The Speckled Band Essay Example

The Speckled Band Essay Read ‘The Speckled Band’ by A. Conan. Doyle and ‘The Monkey’s Paw’ by W. W. Jacobs. Discuss how the authors create tension and discuss the devices Used to mislead the reader.  Ã¢â‚¬ËœThe Speckled Band’ by A. Conan. Doyle and ‘The Monkey’s Paw’ by W. W. Jacobs are two very different stories; ‘The Speckled Band’ follows the ‘murder mystery’ line whereas ‘The Monkey’s Paw’ is based more around horror genre. This means that they will create tension and mislead the reader in completely different ways. In this essay I am going to explore how the two authors do this, and compare their methods for doing so. Arthur Conan Doyle creates tension in many ways. At the beginning of ‘The Speckled Band’, he creates tension by showing the effects of this dreadful crime on the characters. We are told Sherlock is usually a ‘late riser’, however, because of this new case, his routine was broken because at a quarter-past seven, Watson awakes to find Sherlock Holmes, fully dressed, standing by the side of his bed. Helen Stoner, the client who sought Holmes’ services as a detective, when speaking to Sherlock and Watson, was shivering, not from the cold as one would first assume, but from fear. The way she says â€Å"It is not cold which makes me shiver. It is fear, Mr. Holmes. It is terror,† creates tension because she first says what does not make her shiver as if holding off telling them, and then, using short sentences, she repeats the two words, ‘it is’. These two events evoke tension because these events are directly linked to this one case whic h at this point, we still do not know about. We will write a custom essay sample on The Speckled Band specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on The Speckled Band specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on The Speckled Band specifically for you FOR ONLY $16.38 $13.9/page Hire Writer The location of this suspicious death, the austere house of Stake Moran which â€Å"was of grey, lichen-blotched stone, with a high central portion and two curving wings, like the claws of a crab.† Only three people live in this spooky house. It seems rather odd that in this grand manor house only three people live. Everyone can empathise with the fact that being alone in a large house is incredibly scary, so, you feel scared for these three people, and this then creates tension. The mysterious Dr. Roylott, having spent a lot of time in India, lets a cheetah and a baboon roam the house. This strange assortment of animals creates tension as it seems strange that such a vicious animal (the cheetah) would be allowed to roam the house. And on top of this all the rooms are barred, â€Å"the windows were blocked by old-fashioned shutters with broad iron bars. The chimney is wide, but is barred up by four large staples. This creates tension and portrays the rooms as cells, trapping them. It is a sinister thought that these three people are trapped within this house which has a cheetah and a baboon roaming around. Arthur Doyle creates tension by using scary and sinister adjectives, such as â€Å"a long drawn catlike whine† or â€Å"there darted what seemed to be a hideous and distorted child, who threw itself upon the grass with writhing limbs. On the night of Julia’s death, the weather was wild, â€Å"the wind was howling outside, and the rain was beating and splashing against the windows†. The adjectives used in this description of the weather creates the most horrific images and evokes tension because you can just imagine how scared they must be, locked up in this macabre house. In ‘The Monkey’s Paw’ there are only 4 main characters; the mother and father who live in their isolated house with their son, and a sergeant-major. This is a major difference as characters play a huge role in ‘The Speckled Band’.  William Jacobs creates tension by using sinister images, and sudden actions. Just like in â€Å"The Speckled Band†, the weather plays a huge part in the tone of the particular part of the novel and the tension created. This story starts off with the father and the son playing chess. This in itself evokes tension because we hear of the disastrous weather, â€Å"The night was cold and wet. Path’s a bog, and the road’s a torrent,† and yet these two characters are calmly playing chess, ignoring the sombre weather. He also creates tension by using sudden actions and short sentences. For instance, tension is immediately created when Sergeant Morris came out of the night into the house, his ‘heavy footsteps came toward the door, as the gate banged to loudly’. This gives him a mysterious aura  Short sentences also add to the tension of the story, â€Å"The paw!† she cried wildly. â€Å"The monkey’s paw!†. Not only adding tension, this then reminds us of Julia’s dying words in ‘The Speckled Band’, â€Å"It was the band! The speckled band!† It is interesting that in both the stories, the mystery in each is completely based on the title. The author also uses portent to hint what is going to happen. â€Å"[Herbert] sat alone in the darkness, gazing at the dying fire, and seeing faces in it. The last face was so horrible and so simian that he gazed at it in amazement. His hand grasped the monkey’s paw, and with a little shiver he wiped his hand on his coat†. This could be hinting to the bad things that are going to happen to him. These sinister faces create tension and adds to the mysterious air surrounding the paw. Another possible hint to the bad things ahead is that when the sergeant was describing the paw, he said,â€Å" It had a spell put on it by an old fakir. He wanted to show that fate ruled people’s lives, and that those who interfered with it did so to their sorrow†. This last sentence was a possible sign for the terrible events ahead. The Speckled Band Essay Example The Speckled Band Paper During his time in Calcutta, exotic animals, particular species being sent to Stoke Moran, fascinated Dr Roylott. For the duration of Holmes investigation, a cheetah and baboon roam around the Manor House. Dr Roylott also allows Gypsies to wander freely over his grounds. Both these factors create tension for the reader, encouraging them to read more of this mystery. The reader is intrigued to discover if the cheetah, baboon and gypsies have a part to play in Helen Stoners horror, and also the murder of her twin sister. And if so, then what it was they did. The reader is also captivated by the description of Dr Roylott, when he meets with Sherlock Holmes. A huge man is illustrated to the reader, with a hunting crop swinging in his hand and a resemblance to a fierce old bird of prey. Together, these create tension between Dr Roylott and the reader. The link to a predator suggests he is strong, and aggressive. With the description of him including the hunting crop and the bird of prey, the image of Dr Roylott is of a hunting, un-human like man, of a dark, mysterious past. The mystery is discovered in the picture of ruin, Stoke Moran, located in Surrey. We will write a custom essay sample on The Speckled Band specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on The Speckled Band specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on The Speckled Band specifically for you FOR ONLY $16.38 $13.9/page Hire Writer The manor house is portrayed as a suspicious, dark, threatening house, by the use of Conan Doyles simile two curving wings like those of a crab. Crabs claws are strong and they have the potential to harm. Therefore the simile used implies that Stoke Moran is a dubious, shady house, situated in the middle of nowhere, with darkness surrounding it. The late at night and early morning setting of the discovery of the secret, adds to the suspense for the reader. All was dark in the direction of the Manor House. Through the darkness, things can come out of hidden places and alarm people in the area. For example, while Sherlock Holmes and Watson are walking on Manor House grounds, a hideous and distorted child surprises them, and the reader, by jolting out of the bushes. The reader is intrigued to find out what this distorted child is, and within a few minutes of meeting this creature, the reader is reminded that roaming the ground is a Baboon. Conan Doyles technique of using darkness throughout The Speckled Band creates tension, and this appears to the readers senses. The imagery of the distorted child affects the readers sight, as they become more aware of their surroundings. The cat-like whine appears the readers sound sense, as the reader can hear things, but they cannot see them, and this would make the reader nervous. Therefore they are encouraged to read further on. The things, such as chill wind, affect the readers touch sense. The blustery weather builds more suspense as it implies the image of a cold, dark, windy night. Almost as though something bad is about to happen. All of the senses are appealed to, and therefore the readers are able to feel more involved and believe they are included in the mystery. The Speckled Band Essay Example The Speckled Band Paper The similarities of Lamb to the Slaughter and The Speckled Band are evident throughout both stories, although some are found deep beneath the surface, hidden well by their authors, but delve deep into the worlds of Mary Maloney and Sherlock Holmes and the answers are provided, clear as day. The characters in both Lamb to the slaughter and The speckled band are portrayed by the authors of each story respectively as, in Mary Maloneys case in Lamb to the slaughter as an easy target, a very passive woman and in actual fact this is far from the actual truth, as she is a murderer. Whilst The speckled band plays centre stage for Sherlock Holmes, who acts out his role of typical detective with the trademark pipe, cap and magnifying glass props included (although Holmes is excused as this stereotype is one he helped build). Its these stereotypes that build the structure of the short stories, Maloneys of shock and disbelief over what she is capable of doing and covering up, this shows a character immensely diverse from the readers first impression of Mrs Maloney; Her skin for this was her sixth month with child had acquired a wonderful translucent quality, the mouth was soft, and the eyes, with their new placid look, seemed larger, darker than before. This backs up Maloneys first impression of being the ironic typical victim of the story, the emphasis on the size of Marys eyes show innocence and a sense of being nai ve on the soon-to-be widow. Holmes not only helps along the idea of being a typical detective by appearance alone, his actions, observations and language fuels this also. We will write a custom essay sample on The Speckled Band specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on The Speckled Band specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on The Speckled Band specifically for you FOR ONLY $16.38 $13.9/page Hire Writer He picks up on the slightest of clues and possibilities of the case, giving an accurate prediction early on in the story, backing up and adding depth to the Sherlock Holmes character. Sir Arthur Conan Doyle does this well and successfully makes the famous detective shine. I had come to an entirely erroneous conclusion, which shows, my dear Watson, how dangerous it always is to reason from insufficient data. This quotation is echoed from Sherlocks conclusion of the case, once solved, as always Holmes simplified and explained how he arrived at yet another infamous Sherlock Holmes victory, not only for Watson, but for the reader. Note the intellectual language used by Holmes. This is not a show. It is how he truly speaks, this aswell as the reference to unimaginable leads from the beginning of the story, which aided Holmes in solving the case, shows what a sharp and educated man he really is, along with his ability to deal with the venomous snake who appeared in the story, showing courage and strength. This gives Holmes the rightfully acquired typical detective stereotype adopted by him in The Speckled Band. The settings in both Lamb to the slaughter and The Speckled Band play a major role of significance to both stories respectively. Lamb to the slaughters setting gives a sense of warmth and security, a homely background with Mary Maloney and husband at the forefront. This setting adds to the emotions felt when the unexpected murder occurs, from one extreme to the next. At first the radiant mother-to-be is awaiting the arrival of her loving husband then shifts to the desperate cover up of his death and deceit of the investigating police. It really does make the story that much better, in that it plays with your emotions and puts that unpredictable spin on Mary Maloneys character.

