Lesson

Lesson 2
12
INTERNATIONAL FINANCIAL INSTITUTIONS

At the end of this lesson, you should be able to:

 identify the different international financial institutions;
 appreciate the importance of studying financial institutions;
 demonstrate an understanding of the differences of the financial
institutions through an activity.

This module discusses the different financial institutions.

Kindly do the activity before proceeding to the next lesson.

Activity
What is your understanding of financial institution?

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Analysis
Answer the question before proceeding to the discussion.
1. Are financial institutions helpful in globalization? In what ways?
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Abstraction

INTERNATIONAL FINANCIAL INSTITUTIONS

 These acts as agents that provide financial services for its clients in the
global level.
 These fall under financial regulation from a government authority.
Common Types of Financial Institutions
These are commercial or state institutions that provide financial
services, including issuing money in various forms, receiving deposits of
money, lending money and processing transactions and the creating of
credit.
1. Central Bank
It is an entity responsible for the monetary policy of its country or of a
group of member states.
It maintains the stability of the national currency and money supply.

2. Commercial Banks
It accepts deposits from customers and in turn makes loans, even in
excess of the deposits.

3. Investment Banks
These help companies, governments and their agencies to raise
money by issuing and selling securities in the primary market.
They assist public and private corporations in raising funds in the
capital markets.

4. Saving Banks
These are financial institutions which primary purpose is to accept
deposits.
 5. Non-banking financial company
These are also known as a non-bank, are financial institutions that
provide banking services without meeting the legal definition of a
bank, (one that does not hold a banking license.)

6. Mutual Fund
An investment which is comprised of pool of funds collected from
many investors for the purpose of investing in securities such as
stocks, bonds, money market securities and similar assets.
Types of International Financial Institutions
A. The Bretton Woods System
 It focuses on the restructure of the world economy and ensure
global stability.
 It has five key elements:
o The expression of currency in terms of gold or gold value
to establish a par value.
o The central bank would agree to exchange its own
currency for those of other countries at the established
exchange rates.
o The establishment of an overseer for these exchange
rates, monetary fund was founded.
o Eliminating restrictions on the currencies of member
states in the international trade.
o The U.S. dollar became the global currency.

B. The General Agreement on Tariffs and Trade (GATT)

 It focused on trade through multinational trade agreements.
 The overall purpose of it was to promote international trade by
reducing or eliminating trade barriers such as tariffs or quotas.
C. World Trade Organization (WTO)
 It is an independent multilateral organization that became
responsible for trade and service.
  It is the only global international organization dealing with the
rules of trade between nations.

C. The International Monetary Fund and The World Bank

These were established because of peace advocacy after the war.
Long Test
The long test covers two topics: Global Stratification and the International
Financial Institutions.
Identify the following. (1 point each)
___________________ 1. These are financial institutions and
organizations that made countries even closer together, at least, when it
comes to trade.
___________________ 2. It is the other term for global stratification.
___________________ 3. It focused on trade through multinational trade
agreements.
___________________ 4. It is an independent multilateral organization
that became responsible for trade in service.
___________________ 5. It is the gap in global income between the rich
and poor countries.
___________________ 6. This theory frames global stratification as a
function of technological and cultural differences between nations.
___________________ 7. It is the only global international organization
dealing with the rules of trade between nations.
___________________ 8. It focuses on the restructure of the world
economy and ensure global stability.
___________________ 9. These were established because of peace
advocacy after the war.
___________________ 10. The overall purpose of it was to promote
international trade by reducing or eliminating trade barriers such as tariffs
or quotas.
___________________ 11. It is characterized by independency of the
members, use of individual skills and abilities.
___________________ 12. These are middle – income countries due to
their closer ties to the economic core.
___________________ 13. These acts as agents that provide financial
services for its clients in the global level.
___________________ 14. They assist public and private corporations in
raising funds in the capital markets.
___________________ 15. These are financial institutions which primary
purpose is to accept deposits.
Enumerate the following:
16 – 21. Common Types of Financial Institution

22 – 25. Types of International Financial Institution

26 – 28. Three Types of Nation according to Immanuel Wallerstein

29 – 32. Walt Rostow’s Four Stages of Modernization

33 – 35. Theories of Global Stratification