Singapore`s Financial System

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Singapore’sFinancial System

1.0Introduction

Acountry’s financial system is made up of sectors with variousfunctions that enable the movement of funds from units with excess tounits with deficiencies. In short, the system entails the processesin an economy that facilitate the movement of funds from savers toborrowers. A financial system is composed of various institutions, ina country’s perspective the system consists of banking andnon-banking institutions, financial markets, financial instruments,and financial services (Westland 2003, p.114).

2.0Singapore’sfinancial system

2.1.0Characteristics of the financial system

TheSingapore financial sector is one of the largest in the world. Thesystem is composed of large and diversified banks. Besides, it ishost to the majority of international banks that are attracted bySingapore`s efficient market structure. In addition, the system has ahighly established reputation due to the rule of law and supervision(World Bank Group 2015). In the year 2012, the Singapore financialsystem was ranked as the third largest foreign exchange market in theworld. The market offers deep and liquid markets that facilitatetrading and hedging of G3 currencies as well as those from emergingmarket economies (Venardos 2010, p.34).

2.1.1Money

Moneyis the physical measure of wealth inform of currency. The Singaporecurrency is referred to as the Singapore Dollar. Moneyis used as the most liquid form to enhance the exchange of goods andservices.

2.1.2Financial Instruments

Financialinstruments such as shares, money, derivatives (forwards, futures,options and swaps) measure financial wealth The securities assumevarious forms such as cash, interest in an entity, evidence ofownership, a contractual obligation or a right to receive or delivera financial instrument or cash. Financial services entail the variousforms of economic characteristics of financial instruments within afinancial system.

2.1.3Financial markets

Thefinancial sector was ranked as one of the largest markets for overthe counter derivatives in Asia. The equity and fixed incomesecurities within the financial sector are still at the early stageof development. Besides, Singapore has a well-developed clearing,payment and settlement infrastructure that are composed of severalsystemically important financial market infrastructures (Hubbard2002, p.45).

2.1.4Capital Markets

Capitalmarkets provide an environment for people and corporations to tradefinancial securities. They facilitate the transactions in financialsecurities such as shares and bonds. The markets enable firms toraise capital to facilitate their business activities. Capitalmarkets are made up of both primary and secondary markets. Primarymarkets facilitate the trade of financial securities offered to thepublic for the first time. Secondary markets are used to trade oldsecurities that are offered to the public (Bowers &amp McKinsey &ampCompany 2003, p.45).

2.1.5Financial institutions

Bankinginstitutions engage in the business of attracting savings and lendingmoney to borrowers of funds. Specifically, it entails the centralbank, commercial banks, public banks, private banks, and developmentbanks. The financial sector of Singapore has several distinctivefeatures. First, similar to other economic systems, it has a highpredominance of banks over other types of financial systems. As atJune 2013, the system was composed of 122 commercial banks. Thebanking sector is composed of five local banks and one foreignsubsidiary while the rest are foreign branches (InternationalMonetary Fund, 2004).

Second,the financial sector contains some systemically important domesticbanks. The three largest domestic banks have increased to aboutthirty percent of the total assets in the banking system. The totalvalue of assets held by local banks equates to 180 percent of thecountry’s GDP. Consequently, the banks are efficient in conductinglending and intermediation activities within the country. Besides,the banks have a wide distribution of assets within the region thatleads a majority of the banks revenues to emanate from within theregion (International Monetary Fund, 2004).

2.1.6Central bank

TheMonitoring Authority of Singapore closely monitors the Singaporefinancial system. Monitoring activities ensure that there arereasonable exchange rates as well as inflation levels. The centralbank serves as the driver of the financial system by developingvarious policies that aim at checking the activities of otherfinancial institutions. Non-banking institutions entail financecompanies, savings and credit institutions, credit unions, postoffice savings, hire purchase companies, investment companies, stockexchange companies and credit rating agencies.

3.0Roles of financial intermediaries: Services and products offered bythe financial sector

Thebroad range of businesses within a financial system provides thefinancial services and products. For example, banks provide safestorage of money and access upon demand. They issue checkbooks andenable depositors of cash to make payments from the money they havedeposited in banks or from loans. Banks also offer liquidity byenabling their customers to access cash within various localities byuse of the Automatic Teller Machines. They enable the transfer ofcash through electronic fund transfers. Foreign exchange servicesenable firms to change their wealth from one currency to the other.Investment companies provide investment management services as wellas hedge fund management services. Besides, insurance companiesprovide risk management services (Venardos 2010, p.34).

