
Financial institutions[edit]
Main article: Banking in Australia

Banking in Australia is dominated by what are known as the "big four", which are also referred to as the pillars of Australia's financial system:

 Commonwealth Bank of Australia  (Commbank)

 Westpac Banking Corporation (Westpac)
 Australia and New Zealand Banking Group (ANZ)
 National Australia Bank (NAB)

There are several smaller banks with a presence throughout the country, and a large number of other financial institutions, such as credit unions. Many large
foreign banks have a presence, but few have a retail banking presence. The central bank is the Reserve Bank of Australia (RBA). Since 2008 the Australian
government has guaranteed deposits up to $250,000 per customer per institution against banking failure. [2]
Insurance market[edit]
Main article: Insurance in Australia

Australia's insurance market can be divided into roughly three components: life insurance, general insurance and health insurance. These markets have been
fairly distinct, with most larger insurers focusing on only one type. However, in recent times several insurance companies have broadened their scope into more
general financial services, and have faced competition from banks and subsidiaries of foreign financial conglomerates.

Superannuation[edit]
Main article: Superannuation in Australia

Superannuation in Australia is government-supported and encouraged, and minimum provisions are compulsory for employees. Superannuation arrangements are
provided by banks and insurance companies, though most funds are self-managed. Superannuation funds are tightly regulated.

Payments and clearing systems[edit]

There are several payment systems in use within Australia, many of which are regulated by Australian Payments Network (AusPayNet) (previously called
Australian Payments Clearing Association), including:

Cash[edit]
The Australian dollar is Australia’s currency and legal tender in Australia. Clearing and settling of cash payments (also called CS5) are regulated by APCA as the
Australian Cash Distribution Exchange System (ACDES). [3]

Cheques[edit]
Cheques are still the most important non-cash payment instruments in Australia, in terms of the value transferred. The number of monthly cheque transactions in
2008 was 33.7 million with a value of $139.3 billion. [4] Cheque use is in decline worldwide, but it is declining faster in Australia than many other countries. Between
2010 and 2014, cheque use in Australia declined by 42.8% with just over seven cheques written per person in 2014. In 2014, 166.6 million cheques were used in
Australia, compared to 291.1 million in 2010.[5] In 2015, cheque usage fell by a further 16.3%.

Cheques and other payment instruments (such as travellers cheques and warrants) (also called CS1) are cleared and settled in accordance with the regulations
and procedures set by APCS.[6]

Cheques use MICR encoding containing the BSB and account number to identify the bank and account to debit, as well as other information to streamline the
processing of cheques. In 2014, the cost of processing cheques was the highest of all modes of payments at $5 per transaction, compared to about $0.20 for
direct debits.[7]

A recent innovation has been digital cheque imaging, which involves images of cheques being captured by financial institutions and exchanged electronically
between the relevant financial institutions rather than the previous costly practice of physically transporting paper cheques around Australia. This has also ended
the need for maintaining long-term storage and retrieval systems.[7] The new system speeds up the clearing process, with cheques being able to be cleared at the
end of the next weekday after being presented, as opposed to up to the six weekdays under the old system.

Direct entry[edit]
Direct entry (also called CS2)[8] can be used to transfer funds between bank accounts in Australia. Clearing and settling is regulated by APCA as the Bulk
Electronic Clearing System (BECS).

Direct entry uses the BSB and account number to identify the bank and accounts to debit and credit. Some common uses of the direct entry system include:

 setting up monthly direct debits to pay recurring bills such as credit card bills
 transferring funds to other bank accounts, also known as third party transfers
 payment of wages and salaries
 government tax refunds and payments.

Participants of BECS exchange direct entry (DE) files at intervals through the day. Net positions are usually cleared daily.

EFTPOS[edit]
EFTPOS (Electronic Fund Transfer Point of Sale) and ATM transactions (also called CS3)[9] occur over the EFT network. Clearing and settling of EFTPOS and
ATM transactions are regulated by the APCA as the Consumer Electronic Clearing System (CECS). Between 2005 and 2015, ATM withdrawals have dropped by
11.5% but increased 5.1% in value.

Credit card[edit]
Several credit card systems are active in Australia including MasterCard, Visa, Diners Club and American Express. The Bankcard scheme is no longer in use.

BPAY[edit]
BPAY is a bill payment system used in Australia, which is regulated by the four major banks and not by APCA. As of January 2015, the BPAY payments system
covered more than 156 participating Australian banks, credit unions and financial institutions. [10] More than 45,000 businesses accept payments using BPAY[10] and
each month approximately 30 million bills are paid to the value of $24 billion.[10]
High value payments[edit]
High value payments (also known as CS4) are regulated by APCA under the Regulations for High Value Clearing System Framework. [11] The main high value
payment systems in Australia are:

 Society for Worldwide Interbank Financial Telecommunication  Payment Delivery System (SWIFT PDS)
 Clearing House Electronic Subregister System (CHESS): CHESS is an automated share transfer and settlement system developed by the Australian
Securities Exchange. For a CHESS transaction, an interbank request is sent to RITS via SWIFT FIN, the service which sends financial information from one
financial institution to another.[12] When RITS notifies CHESS of settlement of the gross amount across ESAs, CHESS finalises the transaction by
transferring share holdings at the participant level.
 Financial Transactions Recording and Clearance System (FINTRACS)
 Reserve Bank Information and Transfer System (RITS) is used by banks and other approved institutions to settle their payment obligations on a real-
time gross settlement (RTGS) basis.[13] Final and irrevocable settlement is achieved by the simultaneous crediting and debiting of Exchange Settlement
Accounts (ESAs) held at the Reserve Bank.

New Payments Platform[edit]

The New Payments Platform (NPP)[14] is open access infrastructure for fast payments in Australia. The NPP was developed via industry collaboration to enable
households, businesses and government agencies to make simply addressed payments, with near real-time funds availability to the recipient, on a 24/7 basis.
Each payment message is capable of carrying much richer remittance information than other systems. The NPP infrastructure supports the independent
development of ‘overlay’ services to offer innovative payment services to end-users