Word Choice Immigration, Emigration and Migration

Word Choice Immigration, Emigration and Migration Word Choice: Immigration, Emigration and Migration Although closely related, immigration, emigration and migration have distinct meanings that you need to understand. This will ensure you can use them effectively in your writing. All three words describe the movement of people (and sometimes animals) from one place to another. However, the correct word to use depends on the situation. Learn more about their usage below. Immigration (Arriving) Immigration is the act of entering or arriving in a new country of residence. It would be used in a sentence like this: Jesse’s family originally immigrated to America in 1621. Emigration (Leaving) The word emigration refers to leaving one country and moving somewhere else. Emigration, like immigration, is usually a permanent, rather than a temporary, move. We would use emigration in a sentence like this: Jesse’s ancestors emigrated from England aboard the Mayflower. Don’t forget that immigration is spelled with a double m, while emigration only has one! Migration (Movement) Migration is the movement of people or animals from one location to another. This covers movement in general, whether leaving or arriving. When migration describes the movement of animals, it is usually from a cold location to a warmer one during winter. We would use it in a sentence like this: American buffalo migrate large distances to find fresh pasture. The same journey can be described using all three words, dependent upon the point of view. To continue the example above, we could say that Jesse’s ancestors migrated when they emigrated from England and immigrated to America. If you would like further advice about word choice or academic writing, the professionals at Proofed can help you today!

Wassily Kandinsky and Surrealism Assignment Example | Topics and Well Written Essays - 500 words

Wassily Kandinsky and Surrealism - Assignment Example The paper "Wassily Kandinsky and Surrealism" explores the art of Wassily Kandinsky. Despite his interest in art, he pursued law and economics as suggested by his parents. As a well-educated man, he chose to pursue Art and experiment with his obsession for colors. This paper will discuss how Kandinsky developed a unique style and explored abstract art as well as highlight some of the artists that he influenced. Worth noting is the fact that the painting was a spiritual thing for Kandinsky and he intended to use it to convey different levels of human emotions. He sought to use abstract forms and colors to explore different cultures and physical boundaries. In his view, abstract art was of critical importance in the expression of inner necessity. Kandinsky associated musical sounds with the potential to evoke different emotions in listeners. Therefore, he wanted to develop an art that could trigger similar emotions to his audience. He wanted to develop object-free art that had a spiritu al connection and a direct allusion to different emotions. Worth noting is the fact that his ability to create object free paintings with a strong allusion to different human emotions defined his unique style. Kandinsky had his first experience of object-free art in an exhibition that he attended and developed a close in this form of art. Kandinsky worked closely with other artists, who influenced him in different ways. For example, one of his close friends was Paul Klee with whom he shared artistic ideas.

Contract Law Research Paper Example | Topics and Well Written Essays - 1000 words

Contract Law - Research Paper Example The court substantiates the value of a breach thereby punishing the offending party depending on the specific breach. A contract has various components created systematically with the view to protecting the interests of both parties as the discussion below shows. According to the contract law in the country, a contract consists of three specific elements. The three are an offer, acceptance and the competent person. An offer refers to the proposition by an individual who requires a particular service of a product. Such a person, known as the â€Å"offeror† approaches another who can undertake the duties with the offer. The â€Å"offeree† considers the terms of the request before deciding either to accept or to decline. As stated earlier, entry into a contract is normally voluntary (Bainbridge, 2012). The process of analyzing the content of the offer is known as consideration. Additionally, consideration refers to a valuable substance the two parties exchange in the transaction. Both parties must offer something of value such as money, servive or a product to validate the agreement. The â€Å"offeree† considers the details of the offer and often engages the â€Å"offeror† in a revision exercise in order to make the terms friendly to both parties. Acceptance therefore refers to the admission by the â€Å"offeree† to undertake the tasks as proposed by the offer. This way, both the â€Å"offeror† and the â€Å"offeree† become legally bound to the contract and must therefore meet their obligations as stated in the contract. The two parties constitute the â€Å"competent persons† described above. The three elements described above require effective evidence, which often occur in writing. However, two parties can enter a contract verbally by expressing their interests in working with each other. Intention is an equally important feature to consider especially in verbal agreements. Just as the name suggests, intention refers to the probable reasons for behaving in a

Macroeconomics Interview Assignment Essay Example | Topics and Well Written Essays - 1000 words

Macroeconomics Interview Assignment - Essay Example as a set of actions and conditions that were fundamental attributes of a financial crisis and ensuing recession, which become evident and visible in 2008. Some of the actions or factors that contributed to this crisis of rise and fall of housing costs are attributed of the securities held by the financial institutions. The ensuing years leading to the crisis, the United States had received large sums of money in terms of foreign loans from fast developing economies such as Asia and other oil manufacturing nations (Rao, and Sisodiya, 11). The huge inflow of foreign funds and low U.s rates of interest between 2002 and 2004 is attributed to the volatile milieu characterised by easy credit conditions. This environment is immensely attributed to the housing and credit bubbles. However, the immediate cause of the subprime crisis was the bursting of the US’s housing bubble. The bubble peaked between 2005 and 2006. The crisis was characterized by an increase in subprime mortgage negligence and foreclosure, and the consequent decrease of securities that were guaranteed by the said mortgages. The mortgages included the mortgage-backed securities (MBS) and the collateralized debt obligations (CDO). The securities offered attractive incentives and rates of return in the beginning; nonetheless, the abnormally low credit factor eventually resulted to substantial defaults (Rao, and Sisodiya, 27). Fundamentally, the crisis is connected to numerous factors; however, the primary ones include the inability of homeowners to submit the mortgage payments due to predatory lending and speculation factors. Other factors include high level of personal and corporate debts, poor monetary and housing policy, global imbalances and inapt government regulation, which aimed at expanding homeownership. It is imperative to note that, the MBS, CDO and credit default swap caused the disproportionate housing debt. For the case of the home sellers and business people, the increase and sharp fall of

Government Bond Market in Nigeria

Government Bond Market in Nigeria CHAPTER 1 Background Finance plays an increasingly important role in economic growth and development of nations around the world. These roles are in many different forms, they include but not limited to channelling savings towards investment. The level of sophistication of a financial system is important and to a large extent determines the overall level of overall growth and development of that economy. The financial system contributes to economic growth performance through several mechanisms and channels à ¢Ã¢â€š ¬Ã¢â‚¬Å" mobilising savings, allocating funds to their most productive uses, monitoring productive uses i.e. investments, transferring and sharing risk (see World Bank (2001)). In modern economies, disruptions in the flow of credit from the financial system to businesses within the economy are detrimental to economic growth and can lead to a general slowdown in the level economic activities. This in turn can lead to unemployment; drop in consumer spending, consumer and industrial economic con fidence levels and ultimately a general slowdown in the economy. Capital account liberalisation in many countries and increasing levels of regional integration and globalisation add an international dimension to the flow of investments and capital around the world. These have made the transfer of funds and investment easy and accessible from one country to another. Investments and capital can be transferred around the world with fewer restrictions as barriers are being removed due to increasing impact of globalization. Since the start of the global financial crisis in 2008, the focus has increasingly been on the roles of the banking sector and the capital market in most economies. The global financial crisis caused a massive flight to safety with investor divesting from currencies, equities markets and other risky assets to the sovereign bond markets which are perceived as safe haven. Investor in major economies divested from perceived risky assets to markets where their investments are relatively safe and guaranteed. This shows one of the significance of sovereign bond market as an investment option for investors in times of crisis and how it can help to minimize the occurrence of such crisis. According to Arteta (2005), there have been many banking crises over the years in many developing countries which were very costly due to the fact that they tend to obstruct the free operations of financial intermediaries, affecting industries and the real economy. Crises can block the normal flow of credit and loans from banks to firms. The dominance of bank intermediation and the general underdevelopment of capital markets (especially the bond markets) in many developing countries aggravate the susceptibility of the real economy to episodes of banking problems. It follows that having additional sources of domestic external finance would allow firms to better withstand episodes of financial distress. By allowing firms to raise funds issuing debt securities, the existence of deep and liquid domestic capital markets would complement the availability of bank finance. By patronising this capital market option, firms would also help to deepen and broaden the market. Well diversified financial systems