Question

Download data for Namibia, Nigeria and Germany from the World Bank’s Global Financial Development database (codes are given below) for the period 2010 to 2014. Also download data for the three countries on real GDP per capita (current US$) for the same period from the World Development Indicators database, and present the all data in a table. Use the data to analyze the whether the three financial systems are bank-based or market-based. (Your write up should not exceed one and half typed pages). Financial system structure in terms of: Structure-Activity: 1) Total value traded ratio, which equals the value of domestic equities traded on domestic exchanges divided by GDP (%). (code: gfdddm02) 2) Bank credit ratio, which equals private credit by deposit money banks and other financial institutions to GDP (%). (code: gfdddi12) Structure-Size: 1) Stock market capitalization ratio, which equals the value of domestic equities listed on domestic exchanges divided by GDP (%). (code: gfdddm01) 2) Bank credit ratio, which equals private credit by deposit money banks and other financial institutions to GDP (%). (code: gfdddi12) Structure-Efficiency: 1) Total value traded ratio, which equals the value of domestic equities traded on domestic exchanges divided by GDP (%).(code: gfdddm02) 2) Bank interest margins, measured as the value of banks’ net interest revenue as a share of average interest earning assets (%). (code:gfddei01) Required: 2 1) Calculate averages for all your variables for each country. 2) Calculate the ratio of total value traded ratio to bank credit ratio for each country, and interpret your answers. 3) Calculate the ratio of stock market capitalization ratio to bank credit ratio for each country, and interpret your answers. 4) Calculate the ratio of total value traded ratio to bank interest margins for each country, and interpret them. 5) Explain what happens to the structure of the financial system as countries become richer. Are there any observable patterns?

Answer 1

Data of Germany, Namibia, and Nigeria

1) higher income countries are the market based and lower income countries are bank based, here Germany is the richer country while analysing GDP/Capita data. thus Germany is Market based and other two are bank based.

2)

1) Calculate averages for all your variables for each country

2) Calculate the ratio of total value traded ratio to bank credit ratio for each country,

3) Calculate the ratio of stock market capitalization ratio to bank credit ratio for each country,

4) Calculate the ratio of total value traded ratio to bank interest margins for each country,

calculation of ratio using average values

NB: the bank credit ratio data is missing for Namibia

5) financial system become more market based as countries become richer, banks as well as market become more complex, active, and efficient too when the countries become richer.