Study On The Financial System Of Singapore Finance Essay

Although the fiscal crisis in 2008 is still in people ‘s head, another crisis occurs in many states of European Union, such as Greece, Ireland ; Portugal possibly the following state ( Baetz & A ; Eddy 2010 ) . On the contrast, Singapore is one its manner to go the fiscal Centre of Asia ( Lim 2005 ) . It is obvious that the ground that makes the difference between some states of European Union and Singapore is the fiscal system. The healthier the fiscal system of a state is, the more possibility for the state to last in fiscal crisis.

Pre-requisites of Singapore

Singapore is now a booming fiscal Centre that non merely serves its domestic economic system, but besides the Wilder Asia Pacific part, and even the universe ( Lim 2005 ) . It is non a opportunity to allow Singapore go the fiscal Centre, but decidedly there are many pre-requisites for Singapore to be a fiscal Centre of Asia. Harmonizing to the article of “ THE BANKING AND FINANCE INDUSTRY IN SINGAPORE ” , which was written by Shane Lim in 2005, the pre-requisites of Singapore can be stated as follows:

A pro-business environment:

Pro-business environment refers to an attitude that endeavor development are supported and encouraged and hence consequence in an addition of economic. Singapore has a pro-business environment. It can be seen from Appendix 1 that, an attractive income revenue enhancement ( 17 % ) is formulated by the authorities that attracted foreign investing and transnational companies to put up central offices in Singapore ( IRAS 2010 ) . Besides, a partial revenue enhancement freedom will be given to new companies which increase the potency of success.

Sound economic basicss:

The economic system of Singapore has been turning bit by bit during the last decennary, even if the existent economic growing was negative in 1998, 2001 and 2009 ; the rate was negligible ( Table 1 ) .

Table 1: Real Economic growing of Singapore:

Beginning: ( Statistics of Singapore, 2010 ) .

A strong regulative and supervisory model:

Monetary Authority of Singapore has changed its ordinance and supervising model from a bottom-up audit-based attack to a more flexible and integrated hazard direction model. For case, Liquidity Supervision Framework was introduced to assist control hazard ( Tan 2005, pp286-288 ) ; fiscal and non-financial activities are required to be separated by Bankss and fiscal concern demands to be focused on by Bankss. Other model is introduced to oversee and modulate other industries, such as insurance industry ( Tan 2005, pp286-288 ) .

Excellent substructure

The fiscal substructure of Singapore can be viewed as excellent. ATM are available about everyplace, bank subdivisions are located in chief topographic points ; different Bankss are available for clients ‘ pick. Besides, Singapore Exchange Ltd ( SGX ) . is on the procedure of acquisition of Australian Securities Exchange, if the acquisition is succeeded, SGX will go one of the largest stock exchange market all over the universe ( Fiscal Deals Tracer 2010 ) . Nevertheless, Asiatic Dollar Market is an offshore banking sector that represents Singapore as the fiscal Centre of Asia.

A extremely skilled cosmopolites work force

By the competition from international Bankss and fiscal service suppliers, the work force of finance industry of Singapore became extremely skilled cosmopolite. And many schools and instruction establishments provides unmarried man and maestro degree about finance, which can spread out the cognition of fiscal work force in Singapore.

Comparison of Singapore and Hong Kong

Although other metropoliss such as Shanghai and Mumbai are turning to be other fiscal Centre of Asia, at present, Singapore and Hong Kong are still the two chief fiscal centres of Asia because of their stable political relations and well-developed fiscal and legal system. The chief difference between Singapore and Hong Kong as a fiscal Centre of Asia is their market mark audience ( Lim 2005 ) . Because of its particular relationship with Mainland China and Taiwan, the chief market mark of Hong Kong is from both districts. On the contrast, as an international metropolis, the civilization diverseness of Singapore allows market itself to every state in the Asia part, and its service has been making to as far off as the Middle East and even Eastern Europe ( Lim 2005 ) . Because of different market mark, the two metropoliss can co-exist to be the fiscal centres of Asia.