would lead to more efficient allocation of resources especially capital, where firms can issue bonds in domestic markets. This would enable the firms to ease maturity mismatches in their balance sheets. Thus, bond markets would lessen the effect of waning bank credit flows on firmsà ¢Ã¢â€š ¬Ã¢â€ž ¢ financing requests during periods of banking crises. Bond market has major importance in any economy but more so in emerging economy where savings and investment opportunities are inadequate. Financial sector development (more importantly for capital market) begins with the development of a sovereign bond market in many emerging economies. This is common, not only because governments are mostly the biggest domestic borrowers with the best credit ratings but also because of how their actions and inactions affect the overall level of economic development. There have been significant changes politically, economically and socially in many developing economies particularly in Africa. The financial crises of 1997-1998 (in Asia and Russia) have pointed out how vulnerable economies are when over dependent on foreign capital or banking system (Fabella and Madhur, 2003). In many emerging economies in Africa, recently there have been changes in organizational and regulatory framework of capital markets. These countries are re-strategizing in order to broaden their capital market and investors base as well as tap into the new sources of funding such as bond markets. (Brownridge, 1998). Currently, the domestic bond markets in most African economies where they exist are narrow and largely undeveloped compared to the banking system and the equity market. There are many rationales for developing a domestic bond market especially for emerging economies. First, developing a bond market will help the government to finance fiscal deficits which was done previously by forcing local banks to hold government paper, usually to meet demanding reserve and liquidity requirements. Secondly, according to Frankel (1993) in the absence of a bond market it would be difficult to sterilize large long-term capital inflows for infrastructural development. This was a difficult challenge for several central banks during the early 1990s when they had only short-term debt instruments. Sterilization that relies entirely on issuing short-term securities tends to drive up short-term interest rates while bond issuance help to minimise this risk. Thirdly, to generate a yield curve which could serve as a benchmark for investors and borrowers in the financial markets. This enables the market participants to derive the market interest rate that reflect the opportunity cost of fund at each maturity. Also, Sokoler (2002), bond market increases the competitiveness and efficiency of the financial system, which might have been dominated by few banks before the introduction of bond market. However, the effectiveness of the bond market as an alternative source of financing depends essentially on there not being a high co-movement between bank lending, bond and equity financing in a domestic setting, and the absence of contagion in the international capital markets more importantly for countries with open accounts. Bond market debt financing is necessary for developmental projects and infrastructures like electricity generation, transmission and distribution, the fuel energy sector, transportation, telecommunication, etc. 1.2 Purpose of the Study The goal is to provide a detailed review of the progress and prospects for the development of the government bond market in Nigeria with a view to identifying how the market can be broadened and deepened from both the demand and supply sides. The supply side includes the issuers of debt securities like federal government, sub-sovereigns and corporations. The demand side of the market is made up of institutional investors like banks, pension fund administrators, foreign investors, hedge funds and high net worth individuals as well as retail investors. The paper would also examine how the issuers on the supply side can take advantage of the relatively cheap sources of funding in the market against conventional funding methods as well as how the creation of alternative investment options would affect the demand side. Also, the roles and impacts of financial intermediators who facilitate the smooth operations of the market, and the perceived benefits for them (especially primary dealers) would be examined and finally the benefits for the Nigerian economy should the market be further deepened and broaden. Research Method In an attempt to provide an in-depth, objective and balanced perspective on the development of the Nigeria bond market, this project write-up draws conclusions from the various research papers and information supplied by other authors on the development on bond markets in other emerging market economies. The main factors behind the recent development of the Nigerian bond market would be explained in details by analysing information and statistics on the market. This involves the analysis of major macro-economic changes in Nigeria, pension reform, changes in debt management strategies, consolidation exercise in the banking industry etc. Statistical information provided in the dissertation have not been tested and are quoted verbatim. Outline of the Dissertation An outline of the remaining chapters is presented below: Chapter 2 reviews relevant literature on the development of bond markets especially the importance which establishes the foundation of the dissertation. The chapter also considers the main factors, trends and forces that have contributed to the development of bond market in other emerging market countries with an in-depth look at Asian and Russian markets. Chapter 3 takes a detailed look at the timeline of bond market development in Nigeria, structure, regulatory framework, regulators, the main drivers behind the growth of the market as well as the make-up of the demand and supply sides.. Chapter 4 seeks to identify and adapt the lesson in other parts of the world and concludes with the recommendations for broadening and further development of the Nigerian bond market. Chapter 5 will again highlights the importance of the study; it concludes with an overview of the recent developments in the Nigeria bond market and considers the new challenges that would emerge going forward. Chapter Two Literature Review on the development of the bond market. 2.1 Introduction This chapter reviews the literature on domestic bond market development in several emerging economies. From this review critical success factors that are prerequisite to the development of the domestic bond market will be determined. Information has been gathered by reviewing reports from government agencies, investment analystsà ¢Ã¢â€š ¬Ã¢â€ž ¢ reports, reports by the World Bank, the International Monetary Fund, African Development Bank, Asian Development Bank, Bank for International Settlement, the Emerging Markets Committee of the International Organization of Securities Commission and other bond market associations and debt management agencies. 2.2 The Development of bond markets in Emerging Markets This section examines the challenges and issues concerning domestic bond market development in many emerging markets as well as prerequisites for an efficient, broad and deep domestic bond market. There are several factors to consider. First, the financial crisis that happened between 1997-1998 reminded most policy makers around the world of the over-reliance of many emerging market economies on their respective domestic banking systems as a source of funding. Secondly, information on bond markets in emerging markets especially in sub-Saharan Africa is not readily available when compared to other developed markets or even other domestic market segments notably the equity market. 2.3 Rationale for developing a domestic bond market After the Asian and Russian financial crises of 1997-1998 many researchers have advocated for the development of domestic bond market as an alternative source of financing not only in the crisis-hit countries but for all emerging market economies where obvious shortcomings are prevalent. The following is a summary of the major arguments put forward: an alternative source of domestic debt finance fiscal deficit financing broadening and deepening of capital markets efficient risks pricing aids smooth operation of monetary policy etc. 2.3.1 An alternative source of domestic debt finance Witherell (2003) argued that bond markets reduce the over-dependence on bank credit for debt financing and that these markets also reduce the susceptibility of the economy to the risk of banking system failure. Banking crisis can have negative and adverse effects on the economy as a whole because firms and industries would find themselves credit constrained and be forced to jettison new investment spending, leading to a drop in aggregate demand through the multiplier effect. Harewood (2000) also opined that deep and efficient bond market enable firms to gain access to an alternative source of debt financing which could help banks in times of crisis to recapitalise through securitization by issuing bonds backed by non-performing loans. 2.3.2 Fiscal deficit financing Khalid (2007) argued that the benefits of developing domestic bond markets are both macroeconomic and microeconomic in nature. Within the macroeconomic perspective, the primary importance of the government bond market is to provide a channel for the financing of fiscal deficits. This is arguably the most important benefit for emerging market economies with historically large fiscal deficits and the failure of other possible sources of financing the fiscal deficits which are compelling governments to borrow from domestic markets. In addition, several countries both developed and developing have faced the need to finance very large extraordinary and unusual expenditure which are of long-term nature. The finance required for bank restructuring and long-term support for industries have been one recent example in many emerging markets. 2.3.3 Lower cost of borrowing IOSCO (2002) identified that governments and firms can enjoy lower cost of debt capital in the bank markets compared to high charges and rates offered on bank loans. This is achieved through the process of bank disintermediation which allows direct access to investors, thus removing the à ¢Ã¢â€š ¬Ã…“middlemanà ¢Ã¢â€š ¬? and related costs. Also, the issuer may tailor its asset and liability profile to minimise the risk of currency and maturity mismatch thus reducing the weighted cost of capital. 