Singapore’sfinancial system is composed of favorable equity capital markets. Themarkets are one of the well established in the Asia Pacific regionand one of the most preferred for close to 800 companies. TheSingapore exchange market comprises 40% of foreign companies fromAsia Pacific region of East Asia, Europe, and America. The equitymarket is diverse with various sectors such as real estate, offshoremarine, shipping, and infrastructure. Specifically, the Singaporeexchange market is the largest REIT market in Asia. It provides anextensive offering of business trust listings such as aviation andinfrastructure assets. The equity market is favorable forcorporations both as a source of capital and as a room forinvestments (Wongchun 2014).

3.1Conflict of interest in agency

Thekey conflict of interest in agency is informational asymmetry. Itoccurs when various agents in the financial system produce varyingdisclosures. According to corporate ethics, Corporates are obliged todisclose information in a similar modus to ensure comparisons. Thefailure to provide similar information leads to insufficient avenuesto compare financial information. Consequently, it leads toinformation asymmetry for various key decision makers. Informationasymmetry leads to subjective decision-making processes. The bankscause information asymmetry by lack of full disclosure ofinformation. Similarly, corporations present selective informationthat leads to bad decision making for investors. For example, theoverstatement of assets by organizations may render the company toqualify for a financing facility that would otherwise not be the caseupon a more critical evaluation. Similarly, the overstatement ofdividends may attract investors to companies that are not worthyinvesting.

4.0Star hub Business Activities

Starhub is an integrated information and communications company inSingapore. it was integrated in the year 2000 and has become one ofSingapore’s most innovative information and communicationproviders. The company offers a full range of entertainment andcommunications services to both individual consumers and thecorporate markets. It provides services such as 4G, 3G, and 2Gservices together with an Island HFC network that delivers amulti-channel pay TV services (Star Hub, nd).

Regardingdata connectivity, Starhub provides both local and internationallevels of connection. Local connections entail private digitalcircuit services for enterprises that require secure and directconnections within Singapore. The various services entail a switchedEthernet that connects businesses with an intelligent networkservice. The switched Ethernet is comprised of office intranet andInternet services. The services provide a seamless connection betweenthe local area networks, wide area networks, and the internet throughsingle internet protocols. The services are provided by the company’srobust multi-protocol label switching backbone (MPLS) and the SW-EIPV-6 ready with a 99.95% SLA-backed uptime guarantee. The serviceprovides various bandwidths to a maximum of 1GB that connects variousoffices, data centers, and business sites. The various featuresinclude the one connection, the multiple services feature, the Classof Service (COS), the Bandwidth on Demand (BOD) and the BandwidthUtilization Portal. It also provides the bandwidth on demand servicefor enterprises. Besides, there is the Ethernet leased line thatoffers a secured and dedicated layer 2 premium data connectivity fororganizational info-communication requirements (Star Hub, nd).

5.0Accessing the Singapore financial system

5.1Financial markets

TheSingapore financial market has contributed largely to the success ofcorporates such as Starhub Information Company through offeringvarious services that complement a friendly environment.

5.1.1Money and Liquidity services

Thefirst service provided is liquidity. Singapore’s central bank alsoreferred to as the Monetary Authority of Singapore provides liquidityby conducting the overall supervisory of the financial system.Consequently, it issues strict guidelines for banks to ensure thatthey meet international standards liquidity requirements. Forexample, in the year 2015, the liquidity requirements for Singapore’sbanking system was reviewed to a ratio of 60% for all currency assets(Star Hub, nd).

Theability of banks to provide liquidity for corporations and the publicserves as the foundation for the consumption of the Starhub services.Specifically, the company can conduct its major operations ofoffering advisory services. The largest part entails the ability tomeet cash requirements to pay its suppliers and receive funds fromthe customers. The banking system provides various easy and promptpayment systems.

5.1.2Clearing services

First,the Singapore Automated Clearing House enables a five-day clearingduration in a week. Specifically, the banking sector entails theSingapore Dollar Cheque Clearing System (SGDCCS) and interbank GIROsystem (IBG). The two systems are referred to as SACH systemsprovided by the Singapore Clearing House (SACH). The SACH systemsenhance interbank retail payments that serve as a high volume ofimportant business and retail transactions. Specifically, they enableStarhub to process salaries and pay its bills (Monetary Authority ofSingapore, 2015).