Question 2:

Analysis of MAS ‘s Guidelines

The guidelines of Monetary Authority of Singapore on sound patterns in recognition and market hazard direction give Bankss and fiscal establishments techniques to pull off hazard in recognition and market ( MAS 2006 ) .

These techniques are really utile for Bankss and establishments to command hazard for their concern to cut down the negative impact from fiscal crisis. The guidelines foremost define the two hazards as follows:

Recognition hazard is the hazard of an uncertainness of an obligor ‘s ability to pay back the recognition ; while market hazard is defined as the hazard to an establishment ensuing from the alterations in market monetary values, such as involvement rates, foreign exchange rates, and equity and trade good monetary values ( MAS 2006 ) .

Banks and fiscal establishments are encouraged by the guidelines to work out a hazard direction scheme for both recognition and market hazard. Overall speech production, Bankss and fiscal establishments should foremost understand the significance of recognition and market hazard ; and so based on the apprehension ; hazard direction constructions can be designed:

Recognition hazard direction construction: a series of recognition policies that on the footing of Bankss and fiscal establishments themselves should be established. Following is the clear deputation of authorization to specific people to O.K. recognition ( MAS 2006 ) . However, Bankss and fiscal establishments should put up recognition standards which can be a guideline to those who decide whether to O.K. recognition with what sort of recognition bound, or whether to regenerate the recognition or non. Besides, Bankss and fiscal establishments demands to execute the obligors ‘ recognition reappraisals to sort their clients into different degrees and cut down job credits. Nevertheless, emphasis testing is of import to Bankss and fiscal establishments ( MAS 2006 ) .

Market hazard direction construction: this construction is more or less the same to that of recognition hazard direction. A market hazard direction scheme needs to be formed in conformity with the position of the Bankss and fiscal establishments themselves. Based on this, hazard direction policies should be set up ( MAS 2006 ) . After that, hazard direction processes and systems should be established to mensurate the market hazards based on different positions, such as involvement rates, foreign exchange rates, and equity and trade good monetary values, etc. Besides, scenario analysis and emphasis testing are encouraged for the Bankss and fiscal establishments as they can give Bankss and fiscal establishment qui vives when to take action to command hazard ( MAS 2006 ) .

However, directors and board of managers of Bankss and fiscal establishments should reexamine the hazard direction scheme all the clip, as the environment of these Bankss and fiscal establishments and clients ‘ state of affairss ne’er remain the same ( MAS 2006 ) . Therefore, the hazard direction scheme should alter to repair the certain environment and state of affairs to do it more effectual and so hazard can be under control of the Bankss and fiscal establishments.

Question 3:

Report to Board of Management

Create stockholders value

Dear Board of Management:

It is obvious that one of the aims of our company is to increase to their stockholders, and it is known from many literatures and experiences that the stockholder ‘s value is affected by the undermentioned four chief elements:

Sum of Capital Invested

Required Rate of Return

Actual Rate of Return on Capital

Planing Horizon

Therefore, it is of import for us to understand and hold a position on how a concern can make and increase stockholders ‘ value based on the above elements. And the method related to each component can be applied every bit stated as follows:

Sum of Capital Invested. One of the ways to measure the value of stockholders is net income of the company. And evidently, this is affected by the sum of capital that invested in the concern. Generally speech production, the more sum of capital invested in the concern, the more net income that created by the concern. And net income can be reinvested into the concern to increase the sum of capital ( Tracy 2002, p95 ) . Therefore, we need to increase the profitableness of the concern and as a consequence the sum of capital will be increased automatically.

Required Rate of Return. As mentioned above, the profitableness of one concern will impact the value of stockholders, and the profitableness can be measured by the index that called Rate of Return ( Fisher & A ; Martin 1994, p54 ) . Therefore, to a concern, the needed rate of return should be set higher but realistic to accomplish. And each process of the concern demands to be taken carefully to accomplish the needed rate of return and so reinvest the net income to increase the sum of capital ( Fisher & A ; Martin 1994, p54 ) .