2.3.4 Broadening the capital market Debt market development helps to diversify the capital markets, reducing over-dependence on banks and susceptibility within the banking system which is positive for the entire economy at large. The bond market has provided avenues for financial engineering and innovations which have broaden the financial system in general (Akhtar 2007). A well-functioning bond market provides with investment options across a wider range of instruments including sovereign, sub-sovereign, corporate bonds and securitized obligations such as mortgage backed securities and collaterized debt obligations. The wide range of investment alternatives allows investors to make optimal asset allocation decisions. This is particularly important for investor like life insurance companies and pension fund administrators because the bond market facilitates better management of the maturity structure of their balance sheets. 2.3.5 Efficient pricing of credit risks Bond markets create cost-effective and competitive capital markets by generating market yield and interest rates that reflect the opportunity cost of capital at each tenor and maturity. This is necessary for efficient and financing decisions. Herring and Chatusripitak (2000) further stated that without a developed bond market, firms and investors would lack a clear measure of opportunity cost of funds. This may lead to mispricing of funds as was evident in late 1990s in many dynamic Asian economies suggesting that the internal discount rate may have often been too low because returns on investment fell sharply. IOSCO (2002) suggests banksà ¢Ã¢â€š ¬Ã¢â€ž ¢ interest rates are not always competitively determined so may not always reflect the true opportunity cost of funds. This is because big banks could always agree to fix rates. 2.3.6 Aids smooth operation of monetary policy The debt market is increasingly more important for the operation of monetary policy. Monetary policy now relies not only on a well functioning money market but also increasingly on indirect instruments of control like the bond market. Moreover, yields in the long-term bond market show expectations of likely macroeconomic developments and about market reactions to monetary policy moves by market regulators. 2.3.7 Promotion of financial stability The bond market provides an alternative source of funding to equity and banking financing, this alternative source enhances the stability of the financial market as a whole and efficient allocation of credit. This was evident after the Asian financial crisis the weak banking sector provided an impetus to the development of bond markets in several emerging markets. By diversifying funding sources, firms can adjust their borrowing between the banks and the debt markets (Hameed, 2007). IOSCO (2002) added that where there is no corporate bond market, a significant ratio of debt funding for corporations would come from the banking sector. By doing this, banks would assume a considerable amount of risk mainly due to the maturity mismatch between liquid short-term liabilities (deposits) and relatively long-term assets (loans). Banks cannot transfer credit risk to depositors. Herring and Chatusripitak (2000) concluded that in emerging markets where few banks dominate and account for bulk of lending activity, there is a concentration of credit risk with the banking sector. This leads to an increasing level of systemic risk in an economy. In summary, the existence of a well-functioning bond market ensures that risks are efficiently diversified within the financial system. 2.3.8 Sterilization of large capital inflows Frankel (1993), for any economy to grow and develop there is a need to sterilise large capital inflows. This was a particularly difficult challenge and difficult for several central banks in emerging economies during the first half of the 1990s. In the absence of well developed bond markets, the central bank has only short-term debt instruments at its disposal in conducting open market operations and raise fund for governments to finance developmental projects. Sterilisation that relies exclusively on issuing paper tends to drive up short-term interest rate and crowding-out effect. This risks biasing the structure of inflows towards the short end. Sterilisation through the sale of bonds reduces such risk. 2.4 Basic prerequisites for successful development of government debt markets The development of bond markets must be seen as a continuous, progressive and dynamic process in which macroeconomic and political stability are necessary to building an efficient market. Also, the credibility of the government as an issuer of debt securities must be established. World Bank (2001) noted that à ¢Ã¢â€š ¬Ã…“the prerequisites for establishing an efficient and deep government domestic currency debt market include a credible and stable government, sound fiscal and monetary policies, effective legal, tax and regulatory infrastructure, smooth and secure settlement arrangements, and a liberalised financial system with competing intermediaries. Where these basics are lacking or very weak, priority should be given to adopting and implementing stable and credible macroeconomic policy framework, reforming and liberalising in different areasà ¢Ã¢â€š ¬?. All these factors point to the creation of an enabling environment. Domestic as well as foreign investors will be unwilling to purchase government securities, especially medium- and long-term instruments when there are expectations of high inflation, large devaluations, or high risks of default like Greece recently. It is important that governments work toward macroeconomic policy framework that promotes credible commitment to prudent and sustainable fiscal policies and stable monetary conditions. Such actions will cut government funding costs over the medium to long term, as the risk premium embedded in rates and yields on government securities drop. Inflationary expectations will have impact on longer-term nominal government securities yields and affect not only government borrowing costs, but also, in countries with unstable monetary and fiscal environment, the governmentà ¢Ã¢â€š ¬Ã¢â€ž ¢s ability to extend the yield curve beyond very short maturities. Thus a credible commitment from government to contain inflation is crucial for government securities market development. The ability to attract foreign investors to a countryà ¢Ã¢â€š ¬Ã¢â€ž ¢s debt market is to a large extent determined by the exchange rate and capital account policies of the country. Foreign investors have a major role to play in the development of government debt markets and in hastening development of the necessary infrastructure by injecting new competition into otherwise dull markets. Foreign investors will compare the yield on domestic debt with those of international markets. They will consider the default risk and the risk of exchange rate volatility. Exchange rate, capital account policies when combined with monetary and fiscal policies can affect each of these risks, and inappropriate policies can result in increased interest rate and exchange rate volatility. Such volatility impedes development of government securities issues with long maturities and can harm secondary market liquidity when there are no derivatives or complementary markets that investors can use to hedge ag ainst the risk of price movements. The soundness of the banking system also has important implications for development of the government debt market. Investor concerns about the health and soundness of the banking system will negatively affect the ability of the government to roll over or issue new debt. Furthermore, lack of financially healthy intermediaries will cause secondary market illiquidity and inefficiency. A banking system in crisis will further impede development of a government debt market and cause significant liquidity shortages. This is because important associated markets such as those for interbank and repurchase agreement transactions are unlikely to function properly. Although the challenges involved in providing the necessary macroeconomic and financial framework are enormous, these should not deter authorities. This is because the potential benefits to the government and the economy are considerable. In its role as both regulator and primary issuer, the government is a central player in the debt market. The central bank, in implementing monetary policy, will also influence market structure and inevitably market development. Given the involvement of several government agencies and entities in the process of market development, they should interact with the private sector and other market participants as this may be a useful tool to spearhead market development efforts. Harwood (2000) adds that à ¢Ã¢â€š ¬Ã…“Market participants need to evaluate the critical success factors to determine which ones constrain their marketà ¢Ã¢â€š ¬Ã¢â€ž ¢s growth and how to deal with them. Market development will be accelerated if regulators who are interested in market development work closely with market participants to identify problems and solutions with other regulators to persuade them to address problems and solutions and with other regulators to persuade them to address problems under their control.à ¢Ã¢â€š ¬? Although, there is no one size fits all framework to build a market, emerging markets should try to learn from one anotherà ¢Ã¢â€š ¬Ã¢â€ž ¢s experiences for guidance on how to develop from à ¢Ã¢â€š ¬Ã…“emergingà ¢Ã¢â€š ¬? to à ¢Ã¢â€š ¬Ã…“emergedà ¢Ã¢â€š ¬? and on what works best in what type of environment. Harwood (2000) concludes that participation in the market cannot be forced, but it can be encouraged by an enabling environment. It can also be discouraged by à ¢Ã¢â€š ¬Ã…“unablingà ¢Ã¢â€š ¬? environment. 2.5 Government securities issuance strategy and market access The process of debt issuance is an important factor in debt market development. For the market to develop, transparency and credibility of the process must be built although they take time. A market-oriented government funding strategy is an essential foundation for the growth and development of a debt market. The strategy involves the adherence to basic market principles of broad market access and transparency, a commitment to finance budget deficits through the market, and a proactive and continuous approach in developing the necessary regulatory framework to support market development. World Bank (2001,a), à ¢Ã¢â€š ¬Ã…“governments need to improve market access and transparency by providing high-quality information about debt structure, funding needs and debt management strategies to market participants and public at large. They must solicit investorsà ¢Ã¢â€š ¬Ã¢â€ž ¢ views on the current strategy and plans for change. In this way, the government will better understand the source of demand for its instruments and have the ability to act to remove barriers obstructing investment in them.