It is always important to fully prepare yourself by studying before going into an examination room. And if you are about to sit for a HSKI Paper 7 exam on Financial Markets, studying the relevant topics and understanding them would be a good idea. Revising a HSKI Paper 7 exam is one way to prepare yourself for the exams. But if you can’t access one, here are a few areas on Topic 1 (The Global Financial System) of the Financial Markets that reading and understanding will help you pass the paper.

The Global Financial System

Participants in the Global Financial System

The global financial system is made of three main participants. These participants include multilateral agencies, supranational organizations, and a variety of commercial organizations. Among the multilateral agencies, the notable ones who play a critical role in the global financial system are as follows:

  • International Monetary Fund (IMF): The IMF is headquartered in Washington DC and its main objectives are to help provide the countries with an open system of international payments, exchange rate stability, and growth of international trade, by ensuring global financial stability. On top of these, the IMF provides temporary loans to countries in when they need it in the form of foreign exchange.
  • The World Bank: This institution is the largest source of funds in the world for countries that need development assistance. Founded in 1944, the World Bank now provides finance and ideas to more than 100 developing countries to help eliminate the worst forms of poverty and improve living standards.

The other multilateral agencies playing a critical role in the global financial system are the Bank for International Settlements (BIS), Organization for Economic Co-operation and Development (OECD), World Trade Organization (WTO), Asian Development Bank, and Asia Infrastructure Investment Bank.

Money and the Banking System

Money acts as a:

  • Unit of measuring the value of other goods and services
  • Medium of exchange
  • Means of storing wealth

For this reason, it needs to be portable, storable, and durable.

The quantity of money in an economy is described under three classifications as follows:

  • M1: all coins and notes in circulation, plus demand deposits placed by customers with licensed banks also known as narrow money
  • M2: term deposits plus savings plus M1 all placed with licensed banks
  • M3: deposits in other financial institutions, also known as broad money plus M2