Actual Rate of Return on Capital. However, the rate of return is sometimes non so accurate to reflect the profitableness of the concern, as other factors are ignored, such as clip value of money, rising prices, etc. Therefore, it would be better to use the existent rate of return on capital to mensurate profitableness of a concern. Increasing the existent rate of return on capital of a concern can be achieved by our company to oversee each procedure of the concern to seek to avoid cost that is non necessary to happen ( Hansen et al 2007, p564 ) . And another manner is to increase the rate of return of the concern by adding more value to the clients and avoiding the non-value-adding procedures. One illustration of this point is the rising prices rate reached 4.4 % in October in China, which evidently had a negative impact of the value of stockholders.

Planing Horizon. Meanwhile, merely can the value of stockholders be evaluated until the concern goes on to a certain period. Therefore, program plays a important function in increasing the value of stockholders. In bend, we should spread out the planning skyline to do certain that the value of stockholders can be achieved in the hereafter.

These are non the lone methods to increase value of stockholders, and it is no sense to restrict our techniques merely on these. However, this will do sense to our company to accomplish one of our aims of increasing the value of stockholders.

Question 4:

Analysis of Impact of Interest Rate

Appreciating or Depreciation Interest Rate

It can be seen from Appendix 2 that the article described about the alteration in involvement rate in China. It mentioned that People ‘s Bank of China would raise the involvement rate of both imparting rate and sedimentation rate by 25 by basic points each. Obviously, it is an appreciating involvement rate alteration ( Straits Times 2010 ) .

The value of equity and belongingss will be depreciated.

As known in many literatures, the appreciating involvement rate has an impact of cut downing the liquid capital ; and it besides increase the cost to the belongings developers to refunding loans, in bend the belongings developers will diminish the monetary value of belongingss to acquire hard currency every bit shortly as possible. Furthermore, the appreciating involvement rate will diminish the monetary value in the 2nd belongings market and the rental market. Therefore, the value of equity and belongingss will be depreciated. Harmonizing to the instance happened in Canada in August 2010, the monetary value of belongingss fell because of the appreciating involvement rate ( CanadaMeet.com 2010 ) . Besides, harmonizing to E-house China R & A ; D Institute, the monetary value of belongingss would somewhat diminish in November and December 2010 ( E-house China R & A ; D Institute 2010 ) .

Which sectors, groups or establishments are involved?

Obviously, everyone involves in this issue. But Bankss, fiscal establishments, belongings developers have a more important impact because of the appreciating involvement rate.

Analyze the issue related to Financial System

The appreciating involvement rate in China could be a good illustration to explicate how the involvement rate affects the transportation of money between rescuers and borrowers. As the involvement rate rises, the old balance of transportation of money between rescuers and borrower interruptions, and the market will self-adjust to make a new balance, and the value of equity and belongingss, and even the stock exchange market will be affected by the alteration in involvement rate.

Mentions

Fisher D. Jeffrey. , Martin S. Robert ( 1994 ) Investing Analysis for Appraisers. Chicago: Dearborn Financial Publishing, Inc. p54.

Hansen R. Don et Al ( 2007 ) . Cost Management: Accounting & A ; Control. 6th erectile dysfunction. Buckeye state: South-Western Cengage Learning. p564.

Lim Shane ( 2005 ) . The banking and finance system in Singapore. Career Central Magazine. Issue 7.

Tan H. Chwee ( 2005 ) . Fiscal markets and establishments in Singapore.11th erectile dysfunction. Singapore: Singapore University Press. pp286-288.

Tracy A. John ( 2002 ) . J.K. Lasser ‘s fiscal rudimentss for concern directors. p95.

Baetz Juergen. , Eddy Melissa ( 2010 ) . Merkel, Sarkozy want quick bailout for Ireland. Associated Press. hypertext transfer protocol: //abcnews.go.com/US/wireStory? id=12245379 [ Last Accessed: Nov. 26th 2010 ]

CanadaMeet.com ( 2010 ) . Canadian house monetary values rise in involvement rates: should be inactive and so fell sell it? hypertext transfer protocol: //translate.google.com.hk/translate? hl=zh-CN & amp ; sl=zh-CN & A ; tl=en & A ; u=http % 3A % 2F % 2Fwww % 2Ecanadameet % 2Ecom % 2Fnews % 2Fcanada % 2Fhouse % 2F2010 % 2F0809 % 2F33481 % 2Ehtml [ Last Accessed: Nov. 26th 2010 ]