à ¢Ã¢â€š ¬? World Bank (2001,b) further states that à ¢Ã¢â€š ¬Ã…“a sound and prudent debt management operation is also central to the governmentà ¢Ã¢â€š ¬Ã¢â€ž ¢s credibility as an issuerà ¢Ã¢â€š ¬?. Having clear debt management objectives, proper coordination between debt management objectives, prudent risk management and effective institutional frameworks are essential components of sound debt management. As part of developing and maintaining a well-functioning government securities market, authorities will have to provide clear and timely information about the structure and nature of fiscal deficits and public debt as well as other Treasury operations. The information also include but not limited to amortization schedule, issuing calendar, description of outstanding securities, schedule for buybacks or re-openings where relevant, and Treasury cash balances. 2.6 Government securities instruments and yield curve One of the essential benefits of a well-functioning government securities market is to develop a set of benchmark securities. By concentrating new issues of government securities in a relatively limited number of popular, standard maturities, governments can reduce their issuing cost and boost liquidity in those maturities. Markets, in turn, can use those liquid issues as convenient benchmarks for the pricing of a range of other financial instruments. In addition, spreading the relatively few benchmark issues across a fairly wide range of maturities and tenors is generally regarded as building a à ¢Ã¢â€š ¬Ã…“benchmark yield curveà ¢Ã¢â€š ¬?. This can help to facilitate more accurate market pricing of financial instruments across a similar maturity spectrum. 2.7 Investor base for government securities Governments in many emerging market relied on captive sources of funding whereby financial institutions are required to purchase and hold government securities, often at below-market interest rates. However, this system of raising funds is fast diminishing in many of these countries. Instead, countries are developing a diversified investor base for their government securities. Investors in developed government debt market can range from small-scale retail investor to and foreign institutional investors. A diversified investor base for debt securities is necessary to high liquidity, stable demand and reasonable spread in the market. A heterogeneous investor base with different background, time horizons, expectations, risk preferences, and trading motives ensures active trading, creating high liquidity. 2.7.1 Commercial and Investment Banks Commercial and investment banks serve as both sales agentsà ¢Ã¢â€š ¬Ã¢â€ž ¢ usually primary dealers and investors in government securities in many developing economies. Banks provide valuable source of demand and liquidity for government securities market by providing two-way quotes for other investors 2.7.2 Contractual savings sector This group consist of life insurance companies and pension fund administrators contractual. This sector is a major player in the fixed income securities markets, as it provides a stable source of long-term demand. This is because of the long-term nature of funds that the sector controls. The sectorà ¢Ã¢â€š ¬Ã¢â€ž ¢s demand for fixed-interest, low-credit-risk products also provides an important basis on which to develop standardized, securitized products such as mortgage bonds. Pension funds and life insurance companies are usually required to invest a large portion of their assets in so-called gilt-edged assets. This has helped to make this sector prominent in the government securities market. 2.7.3 Collective investment funds Collective investment funds, such as mutual and hedge funds, unit trust scheme etc can play an important role in the development of the government securities market, especially the shorter-term segments of the market because of the nature of funds that they manage. They offer retail and other investor alternative investment option other than investing in bank products. This helps to induce more competition in this part of the financial sector, and can be a cost-effective way for the government to reach retail investors. These collective investment funds that are established domestically or offshore help to deepen the securities market and should be allowed participate actively in the market.. 2.7.4 Retail investors Retail investors are a source of stable demand to the government securities market which could be crucial in times of high volatility. Demand from retail investors can help to cushion the impact of sales by institutional and foreign investors. In order to develop a diversified investor base for government securities the needs of retail investors should be incorporated into the overall strategy of market development. 2.7.5 Foreign investors Foreign investors are important source of demand and innovation to national capital markets, including government securities markets. They have received much attention in both mature markets and developing countries because of issues like regulation, capital flight, entry and exit barriers, etc. They have contributed positively to the development of government securities market in several countries through the positive pressure they place on the quality and services of intermediaries and their emphasis on sound, safe and robust market infrastructure. Foreign investors could be in many forms like emerging markets funds, such as some hedge funds and other specialized closed and open-end country or emerging-market funds. They also include crossover investors, such as pension funds and insurance companies not as dedicated to investing in a particular region or even country, and other more specialized investors like distressed asset funds, private capital fund etc. 2.8 Other bond markets 2.8.1 Introduction Various studies have been carried on bond market development in different parts of the world. For example Batten and Fetherston (2003) for Asian economies, Sylla (2001), World Bank and International Monetary Fund (2001), etc. BIS (2002) also reviews the experience of many emerging economies in the development of debt markets. The review shows to varying degrees the three main factors that delayed the development of bond market in most emerging economies namely: a bank-centered financial system, opaque corporate governance and borrowing in low interest rate currencies. This section will look at the experience of other bond markets both developed and developing; draw reasonable lessons on how emerging markets can deepen and broaden their domestic markets and increase efficiency. 2.8.2 Bond market development in Asia Murphy, Auster and Dean (2007) note that on July 2, 1997 the Thai baht devalued against the US dollar, the first in a series of collapses that have collectively become known as the Asian financial crisis. The crisis had many causes which highlighted the need to have effectively functioning domestic capital markets. The crisis showed the apparent risk of the absence of diversification with the over-dependence on short maturities, banks an Government Bond Market in Nigeria Government Bond Market in Nigeria CHAPTER 1 Background Finance plays an increasingly important role in economic growth and development of nations around the world. These roles are in many different forms, they include but not limited to channelling savings towards investment. The level of sophistication of a financial system is important and to a large extent determines the overall level of overall growth and development of that economy. The financial system contributes to economic growth performance through several mechanisms and channels à ¢Ã¢â€š ¬Ã¢â‚¬Å" mobilising savings, allocating funds to their most productive uses, monitoring productive uses i.e. investments, transferring and sharing risk (see World Bank (2001)). In modern economies, disruptions in the flow of credit from the financial system to businesses within the economy are detrimental to economic growth and can lead to a general slowdown in the level economic activities. This in turn can lead to unemployment; drop in consumer spending, consumer and industrial economic con fidence levels and ultimately a general slowdown in the economy. Capital account liberalisation in many countries and increasing levels of regional integration and globalisation add an international dimension to the flow of investments and capital around the world. These have made the transfer of funds and investment easy and accessible from one country to another. Investments and capital can be transferred around the world with fewer restrictions as barriers are being removed due to increasing impact of globalization. Since the start of the global financial crisis in 2008, the focus has increasingly been on the roles of the banking sector and the capital market in most economies. The global financial crisis caused a massive flight to safety with investor divesting from currencies, equities markets and other risky assets to the sovereign bond markets which are perceived as safe haven. Investor in major economies divested from perceived risky assets to markets where their investments are relatively safe and guaranteed. This shows one of the significance of sovereign bond market as an investment option for investors in times of crisis and how it can help to minimize the occurrence of such crisis. According to Arteta (2005), there have been many banking crises over the years in many developing countries which were very costly due to the fact that they tend to obstruct the free operations of financial intermediaries, affecting industries and the real economy. Crises can block the normal flow of credit and loans from banks to firms. The dominance of bank intermediation and the general underdevelopment of capital markets (especially the bond markets) in many developing countries aggravate the susceptibility of the real economy to episodes of banking problems. It follows that having additional sources of domestic external finance would allow firms to better withstand episodes of financial distress. By allowing firms to raise funds issuing debt securities, the existence of deep and liquid domestic capital markets would complement the availability of bank finance. By patronising this capital market option, firms would also help to deepen and broaden the market. Well diversified financial systems would lead to more efficient allocation of resources especially capital, where firms can issue bonds in domestic markets. This would enable the firms to ease maturity mismatches in their balance sheets. Thus, bond markets would lessen the effect of waning bank credit flows on firmsà ¢Ã¢â€š ¬Ã¢â€ž ¢ financing requests during periods of banking crises. Bond market has major importance in any economy but more so in emerging economy where savings and investment opportunities are inadequate. Financial sector development (more importantly for capital market) begins with the development of a sovereign bond market in many emerging economies. This is common, not only because governments are mostly the biggest domestic borrowers with the best credit ratings but also because of how their actions and inactions affect the overall level of economic development. There have been significant changes politically, economically and socially in many developing economies particularly in Africa. The financial crises of 1997-1998 (in Asia