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MGT604 - Management of Financial Institutions - Lecture Handout 27

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Mutual Funds

Investing In International Mutual Funds

Investing in international mutual funds has two faces:

  • First is buying funds from US based companies that buy and manage portfolio in internationally listed stocks/securities. These companies are governed by regulations of SEC (Securities and Exchange Commission)
  • Second is buying mutual funds from international non US companies.

A word of caution before investing even in best international mutual funds - Unlike domestic mutual funds investment, international investments entail additional risk factors such as economic and political in addition to risk of FOREX value (simply put: foreign currency exchange value) fluctuations.

Why Should You Invest In International Opportunities?

The number of funds in international investing is on the rise. We can cite a few reasons for this.

  • Removal of trade barriers and expanding of economies have sparked off growth in many non-US companies.
  • Some of the major industries of the world are dominated by non US companies.
  • Over 72% of the world stocks are listed out side US.
  • Greater and true diversification and opportunity to capitalize on best overseas companies.

Investing in international mutual funds is gaining popularity for various reasons. Rising political stability merging or opening of borders and currencies are some of the reasons. Vibrant and upcoming economies and non US corporations becoming financially stronger by the day are some of the reasons. In addition you get true diversification, balance and
opportunities.

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MGT604 - Management of Financial Institutions - Lecture Handout 21

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ROLE OF COMMERCIAL BANKS IN MICRO FINANCE SECTOR

Microfinance in its broadest terms can be defined as provision of a range of financial services such as deposits, loans, payment services, money transfers and insurance to poor and low income households, and their micro enterprises (Source: Asian Development bank report on microfinance development strategy). While a commercial bank is a financial institution that offers a broad range of deposit accounts, including checking, savings, and time deposits, and extends loans to individuals and businesses.

The decision as to whether the commercial banks be involved in microfinance is a sensitive and debatable issue which requires a deep analysis of many factors.

Primarily, the microfinance customers are large in number, scattered in far-flung areas with very minute transaction sizes. Only government or state bank alone cannot reach out to millions of potential Microfinance beneficiaries; a whole well knitted network with almost doorstep reach is required, which is only possible when the commercial banks will be involved in microfinance. In Pakistan it is estimated that as many as 5.6 million households need microfinance services but these services reach only to less than 1 percent, most probably because of the absence of commercial banks from the microfinance sector. (Source: Pakistan microfinance Network PMN) This way a poor person just need to visit his local commercial bank to get access to microfinance benefits, which will help reduce many economic problems.
One criticism over involving the commercial banks in microfinance is that commercial banks will charge higher interest rates, further lower the standard of living and will exploit the public. The ground realities are totally different; empirical evidence has demonstrated that participants in microfinance programs have improved their living standards at both the

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