E-house China R & A ; D Institute ( 2010 ) . The Overview of China Real Estate Market of 3rd Quarter of 2010. hypertext transfer protocol: //translate.google.com.hk/translate? hl=zh-CN & amp ; sl=zh-CN & A ; tl=en & A ; u=http % 3A % 2F % 2Fwww % 2Eyiju % 2Eorg % 2Fnewshow % 2Easp % 3FID % 3D385 [ Last Accessed: Nov. 26th 2010 ] pp7-9.

Fiscal Deals Tracker ( 2010 ) . Singapore Exchange to get 100 % interest in Australian Securities Exchange. hypertext transfer protocol: //www.allbusiness.com/company-activities-management/company-structures-ownership/15232547-1.html [ Last Accessed: Nov. 26th 2010. ]

IRAS hypertext transfer protocol: //www.iras.gov.sg/irasHome/page04.aspx? id=410 [ Last Accessed: Nov 18th, 2010 ] .

MAS ( Monetary Authority of Singapore ) ( 2006 ) . Credit Risk & A ; Market Risk. hypertext transfer protocol: //www.mas.gov.sg/legislation_guidelines/risk_mgt/Guidelines_on_Risk_Management_Practices.html [ Last Accessed: Nov. 26th 2010. ]

Statisticss of Singapore. hypertext transfer protocol: //www.singstat.gov.sg/stats/charts/econ.html [ Last Accessed: 23rd Nov. 2010 ]

Passs Times ( 2010 ) . China raises cardinal involvement rates. Straits Times. hypertext transfer protocol: //www.straitstimes.com/BreakingNews/Money/Story/STIStory_592686.html [ Last Accessed: Nov. 26th 2010 ]

Bibliography

Casares T. Gabriel et Al ( 1999 ) . The province, the fiscal system, and economic modernisation. Cambridge: Cambridge University Press.

Neave H. Edwin ( 1998 ) . Fiscal Systems: Principles and Organization. London: Routledge

Masuyama Seiichi et Al ( 1999 ) . East Asia ‘s fiscal systems: development & A ; crisis. Singapore: SNP Printing Pte Ltd.

Helms Bright ( 2006 ) . Access for all: edifice inclusive fiscal systems. Washington DC: The World Bank.

Appendix 1

Year of Assessment

Tax rate

Tax freedom / discount

2010 onwards

17 %

Companies will go on to bask the partial revenue enhancement freedom strategy and revenue enhancement freedom strategy for new start-up companies as provided in YA 2008 and YA 2009.

In add-on, with consequence from YA 2010, the revenue enhancement freedom strategy for new start-up companies will be extended to include companies limited by warrant, capable to the same conditions.

2008 and 2009

18 %

Partial revenue enhancement freedom for companies

Effective from YA 2008, a partial revenue enhancement freedom is given to companies on normal indictable income* ( excepting Singapore franked dividends ) of up to $ 300,000 as follows:

FirstA $ A 10,000

@ 75 %

= $ A A A 7,500

Following A $ 290,000

@ 50 %

= $ 145,000

Entire $ 300,000

A

A A $ 152,500

Tax freedom strategy for new start-up companies

Since YA 2005, a measure uping company can claim for full revenue enhancement freedom on the first $ 100,000 of normal indictable income* ( excepting Singapore franked dividends ) for its first three back-to-back YA.

Effective from YA 2008, a farther 50 % freedom is given on the following $ 200,000 on a measure uping company ‘s normal indictable income* ( excepting Singapore franked dividends ) .

The revenue enhancement freedom for new start-up companies on indictable income of up to $ 300,000 is as follows:

FirstA $ 100,000

@ 100 %

= $ 100,000

Following A $ 200,000

@ A A 50 %

= $ 100,000

Entire $ 300,000

A

A A $ 200,000

A company that does non measure up for a revenue enhancement freedom for new start-up companies will be given partial revenue enhancement freedom.

July 12, 2017