Numerous Ukrainian commercial banks have joined the Society for Worldwide Interbank Financial Telecommunications (SWIFT). SWIFT provides financial data communication and processing serv-ices supporting the business activities of banks around the world.
BANKING SYSTEM
Banking system of Ukraine consists of two levels -— the National Bank of Ukraine at the higher level and commercial banks at the lower level. The National Bank of Ukraine activity is aimed at forming the system of finance and credit of the state and controlling the credit system lower level section activity. Lower level section activity is aimed an available resources mobilization and their employment in crediting and investing subjects of management as well as getting profits and capital accumulation in order to refund economy. At the background of finance and money stabilization the money reform was successfully carried out in 1996 — the own money unit — Ukrainian hrivna — was put into circulation. Stability of national money laid the foundation of positive changes in economy, having provided the proper financial conditions, stable criteria, which must interest investors. Long-term credits of banking system are growing.
RISE AND DEVELOPMENT OF THE BANKING SYSTEM OF UKRAINE
The rise and development of Ukraine, similar to that of the other countries arising on the ruins of the USSR, is a unique phenomenon in the modem history. From a single «public zone» the national monetary and banking systems have separated. The elements and structure that earlier have not existed were given birth and are progressing: these arc central banks and commercial banks, the national currencies, the systems of payments, currency exchanges, systems of the bodies engaged in regulation and bank supervision.
Playing a special role in the economic system as a whole and on the monetary-credit market, banks actively effect all the constituents of economic reform.
It is the banking system that is to create the infrastructure, methods and tools of the new market-oriented regulation of the economy to replace the command-administrative methods and instruments.
The banking system in a market-oriented economy plays a triune role. First, the structure of commercial banks administers the system of payments.
Second, together with other financial intermediaries, banks direct the savings of the public to firms and commercial enterprises.
Third, acting in accordance with monetary-credit policy of the central bank, the banking system regulates the quantity of money in circulation.
Stable and temperate growth of money supply balanced along with the growth of commodity supply is a guarantee of the provision of a steady level of prices. As soon as this is achieved, market relations influence the economic system in the most effectual and gainful manner.
The rise and development of Ukraine's banking system has proceeded in extremely adverse conditions.
BANKS AND THE ASSOCIATION OF UKRAINIAN BANKS
As of 1 January 1998, 227 banks were registered in the National Book for Registration of Banks, Currency Exchanges and Other Financial-credit Establishments, including two state-owned (Oshchad-bank of Ukraine and Ukreximbank) and 17 banks with the involvement of foreign capital. Within 1992—1998, 42 commercial banks were excluded from this book.
Currently, commercial banks of Ukraine fulfill the cash servicing of legal persons, exchange business, servicing of traveler's cheques, transactions with T-bills, service the accounts of physical persons, and service of plastic cards.
Ukrainian banks take part in different international programs to support private entrepreneurship in Ukraine, such as EBRD credit lines, German-Ukrainian fund, etc.
As the share market develops, and more specifically the T-bill market, new services come into being, including the brokerage servicing of clients, and management of T-bill portfolios. There is a new task ahead — to work with municipal securities.
Credit activity of banks becomes more active. In addition to short-term credits, the volume of long-term credits is increasing. There is a tendency toward the decline of all kinds of interest rates on credits granted to direct loan debtors. A positive trend is observed concerning the improvement of the credit portfolios of banks.
In 1990, the first 9 commercial banks united for the advocacy of their interests into the Association of Ukrainian Banks, which now unites 124 banks and four regional bank unions.
During the period of its activity, the AUB became established as an efficient and influential organization that contributed to the progress and stabilization of the banking system.
The AUB considers participation in the legislative process one of most essential directions of its activity. The Association was an active contributor of the elaboration of the Law of Ukraine «On Banks and Banking Activity» Tax legislation was and still is in the focus of the AUB's attention. The AUB. together with the NBU, achieved parity between banks and other business entities in taxation.
It is necessary to mention that the sound activity of commercial banks, to a considerable extent, depends on the quality of preparation of the NBU's decisions, and substantiation of these decisions. At AUB's request the National Bank issued directions, pursuant to which the regulatory acts of the NBU must be submitted to the National Bank Board after their treatment with the par-ticipation of banks and the Association of Ukrainian Banks.