and Russia) have pointed out how vulnerable economies are when over dependent on foreign capital or banking system (Fabella and Madhur, 2003). In many emerging economies in Africa, recently there have been changes in organizational and regulatory framework of capital markets. These countries are re-strategizing in order to broaden their capital market and investors base as well as tap into the new sources of funding such as bond markets. (Brownridge, 1998). Currently, the domestic bond markets in most African economies where they exist are narrow and largely undeveloped compared to the banking system and the equity market. There are many rationales for developing a domestic bond market especially for emerging economies. First, developing a bond market will help the government to finance fiscal deficits which was done previously by forcing local banks to hold government paper, usually to meet demanding reserve and liquidity requirements. Secondly, according to Frankel (1993) in the absence of a bond market it would be difficult to sterilize large long-term capital inflows for infrastructural development. This was a difficult challenge for several central banks during the early 1990s when they had only short-term debt instruments. Sterilization that relies entirely on issuing short-term securities tends to drive up short-term interest rates while bond issuance help to minimise this risk. Thirdly, to generate a yield curve which could serve as a benchmark for investors and borrowers in the financial markets. This enables the market participants to derive the market interest rate that reflect the opportunity cost of fund at each maturity. Also, Sokoler (2002), bond market increases the competitiveness and efficiency of the financial system, which might have been dominated by few banks before the introduction of bond market. However, the effectiveness of the bond market as an alternative source of financing depends essentially on there not being a high co-movement between bank lending, bond and equity financing in a domestic setting, and the absence of contagion in the international capital markets more importantly for countries with open accounts. Bond market debt financing is necessary for developmental projects and infrastructures like electricity generation, transmission and distribution, the fuel energy sector, transportation, telecommunication, etc. 1.2 Purpose of the Study The goal is to provide a detailed review of the progress and prospects for the development of the government bond market in Nigeria with a view to identifying how the market can be broadened and deepened from both the demand and supply sides. The supply side includes the issuers of debt securities like federal government, sub-sovereigns and corporations. The demand side of the market is made up of institutional investors like banks, pension fund administrators, foreign investors, hedge funds and high net worth individuals as well as retail investors. The paper would also examine how the issuers on the supply side can take advantage of the relatively cheap sources of funding in the market against conventional funding methods as well as how the creation of alternative investment options would affect the demand side. Also, the roles and impacts of financial intermediators who facilitate the smooth operations of the market, and the perceived benefits for them (especially primary dealers) would be examined and finally the benefits for the Nigerian economy should the market be further deepened and broaden. Research Method In an attempt to provide an in-depth, objective and balanced perspective on the development of the Nigeria bond market, this project write-up draws conclusions from the various research papers and information supplied by other authors on the development on bond markets in other emerging market economies. The main factors behind the recent development of the Nigerian bond market would be explained in details by analysing information and statistics on the market. This involves the analysis of major macro-economic changes in Nigeria, pension reform, changes in debt management strategies, consolidation exercise in the banking industry etc. Statistical information provided in the dissertation have not been tested and are quoted verbatim. Outline of the Dissertation An outline of the remaining chapters is presented below: Chapter 2 reviews relevant literature on the development of bond markets especially the importance which establishes the foundation of the dissertation. The chapter also considers the main factors, trends and forces that have contributed to the development of bond market in other emerging market countries with an in-depth look at Asian and Russian markets. Chapter 3 takes a detailed look at the timeline of bond market development in Nigeria, structure, regulatory framework, regulators, the main drivers behind the growth of the market as well as the make-up of the demand and supply sides.. Chapter 4 seeks to identify and adapt the lesson in other parts of the world and concludes with the recommendations for broadening and further development of the Nigerian bond market. Chapter 5 will again highlights the importance of the study; it concludes with an overview of the recent developments in the Nigeria bond market and considers the new challenges that would emerge going forward. Chapter Two Literature Review on the development of the bond market. 2.1 Introduction This chapter reviews the literature on domestic bond market development in several emerging economies. From this review critical success factors that are prerequisite to the development of the domestic bond market will be determined. Information has been gathered by reviewing reports from government agencies, investment analystsà ¢Ã¢â€š ¬Ã¢â€ž ¢ reports, reports by the World Bank, the International Monetary Fund, African Development Bank, Asian Development Bank, Bank for International Settlement, the Emerging Markets Committee of the International Organization of Securities Commission and other bond market associations and debt management agencies. 2.2 The Development of bond markets in Emerging Markets This section examines the challenges and issues concerning domestic bond market development in many emerging markets as well as prerequisites for an efficient, broad and deep domestic bond market. There are several factors to consider. First, the financial crisis that happened between 1997-1998 reminded most policy makers around the world of the over-reliance of many emerging market economies on their respective domestic banking systems as a source of funding. Secondly, information on bond markets in emerging markets especially in sub-Saharan Africa is not readily available when compared to other developed markets or even other domestic market segments notably the equity market. 2.3 Rationale for developing a domestic bond market After the Asian and Russian financial crises of 1997-1998 many researchers have advocated for the development of domestic bond market as an alternative source of financing not only in the crisis-hit countries but for all emerging market economies where obvious shortcomings are prevalent. The following is a summary of the major arguments put forward: an alternative source of domestic debt finance fiscal deficit financing broadening and deepening of capital markets efficient risks pricing aids smooth operation of monetary policy etc. 2.3.1 An alternative source of domestic debt finance Witherell (2003) argued that bond markets reduce the over-dependence on bank credit for debt financing and that these markets also reduce the susceptibility of the economy to the risk of banking system failure. Banking crisis can have negative and adverse effects on the economy as a whole because firms and industries would find themselves credit constrained and be forced to jettison new investment spending, leading to a drop in aggregate demand through the multiplier effect. Harewood (2000) also opined that deep and efficient bond market enable firms to gain access to an alternative source of debt financing which could help banks in times of crisis to recapitalise through securitization by issuing bonds backed by non-performing loans. 2.3.2 Fiscal deficit financing Khalid (2007) argued that the benefits of developing domestic bond markets are both macroeconomic and microeconomic in nature. Within the macroeconomic perspective, the primary importance of the government bond market is to provide a channel for the financing of fiscal deficits. This is arguably the most important benefit for emerging market economies with historically large fiscal deficits and the failure of other possible sources of financing the fiscal deficits which are compelling governments to borrow from domestic markets. In addition, several countries both developed and developing have faced the need to finance very large extraordinary and unusual expenditure which are of long-term nature. The finance required for bank restructuring and long-term support for industries have been one recent example in many emerging markets. 2.3.3 Lower cost of borrowing IOSCO (2002) identified that governments and firms can enjoy lower cost of debt capital in the bank markets compared to high charges and rates offered on bank loans. This is achieved through the process of bank disintermediation which allows direct access to investors, thus removing the à ¢Ã¢â€š ¬Ã…“middlemanà ¢Ã¢â€š ¬? and related costs. Also, the issuer may tailor its asset and liability profile to minimise the risk of currency and maturity mismatch thus reducing the weighted cost of capital. 2.3.4 Broadening the capital market Debt market development helps to diversify the capital markets, reducing over-dependence on banks and susceptibility within the banking system which is positive for the entire economy at large. The bond market has provided avenues for financial engineering and innovations which have broaden the financial system in general (Akhtar 2007). A well-functioning bond market provides with investment options across a wider range of instruments including sovereign, sub-sovereign, corporate bonds and securitized obligations such as mortgage backed securities and collaterized debt obligations. The wide range of investment alternatives allows investors to make optimal asset allocation decisions. This is particularly important for investor like life insurance companies and pension fund administrators because the bond market facilitates better management of the maturity structure of their balance sheets. 2.3.5 Efficient pricing of credit risks Bond markets create cost-effective and competitive capital markets by generating market yield and interest rates that reflect the opportunity cost of capital at each tenor and maturity. This is necessary for efficient and financing decisions. Herring and Chatusripitak (2000) further stated that without a developed bond market, firms and investors would lack a clear measure of opportunity cost of funds. This may lead to mispricing of funds as was evident in late 1990s in many dynamic Asian economies suggesting that the internal discount rate may have often been too low because returns on investment fell sharply. IOSCO (2002) suggests banksà ¢Ã¢â€š ¬Ã¢â€ž ¢ interest rates are not always competitively determined so may not always reflect the true opportunity cost of funds. This is because big banks could always agree to fix rates. 