5.1.3Transfer services

InSeptember 2015, the Association of Banks in Singapore ABS increasedthe number of banks offering Fast And Secure Transfers – FASTservices. Specifically, 19 banks in Singapore offer the FAST service.FAST entails a 24-7 electronic transfer to customers. It enables thecompanies to transfer funds almost immediately between the accountsof the involved banks. The service was launched in March 2014 tofacilitate the fast inter-transfer of money between accounts and theverge to eliminate the usage of cheques (Monetary Authority ofSingapore, 2015).

The serviceenables the Starhub information company to make quick payments and inreturn, receive its money in an easy and efficient manner.Specifically, the company does not have to wait for days for a chequeor a GIRO interbank transaction to clear. Besides, since May 2015,the limit for FAST payments was increased to USD 50,000 pertransaction. The service allowed the company and other corporationsto make larger payments in a quick and easy way (Monetary Authorityof Singapore, 2015).

5.1.4Swift services

Thefinancial system provides electronic payment services. The systementails the use of common SWIFT standards in both the domestic andinternational markets. The ability to perform international paymentsserves as a great opportunity for Starhub communication.Specifically, it enables the company to make international paymentsto suppliers and other business partners. The SWIFT system enablescorporations to manage settlement risk as provided by the banks.Besides, the use of the SWIFT is enhanced further by the Gridlockresolution system together with the intraday liquidity system. Itenables the banks to lower the number and duration of transactions.Consequently, the company can make faster settlements tointernational financial obligations. The ability to make fast andsound payments serves to ensure trust in the conduct of Star hubsbusiness. The systems provide surety to Starhub as well as to thebusiness partners. It enables the company to meet its paymentsdeadlines (Monetary Authority of Singapore, 2015).

5.2Risk Management

5.2.1Foreign exchange risk management services

Thebanks and insurance companies offer risk management and controlservices. The continued linked settlement system-CLS was introducedin September 2002. It is a multi-currency settlement system toeliminate foreign exchange settlement risk caused by time zonedifferences. The system entails currencies such as the Australiandollars, the Canadian dollar, and the Euro. It enables corporationsto make payments to member currencies without the exposure of foreignexchange settlement risk. In addition to guaranteed finality, itprovides the irrevocability of agreements made by customers. Thesystem enables the Starhub Company to reduce the costs of conductinginternational business and specifically, in remitting internationalpayments. In addition to fast money transfer, the financialinstitutions offer low-cost services to ensure profitability ofcorporations (Monetary Authority of Singapore, 2015).

5.3The Central Bank

5.3.1Monitoring services

Thecentral bank frequently devalues the rate of the Singapore currencyto avoid imported inflation. The central bank adopts monetarypolicies that ensure a modest appreciation path of the currency. Theslow rate of inflation in the country serves as a boost forcorporation’s activities. Specifically, it ensures that prices ofinputs are maintained at a reasonable level that later transfers intofavorable prices of services (World Bank Group 2015). Besides, thelower rate of inflation augments the consumption of Star Hub’sservices. Specifically, lower prices of basic goods in an economycreate the demand for complementary services such as information andentertainment (Monetary Authority of Singapore, 2015).

5.3.2Inflationary and exchange rate checks

TheMonetary Authority of Singapore aims at maintaining the inflationrate between -0.5% to +0.5% in 2015. The consequent low inflationrates lead to high exchange rates between the Singapore Dollar andcurrencies from other countries (World Bank Group 2015). The strongexchange rates for the Singapore Dollar serve as leverage for thecompany whenever it deals with imports of goods as well as services.For example, a strong Singapore Dollar rate indicates that thecompany saves money whenever it is buying communicationinfrastructure. The strong currency increases the profitability ofthe company (Monetary Authority of Singapore, 2015).

5.4Debt markets

TheSingapore’s financial sector serves as a sound environment forindividuals and corporations. Specifically, the country’s debtmarket has grown in line with the Asian debt market that haswitnessed a Compound Annual Growth Rate (CAGR) of 17%. It attainedthe USD 8.2 trillion limits in 2014 indicating that more investorswere interested in the market. Consequently, the market in Singaporereached a record of 200 billion Singapore Dollars in the year 2014. The Singapore debt market has a wide range of investors with variousinvestment profiles. Consequently, corporations can increase theirliquidity management through the broad market for bonds (MonetaryAuthority of Singapore, 2015).

5.4.1Fund management services

Fundmanagers characterize the sector with the ability to issue long-termsecurities with broad horizons. The health of the bond market isfurther strengthened by the fact that the major investors are fundmanagers from the United States and Europe. The demand for Singaporebond market is further indicated by the oversubscription of the bondofferings made in2015. Consequently, the bond market is the thirdlargest after the United States and Britain in terms of issuancevolume (Monetary Authority of Singapore, 2015).

