Consumption, Savings

& Investment

Fahad Ur Rehman Khan (1496)

Consumption
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Consumption

Definition:
Consumption can be defined in different ways,
but is usually best described as the final
purchase of goods and services by individuals. It
is also often referred to as consumer spending.

Consumption

Every time you purchase food at the drive-thru

or pull out your debit or credit card or cash to
buy something, you are adding to
consumption.
Consumption is one of the biggest concepts in
economics and is extremely important
because it helps determine the growth and
success of the economy.
Businesses can open up and offer all kinds of
great products, but if we don't purchase or
consume their products, they won't stay in
business very long!
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Theories in
consumption
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Theories in
consumption

Keynesian theory:
One of the most popular and well-known
theories is theKeynesian theory(offered by
John Maynard Keynes). This theory states that
current real income is the most important
determinant of consumption in the short run.
Simply said, you spend according to how
much income you have coming in. This is the
basis for most consumption theory.
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Theories in
consumption

The term 'real' that is used in describing

income refers to how your income is affected
by inflation, or the natural rise in prices of
goods and services. So to elaborate, if your
income went up 5% in a year, but the price of
goods or inflation went up 5% also, your real
income remained flat. You can't really buy or
consume any more goods than you could
before.
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States Affecting
Consumption

So what else do economists believe affects

consumption and your decision to purchase
products and services, besides your real
income?
Prices (If prices goes down, consumption will
get high)
Taxes (Can earn more Taxes, because public
are willing to pay taxes)
Income (High income, high consumption)
Saving (Some people save their spendings)
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Saving
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Saving

Definition:
To Some people, its Money in the bank,
To some its buying stocks or contributing to a
pension plan.
But to economists, saving means only one thing
consuming less out of a given amount of
resources in the present in order to consume
more in the future.

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Saving

Saving is not an investment

Saving is often confused with investing, but
they are not the same.
Although most people think of purchases of
stocks and BONDS as investments, economists
use the term INVESTMENT to mean additions
to the real stock of capital: plants, factories,
equipment, and so on.

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Types of Savings
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Types of Savings

Personal savings
What people save, avoiding to consume all their
income, is called "personal savings". These
savings can remain on the bank accounts for
future use or be actively invested in houses, real
estate, bonds, shares and other financial
instruments.

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Types of Savings

National savingsare personal savings plus the

business savings and public savings. Business
savings can be measured by the value of
undistributed corporateprofits. Public savings are
basicallytax revenueslesspublic expenditure.

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Investment
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Investment

Definition:
Money committed or property acquired for future
income.
INVESTMENT to mean additions to the real
stock of capital: plants, factories, equipment,
and so on.

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Investment

Leverage Firms, are the best place to invest,

because its Earning per share is high. So, the
high amount you put the more profit you gain
from your share or stock.
Always invest in that firm or thing whose rate
of return or profitability in future is high.

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Investment

Fixed Investment- is spending on new

capital machinery and plant, construction,
housing, vehicles, etc.
Working Capital- is spending on
stocks/inventories of finished goods and raw
materials. The accumulation of stocks by
firms, whether voluntary or involuntary, is
counted as investment.

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Types of
Investment
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Types of
Investment

Traditional investments:
In finance, the notion oftraditional
investmentsrefers to putting money into wellknown assets (such asbonds,cash,real estate,
andshares) with the expectation of capital
appreciation, dividends, and interest earnings.

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Types of
Investment

Alternative investment:
Alternative investments include hedge funds,
managed futures, real estate, commodities
and properties.

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Conclusion

Consumed is what you buy or ability to pay.

High consumption makes any product to stay
long in market.
If consumption is not high then product will
failed.
Saving is what you have after all your
expenses.
Saving is not what you invest.
Investment is for the future profits.
Investment made when the earning per share
of the company is high.
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Thank You!
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International Banking
and Money Market

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Chapter six

Chapter Objective:
Differentiate between international bank
and domestic bank operations and examine
the differences of various international
banking offices.