Now the Association takes direct part in the important work dealing with the transition of the banking system of Ukraine to the system of international accounting standards and reporting.
One direction of the AUB's activity is establishing and maintaining business-like relations with the President of Ukraine, the leadership of the permanent Committees of the Verkhovna Rada of Ukraine, Prime Minister, and other officials from government authorities.
The Association coordinates its work with other unions and professional participants of the market.
For Ukraine to have a well prepared banking system capable of attacking new challenges dealing with restructuring of the economy, the economic policy should:
— accelerate the growth of the economic potential of banks, by allowing accumulation of their own capital and release of their balances from the bad debts of state-owned enterprises
— defend banks from the interference of the state agencies that does not meet the requirements of existing banking laws, create the reliable system of insurance of banking deposits, and contribute to the formation of high confidence in banks by legal and physical persons;
-—create an effective legislative and regulatory basis for the activity of banks which would ensure a positive protection against risks and achievement of a high degree of stability in operations.
Without banks that are economically powerful, that can operate in a stable manner, are aware of their mission in the market-oriented economy, and that have credibility in society — without such banks market-oriented reform in Ukraine will not be able to provide those beneficial impacts which are awaited by the public.
THE NATIONAL BANK OF UKRAINE
The National Bank, as the central bank, carries out the state's monetary policy using appropriate instruments. The National Bank of Ukraine keeps the State Register of Banks, Foreign Currency Exchanges, and Other Financial Institutions,
The National Bank maintains relations with other countries' central banks, international banks, and other financial institutions on behalf of Ukraine.
Functions of the National Bank of Ukraine
The National Bank of Ukraine serves as:
— the central bank which conducts a uniform state policy in the
area of monetary circulation and credit and ensures the stability of the
national currency;
— issuing centre;
— foreign exchange authority;
— supervisory body;
— bank of the banks;
— bank of the State;
— organizer of interbank settlements.
Issuing centre
The National Bank of Ukraine has the exclusive right to put currency into circulation, and to introduce national banknotes and coins.
Cash supply to the economy (Hryvnia) is carried out through a network of the National Bank's regional departments commercial banks. The National Bank supervises as requested by the State Treasury of Ukraine and builds up gold and foreign exchange reserves for its own account.
Foreign exchange authority
The National Bank of Ukraine determines the foreign exchange policy.
In the sphere of foreign exchange regulation and control, the National Bank:
—carries out foreign exchange policy based on the general principles of Ukraine's economic policy:
— monitors observance of the limits of the external public debt;
— accumulates, stores and uses foreign currency reserves to carry
out the national foreign exchange policy;
— grants foreign exchange licenses;
— determines the methods of ascertaining foreign exchange rates,
translated into the Ukrainian currency
— monitors compliance with the rules of foreign exchange trans
actions in Ukraine.
Banking supervision
To protect the clients interests and to secure commercial banks' financial reliability, the National Bank imposes the following requirements on commercial banks:
— required minimum statutory fund;
— equity ratio;
—-balance sheet liquidity ratios;
— minimum reserve requirements;
maximum risk for one borrower.
7. Stock exchange
A stock exchange, share market or bourse is a corporation or mutual organization which provides facilities for stock brokers and traders, to trade company stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities, as well as, other financial instruments and capital events including the payment of income and dividends. The securities traded on a stock exchange include: shares issued by companies, unit trusts and other pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a central location at least for recordkeeping, but trade is less and less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of speed and cost of transactions. Trade on an exchange is by members only. The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets is driven by various factors which, as in all free markets, affect the price of stocks (see stock valuation).
There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual way that bonds are traded. Increasingly, stock exchanges are part of a global market for securities.
History of stock exchanges
In 12th century France the courratiers de change were concerned with managing and regulating the debts of agricultural communities on behalf of the banks. As these men also traded in debts, they could be called the first brokers.
Some stories suggest that the origins of the term "bourse" come from the Latin bursa meaning a bag because, in 13th century Bruges, the sign of a purse (or perhaps three purses), hung on the front of the house where merchants met.