5.5Bond Markets

Despitethe recent introduction of the bond markets, it grew by 153%, and thepublications exceeded RMB 35 billion. The growth in the debt marketindicates the favorable environment to raise capital fororganizations. Specifically, Starhub Company has the opportunity toexpand its operations by raising money from the debt markets.Alternatively, the company can invest its money in foreign issueddebt securities. Debt securities serve as a chance to increase itsassets portfolio and enhance profitability (Monetary Authority ofSingapore, 2015).

5.6Foreign Exchange

Theforeign exchange markets serves as a sound environment for theStarhub Company to deal in foreign investment transactions. The fastgrowth of the markets serves as an opportunity for the company toincrease its revenues as well as raise more capital for investments.Regarding foreign exchange, the financial system is growing at aninteresting rate. Specifically, the average daily foreign exchangeturnover volume for Singapore grew at 44%. Specifically, the foreignexchange markets grew to an amount of 383 billion United StatesDollars in the year 2013 in comparison to United States Dollars 266billion in April 2010. The average daily interest rates derivativessales witnessed a growth of 6% to the level of 37 billion UnitedStates dollars. Consequently, Singapore is the third largest foreignexchange center after London and New York. Specifically, it is thelargest foreign exchange market in Asia. (Wongchun 2014).

6.0Star Hub Cash flow Analysis

OperatingActivities

Operatingactivities indicates incomes and expenses incurred during theprocesses of availing products and services to customers. The cashflow analysis of the Starhub Company indicates a slight change in theprofits before taxation. There was a slight change in thedepreciation and amortization. The greatest change in operatingactivities occurred in the fair value of financial instruments. Thedecline in the fair value indicates exposure to maturity risk of thefinancial instruments. The second largest change was in the incomerelated to grants that declined with 30%. An increase in financeexpenses by 29% serves as an indication of a reduction in cash flows as well as the use of more financial services. In overall, theoperating activities increased by 10 % in the year 2014.

InvestingActivities

Investingactivities refer to business operations of creating long-term cashflows. The proceeds from disposal of fixed assets increased by 33%.It serves as an indication of an increase in assets disposals. Therewas a 6% increase in the outflows through purchases of fixed assets.In addition, the cash flows indicate a 29% decline in interest. Thedecline indicates interest rates exposure of the company.

FinancingActivities

Financingactivities indicate the business operations of sourcing capital torun the business. The cash flows entail a 25% decline in the proceedsfrom exercise of share options. The decline indicates a decline inthe value of the shares for the company. There was a decline fordividends paid by 17% that indicates an effort by the management toincrease cash flows. There was no change for grants received. Inoverall, there was a net 1% decline in the amount of financing cashflows. On overall, the cash and cash equivalents declined by 94%.

7.0Conclusion

TheSingapore financial sector is one of the rapid growing sectors in theWorld. The financial market is composed of financial instruments,capital markets and the central bank. The various markets provideattractive financial instruments for investment purposes.Specifically, there are a variety of products and services forinvestors. In addition to lower costs of transactions, the financialsystem has adopted to the use of technology such as internet bankingto increase the speed of offering financial services.

Thecentral bank of Singapore plays a central role to ensure a soundinvestment market. In addition to monitoring, the central bankinitiates fiscal and monetary policies to attract investors as wellas control inflation rates. Organizations such as Starhub arepresented with a sound environment to conduct business. In addition,the financial system provides many opportunities to raise capital aswell as invest funds to increase the returns and manage riskexposure.

References

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International Monetary Fund, (2013.)&nbspSingapore: FinancialSystem Stability Assessment.[Online].Availablefrom:http://site.ebrary.com/id/10825512[Accessed: 20th December, 2015].

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Venardos, A.(2010).&nbspCurrent issues in Islamic banking andfinance: Resilience and stability in the present system.Singapore:World Scientific.

Westland, J.(2003).&nbspFinancial dynamics: A system for valuingtechnology companies. Singapore: Wiley.

Wongchun, H. (2014). Singapore sets tougher banking-liquidity rules.The Wall Street Journal. [Online]. Available from:http://www.wsj.com/articles/singapore-sets-tougher-banking-liquidity-rules-1403623750. [Accessed: 20th December, 2015].

World Bank Group, (2015). Singapore: Overview.[Online].Availablefrom:http://www.worldbank.org/en/country/singapore/overview[Accessed: 20th December, 2015].

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