Chapter Outline
International Banking Services
Types of International Banking Offices
Capital Adequacy Standards
International Money Market

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International
Banking Services

International Banks do everything domestic

banks do and:
Arrange trade financing.
Arrange foreign exchange.
Offer hedging services for foreign currency
receivables and payables through forward and option
contracts
Offer investment banking services (where allowed).

Borrow or lend in eurocurrency market

Underwrite eurobonds and foreign bonds.
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Worlds 10 Largest Banks

Citigroup

U.S.

Mizuho Bank/ Mizuho Corp Bank

Japan

HSBC Holdings

U.K.

Bank of America

U.S.

JP Morgan Chase

U.S.

Deutsche Bank

Germany

Royal Bank of Scotland Group

U.K.

Sumitomo Mitsui Banking Group

Japan

HypoVereinsbank

Germany

UFJ Bank Ltd.

Japan
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Types of International
Banking Offices
1.

Correspondent bank

Banks located in different countries

establish accounts in other bank
Provides a means for a banks MNC clients
to conduct business worldwide through his
local bank or its contacts.
Provides income for large banks
Smaller foreign banks that want to do
business ,say in the U.S., will enter into a
correspondent relationship with a large U.S.
bank for a fee

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Types of
International
Banking Offices
2. Representative office

A small service facility staffed by parent bank personnel

that is designed to assist MNC clients of the parent bank in
dealings with the banks correspondents.

No traditional credit services provided

Looks for foreign market opportunities and serves as a liaison
between parent and clients
Useful in newly emerging markets

Representative offices also assist with information about

local business customs, and credit evaluation of the MNCs
local customers.
It is useful when the bank has many MNC clients in a
country
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Types of International
Banking Offices
3. Foreign Branch

A foreign branch bank operates like a local bank, but is

legally part of the parent, not a separate entity.
Subject to both the banking regulations of home country
and foreign country.
Reasons for establishing a foreign branch

More extensive range of services (faster check clearing, larger

loans)
Foreign branches are not subject to Canadian reserve
requirements or deposit insurance
Compete with host country banks at the local level

Most popular means of internationalizing bank

operations

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Types of
International
Banking Offices
4. Subsidiary and Affiliate Bank

A subsidiary bank is a locally incorporated bank

that is either wholly owned or owned in major
part by a foreign parents.
An affiliate bank is one that is only partially
owned, but not controlled by its foreign parent.
Both subsidiary and affiliate banks operate
under the banking laws of the country in which
they are incorporated.
They are allowed to underwrite securities.
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Types of International
Banking Offices
5. Offshore Banking Center

A country whose banking system is organized to permit

external accounts beyond the normal scope of local economic
activity.
The host country usually grants complete freedom from hostcountry governmental banking regulations.
Banks operate as branches or subsidiaries of the parent bank
Primary credit services provided in currency other than host
country currency
Reasons for offshore banks

Low or no taxes, services provided for nonresident clients, few or no FX

controls, legal regime that upholds bank secrecy

The IMF recognizes the Bahamas, Bahrain, the Cayman Islands,

Hong Kong, the Netherlands Antilles, Panama, Singapore as
major offshore banking centers
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International Debt
Crisis

Some of the largest banks in the world were

endangered when loans to sovereign
governments of some less-developed countries.
At the height of the crisis, third world countries
owed $1.2 trillion.
Like a great many calamities, it is easy to see in
retrospect that:
Its a bad idea to put too many eggs in one
basket, especially if:

You dont know much about that basket.

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The Asian Crisis

This crisis followed a period of economic expansion in the

region financed by record private capital inflows.
Bankers from the G-10 countries actively sought to finance the
growth opportunities in Asia by providing businesses with a
full range of products and services.
This led to domestic price bubbles in East Asia, particularly in
real estate.
Additionally, the close interrelationships common among
commercial firms and financial institutions in Asia resulted in
poor investment decision making.
The Asian crisis is only the latest example of banks making a
multitude of poor loansspurred on no doubt by competition
from other banks to make loans in the hot region.
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