2.3.6 Aids smooth operation of monetary policy The debt market is increasingly more important for the operation of monetary policy. Monetary policy now relies not only on a well functioning money market but also increasingly on indirect instruments of control like the bond market. Moreover, yields in the long-term bond market show expectations of likely macroeconomic developments and about market reactions to monetary policy moves by market regulators. 2.3.7 Promotion of financial stability The bond market provides an alternative source of funding to equity and banking financing, this alternative source enhances the stability of the financial market as a whole and efficient allocation of credit. This was evident after the Asian financial crisis the weak banking sector provided an impetus to the development of bond markets in several emerging markets. By diversifying funding sources, firms can adjust their borrowing between the banks and the debt markets (Hameed, 2007). IOSCO (2002) added that where there is no corporate bond market, a significant ratio of debt funding for corporations would come from the banking sector. By doing this, banks would assume a considerable amount of risk mainly due to the maturity mismatch between liquid short-term liabilities (deposits) and relatively long-term assets (loans). Banks cannot transfer credit risk to depositors. Herring and Chatusripitak (2000) concluded that in emerging markets where few banks dominate and account for bulk of lending activity, there is a concentration of credit risk with the banking sector. This leads to an increasing level of systemic risk in an economy. In summary, the existence of a well-functioning bond market ensures that risks are efficiently diversified within the financial system. 2.3.8 Sterilization of large capital inflows Frankel (1993), for any economy to grow and develop there is a need to sterilise large capital inflows. This was a particularly difficult challenge and difficult for several central banks in emerging economies during the first half of the 1990s. In the absence of well developed bond markets, the central bank has only short-term debt instruments at its disposal in conducting open market operations and raise fund for governments to finance developmental projects. Sterilisation that relies exclusively on issuing paper tends to drive up short-term interest rate and crowding-out effect. This risks biasing the structure of inflows towards the short end. Sterilisation through the sale of bonds reduces such risk. 2.4 Basic prerequisites for successful development of government debt markets The development of bond markets must be seen as a continuous, progressive and dynamic process in which macroeconomic and political stability are necessary to building an efficient market. Also, the credibility of the government as an issuer of debt securities must be established. World Bank (2001) noted that à ¢Ã¢â€š ¬Ã…“the prerequisites for establishing an efficient and deep government domestic currency debt market include a credible and stable government, sound fiscal and monetary policies, effective legal, tax and regulatory infrastructure, smooth and secure settlement arrangements, and a liberalised financial system with competing intermediaries. Where these basics are lacking or very weak, priority should be given to adopting and implementing stable and credible macroeconomic policy framework, reforming and liberalising in different areasà ¢Ã¢â€š ¬?. All these factors point to the creation of an enabling environment. Domestic as well as foreign investors will be unwilling to purchase government securities, especially medium- and long-term instruments when there are expectations of high inflation, large devaluations, or high risks of default like Greece recently. It is important that governments work toward macroeconomic policy framework that promotes credible commitment to prudent and sustainable fiscal policies and stable monetary conditions. Such actions will cut government funding costs over the medium to long term, as the risk premium embedded in rates and yields on government securities drop. Inflationary expectations will have impact on longer-term nominal government securities yields and affect not only government borrowing costs, but also, in countries with unstable monetary and fiscal environment, the governmentà ¢Ã¢â€š ¬Ã¢â€ž ¢s ability to extend the yield curve beyond very short maturities. Thus a credible commitment from government to contain inflation is crucial for government securities market development. The ability to attract foreign investors to a countryà ¢Ã¢â€š ¬Ã¢â€ž ¢s debt market is to a large extent determined by the exchange rate and capital account policies of the country. Foreign investors have a major role to play in the development of government debt markets and in hastening development of the necessary infrastructure by injecting new competition into otherwise dull markets. Foreign investors will compare the yield on domestic debt with those of international markets. They will consider the default risk and the risk of exchange rate volatility. Exchange rate, capital account policies when combined with monetary and fiscal policies can affect each of these risks, and inappropriate policies can result in increased interest rate and exchange rate volatility. Such volatility impedes development of government securities issues with long maturities and can harm secondary market liquidity when there are no derivatives or complementary markets that investors can use to hedge ag ainst the risk of price movements. The soundness of the banking system also has important implications for development of the government debt market. Investor concerns about the health and soundness of the banking system will negatively affect the ability of the government to roll over or issue new debt. Furthermore, lack of financially healthy intermediaries will cause secondary market illiquidity and inefficiency. A banking system in crisis will further impede development of a government debt market and cause significant liquidity shortages. This is because important associated markets such as those for interbank and repurchase agreement transactions are unlikely to function properly. Although the challenges involved in providing the necessary macroeconomic and financial framework are enormous, these should not deter authorities. This is because the potential benefits to the government and the economy are considerable. In its role as both regulator and primary issuer, the government is a central player in the debt market. The central bank, in implementing monetary policy, will also influence market structure and inevitably market development. Given the involvement of several government agencies and entities in the process of market development, they should interact with the private sector and other market participants as this may be a useful tool to spearhead market development efforts. Harwood (2000) adds that à ¢Ã¢â€š ¬Ã…“Market participants need to evaluate the critical success factors to determine which ones constrain their marketà ¢Ã¢â€š ¬Ã¢â€ž ¢s growth and how to deal with them. Market development will be accelerated if regulators who are interested in market development work closely with market participants to identify problems and solutions with other regulators to persuade them to address problems and solutions and with other regulators to persuade them to address problems under their control.à ¢Ã¢â€š ¬? Although, there is no one size fits all framework to build a market, emerging markets should try to learn from one anotherà ¢Ã¢â€š ¬Ã¢â€ž ¢s experiences for guidance on how to develop from à ¢Ã¢â€š ¬Ã…“emergingà ¢Ã¢â€š ¬? to à ¢Ã¢â€š ¬Ã…“emergedà ¢Ã¢â€š ¬? and on what works best in what type of environment. Harwood (2000) concludes that participation in the market cannot be forced, but it can be encouraged by an enabling environment. It can also be discouraged by à ¢Ã¢â€š ¬Ã…“unablingà ¢Ã¢â€š ¬? environment. 2.5 Government securities issuance strategy and market access The process of debt issuance is an important factor in debt market development. For the market to develop, transparency and credibility of the process must be built although they take time. A market-oriented government funding strategy is an essential foundation for the growth and development of a debt market. The strategy involves the adherence to basic market principles of broad market access and transparency, a commitment to finance budget deficits through the market, and a proactive and continuous approach in developing the necessary regulatory framework to support market development. World Bank (2001,a), à ¢Ã¢â€š ¬Ã…“governments need to improve market access and transparency by providing high-quality information about debt structure, funding needs and debt management strategies to market participants and public at large. They must solicit investorsà ¢Ã¢â€š ¬Ã¢â€ž ¢ views on the current strategy and plans for change. In this way, the government will better understand the source of demand for its instruments and have the ability to act to remove barriers obstructing investment in them.à ¢Ã¢â€š ¬? World Bank (2001,b) further states that à ¢Ã¢â€š ¬Ã…“a sound and prudent debt management operation is also central to the governmentà ¢Ã¢â€š ¬Ã¢â€ž ¢s credibility as an issuerà ¢Ã¢â€š ¬?. Having clear debt management objectives, proper coordination between debt management objectives, prudent risk management and effective institutional frameworks are essential components of sound debt management. As part of developing and maintaining a well-functioning government securities market, authorities will have to provide clear and timely information about the structure and nature of fiscal deficits and public debt as well as other Treasury operations. The information also include but not limited to amortization schedule, issuing calendar, description of outstanding securities, schedule for buybacks or re-openings where relevant, and Treasury cash balances. 2.6 Government securities instruments and yield curve One of the essential benefits of a well-functioning government securities market is to develop a set of benchmark securities. By concentrating new issues of government securities in a relatively limited number of popular, standard maturities, governments can reduce their issuing cost and boost liquidity in those maturities. Markets, in turn, can use those liquid issues as convenient benchmarks for the pricing of a range of other financial instruments. In addition, spreading the relatively few benchmark issues across a fairly wide range of maturities and tenors is generally regarded as building a à ¢Ã¢â€š ¬Ã…“benchmark yield curveà ¢Ã¢â€š ¬?. This can help to facilitate more accurate market pricing of financial instruments across a similar maturity spectrum. 