However, it is more likely that in the late 13th century commodity traders in Bruges gathered inside the house of a man called Van der Burse, and in 1309 they institutionalized this until now informal meeting and became the "Bruges Bourse". The idea spread quickly around Flanders and neighbouring counties and "Bourses" soon opened in Ghent and Amsterdam.
In the middle of the 13th century, Venetian bankers began to trade in government securities. In 1351, the Venetian Government outlawed spreading rumors intended to lower the price of government funds. There were people in Pisa, Verona, Genoa and Florence who also began trading in government securities during the 14th century. This was only possible because these were independent city states ruled by a council of influential citizens, not by a duke.
The Dutch later started joint stock companies, which let shareholders invest in business ventures and get a share of their profits - or losses. In 1602, the Dutch East India Company issued the first shares on the Amsterdam Stock Exchange. It was the first company to issue stocks and bonds. In 1688, the trading of stocks began on a stock exchange in London.
The role of stock exchanges
Stock exchanges have multiple roles in the economy, this may include the following:
Raising capital for businesses
The Stock Exchange provides companies with the facility to raise capital for expansion through selling shares to the investing public.
Mobilizing savings for investment
When people draw their savings and invest in shares, it leads to a more rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized and redirected to promote business activity with benefits for several economic sectors such as agriculture, commerce and industry, resulting in a stronger economic growth and higher productivity levels.
Facilitating company growth
Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against volatility, increase its market share, or acquire other necessary business assets. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion.
Redistribution of wealth
Stocks exchanges do not exist to redistribute wealth although casual and professional stock investors through stock price increases and dividends get a chance to share in the wealth of profitable businesses.
Corporate governance
By having a wide and varied scope of owners, companies generally tend to improve on their management standards and efficiency in order to satisfy the demands of these shareholders and the more stringent rules for public corporations imposed by public stock exchanges and the government. Consequently, it is alleged that public companies (companies that are owned by shareholders who are members of the general public and trade shares on public exchanges) tend to have better management records than privately-held companies (those companies where shares are not publicly traded, often owned by the company founders and/or their families and heirs, or otherwise by a small group of investors). However, some well-documented cases are known where it is alleged that there has been considerable slippage in corporate governance on the part of some public companies (e.g. Enron Corporation, MCI WorldCom, Pets.com, Webvan, or Parmalat).
Creating investment opportunities for small investors
As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small stock investors because a person buys the number of shares they can afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares of the same companies as large investors, and to enjoy similar rates of return(s).
Government capital-raising for development projects
Governments at various levels may decide to borrow money in order to finance infrastructure projects such as sewage and water treatment works or housing estates by selling another category of securities known as bonds. These bonds can be raised through the Stock Exchange whereby members of the public buy them, thus loaning money to the government. The issuance of such municipal bonds can obviate the need to directly tax the citizens in order to finance development, although by securing such bonds with the full faith and credit of the government instead of with collateral, the result is that the government must tax the citizens or otherwise raise additional funds to make any regular coupon payments and refund the principal when the bonds mature.
Barometer of the economy
At the stock exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy..
Major stock exchanges
The major stock exchanges in the world include:
• American Stock Exchange
• Australian Stock Exchange
• Bermuda Stock Exchange
• Bolsa Mexicana de Valores
• Bombay Stock Exchange
• Euronext
• Frankfurt Stock Exchange
• Helsinki Stock Exchange
• Hong Kong Stock Exchange
• Istanbul Stock Exchange
• JASDAQ
• Johannesburg Securities Exchange
• Karachi Stock Exchange
• Korea Stock Exchange
• Kuwait Stock Exchange
• London Stock Exchange
• Madrid Stock Exchange
• Milan Stock Exchange
• Nagoya Stock Exchange
• National Stock Exchange of India
• NASDAQ
• New York Stock Exchange
• Osaka Securities Exchange
• São Paulo Stock Exchange
• Shanghai Stock Exchange
• Singapore Exchange
• Stockholm Stock Exchange
• Taiwan Stock Exchange
• Tel Aviv Stock Exchange
• Tokyo Stock Exchange
• Toronto Stock Exchange
• Zurich Stock Exchange