2.7 Investor base for government securities Governments in many emerging market relied on captive sources of funding whereby financial institutions are required to purchase and hold government securities, often at below-market interest rates. However, this system of raising funds is fast diminishing in many of these countries. Instead, countries are developing a diversified investor base for their government securities. Investors in developed government debt market can range from small-scale retail investor to and foreign institutional investors. A diversified investor base for debt securities is necessary to high liquidity, stable demand and reasonable spread in the market. A heterogeneous investor base with different background, time horizons, expectations, risk preferences, and trading motives ensures active trading, creating high liquidity. 2.7.1 Commercial and Investment Banks Commercial and investment banks serve as both sales agentsà ¢Ã¢â€š ¬Ã¢â€ž ¢ usually primary dealers and investors in government securities in many developing economies. Banks provide valuable source of demand and liquidity for government securities market by providing two-way quotes for other investors 2.7.2 Contractual savings sector This group consist of life insurance companies and pension fund administrators contractual. This sector is a major player in the fixed income securities markets, as it provides a stable source of long-term demand. This is because of the long-term nature of funds that the sector controls. The sectorà ¢Ã¢â€š ¬Ã¢â€ž ¢s demand for fixed-interest, low-credit-risk products also provides an important basis on which to develop standardized, securitized products such as mortgage bonds. Pension funds and life insurance companies are usually required to invest a large portion of their assets in so-called gilt-edged assets. This has helped to make this sector prominent in the government securities market. 2.7.3 Collective investment funds Collective investment funds, such as mutual and hedge funds, unit trust scheme etc can play an important role in the development of the government securities market, especially the shorter-term segments of the market because of the nature of funds that they manage. They offer retail and other investor alternative investment option other than investing in bank products. This helps to induce more competition in this part of the financial sector, and can be a cost-effective way for the government to reach retail investors. These collective investment funds that are established domestically or offshore help to deepen the securities market and should be allowed participate actively in the market.. 2.7.4 Retail investors Retail investors are a source of stable demand to the government securities market which could be crucial in times of high volatility. Demand from retail investors can help to cushion the impact of sales by institutional and foreign investors. In order to develop a diversified investor base for government securities the needs of retail investors should be incorporated into the overall strategy of market development. 2.7.5 Foreign investors Foreign investors are important source of demand and innovation to national capital markets, including government securities markets. They have received much attention in both mature markets and developing countries because of issues like regulation, capital flight, entry and exit barriers, etc. They have contributed positively to the development of government securities market in several countries through the positive pressure they place on the quality and services of intermediaries and their emphasis on sound, safe and robust market infrastructure. Foreign investors could be in many forms like emerging markets funds, such as some hedge funds and other specialized closed and open-end country or emerging-market funds. They also include crossover investors, such as pension funds and insurance companies not as dedicated to investing in a particular region or even country, and other more specialized investors like distressed asset funds, private capital fund etc. 2.8 Other bond markets 2.8.1 Introduction Various studies have been carried on bond market development in different parts of the world. For example Batten and Fetherston (2003) for Asian economies, Sylla (2001), World Bank and International Monetary Fund (2001), etc. BIS (2002) also reviews the experience of many emerging economies in the development of debt markets. The review shows to varying degrees the three main factors that delayed the development of bond market in most emerging economies namely: a bank-centered financial system, opaque corporate governance and borrowing in low interest rate currencies. This section will look at the experience of other bond markets both developed and developing; draw reasonable lessons on how emerging markets can deepen and broaden their domestic markets and increase efficiency. 2.8.2 Bond market development in Asia Murphy, Auster and Dean (2007) note that on July 2, 1997 the Thai baht devalued against the US dollar, the first in a series of collapses that have collectively become known as the Asian financial crisis. The crisis had many causes which highlighted the need to have effectively functioning domestic capital markets. The crisis showed the apparent risk of the absence of diversification with the over-dependence on short maturities, banks an

Determinism Vs. Free Will Essay -- Choices, God, Determinism

Many people often wonder what influences their choices, why they do the things they do, and why the world functions the way it does. Many like to argue that people make the choices they make because things are determined by nature and nurture, no other factors. Others like to argue that people have full control over the choices they make and there are no constraining factors. In this paper I will demonstrate that determinism is false and people are not typically determined by nature and nurture to perform the evil actions they do. I will identify what determinism is, the different forms of determinism, why people find it to be true, why I find it false, and show different examples of why. I will then go on to discuss free will, the different forms of free will, and why people do things out of free will. The definition of determinism â€Å"The world is governed by (or is under the sway of) determinism if and only if, given a specified way things are at a time t, the way things go thereafter is fixed as a matter of natural law.† The root of the philosophical idea is that everything can be explained or that everything has a reason for being and being as it is and nothing else. There are also different types of determinism that people believe in. Soft, hard, and casual determinism are the three different types of determinism. Soft determinist believe that free will is compatible with determinism. They believe in determinism, but believe free will can be present. â€Å"According to this soft determinism perspective, a person’s behavior may be caused by internal psychological states that, in turn have causes, but if no immediately pressing external agent affects the behavior, the person is said to have free will,† (Ogletree&Oberle, pg.98... ...Matile Ogletree and Crystal D. Oberle, Behavior and Philosophy , Vol. 36, (2008), pp. 97-111 The Problem of Evil and Moral Indifference,Tim Mawson, Religious Studies , Vol. 35, No. 3 (Sep., 1999), pp. 323-345 Hoefer, Carl, Hoefer,. "Causal Determinism." Stanford University. Stanford University, 23 Jan. 2003. Web. 22 Nov. 2013. McKenna, Michael, McKenna,. "Compatibilism." Stanford University. Stanford University, 26 Apr. 2004. Web. 21 Nov. 2013. Moral Responsibility, Determinism, and the Ability to Do Otherwise, Peter Van Inwagen, The Journal of Ethics , Vol. 3, No. 4, The Contributions of Harry G. Frankfurt to Moral Responsibility Theory (1999), pp. 341-350 "Two-Stage Models for Free Will." Two-Stage Models for Free Will. N.p., n.d. Web. 23 Nov. 2013. The Organization of Evil, C. Fred Alford, Political Psychology , Vol. 11, No. 1 (Mar., 1990), pp. 5-27 Determinism Vs. Free Will Essay -- Choices, God, Determinism Many people often wonder what influences their choices, why they do the things they do, and why the world functions the way it does. Many like to argue that people make the choices they make because things are determined by nature and nurture, no other factors. Others like to argue that people have full control over the choices they make and there are no constraining factors. In this paper I will demonstrate that determinism is false and people are not typically determined by nature and nurture to perform the evil actions they do. I will identify what determinism is, the different forms of determinism, why people find it to be true, why I find it false, and show different examples of why. I will then go on to discuss free will, the different forms of free will, and why people do things out of free will. The definition of determinism â€Å"The world is governed by (or is under the sway of) determinism if and only if, given a specified way things are at a time t, the way things go thereafter is fixed as a matter of natural law.† The root of the philosophical idea is that everything can be explained or that everything has a reason for being and being as it is and nothing else. There are also different types of determinism that people believe in. Soft, hard, and casual determinism are the three different types of determinism. Soft determinist believe that free will is compatible with determinism. They believe in determinism, but believe free will can be present. â€Å"According to this soft determinism perspective, a person’s behavior may be caused by internal psychological states that, in turn have causes, but if no immediately pressing external agent affects the behavior, the person is said to have free will,† (Ogletree&Oberle, pg.98... ...Matile Ogletree and Crystal D. Oberle, Behavior and Philosophy , Vol. 36, (2008), pp. 97-111 The Problem of Evil and Moral Indifference,Tim Mawson, Religious Studies , Vol. 35, No. 3 (Sep., 1999), pp. 323-345 Hoefer, Carl, Hoefer,. "Causal Determinism." Stanford University. Stanford University, 23 Jan. 2003. Web. 22 Nov. 2013. McKenna, Michael, McKenna,. "Compatibilism." Stanford University. Stanford University, 26 Apr. 2004. Web. 21 Nov. 2013. Moral Responsibility, Determinism, and the Ability to Do Otherwise, Peter Van Inwagen, The Journal of Ethics , Vol. 3, No. 4, The Contributions of Harry G. Frankfurt to Moral Responsibility Theory (1999), pp. 341-350 "Two-Stage Models for Free Will." Two-Stage Models for Free Will. N.p., n.d. Web. 23 Nov. 2013. The Organization of Evil, C. Fred Alford, Political Psychology , Vol. 11, No. 1 (Mar., 1990), pp. 5-27