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Example research essay topic: U S Banks Lower Interest Rates - 1,511 words

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The primary gains to the United States from the NAFTA financial services agreement will be predominantly seen in the long run. The access to a market that includes 90 million people and has been served by a financial and banking sector that has been relatively inefficient and illiquid will prove to be a major advantage to the United States. Although the market access to Mexico's financial industry has been gradual, U. S. banks, insurers and financial companies have free and fair access to Mexico.

Further, in contrast to Canada, the United States has had strong historical ties with Mexico and this familiarity is expected to provide an advantage to the United States in Mexico. In the years to come, further growth of business for U. S. banks and financial institutions because of NAFTA can be expected.

A key impact of the financial services sector is that U. S. banks and financial institutions will be forced to improve their competitiveness. The McFadden Act (1927) and the Glass-Steagall Act (1933) limited branch-based banks and restricted services offered by financial institutions calling for the separation of commercial banks and investment banking. These had left U. S.

banks relatively less competitive in the world market. Since the Gramm-Leach-Bliley Act (1999) amended the Glass-Steagall Act, many financial institutions have made steps towards offering a full range of financial services and greatly increased their market share. Overall, the U. S. advantage from NAFTA is its virtually unlimited access to the Mexican market, which has been an incentive for the United States to restructure its domestic banking system. In the long run, NAFTA will help develop U.

S. banking to compete not only in the NAFTA area but in other world markets as well. Another benefit of NAFTA will be increased opportunities for U. S. and Canadian financial service companies (via the joint venture route), which will necessitate foreign companies to overcome cultural and language barriers. A wide variety of U.

S. firms with existing investments in Mexico will be able to acquire previously prohibited majority ownership, including 100 percent ownership, in their investments. New U. S.

entrants in many Mexican markets may start their own wholly-owned firms in Mexico The greatest effect that the NAFTA financial service agreement has had on Canada is the liberalization of their financial sector. Many banks and financial institutions have been increasing in size through mergers and acquisitions. In 2001, the Royal Bank of Canada acquired Center Banks and its 240 branches in the United States. They also purchased U. S. investment banks Dain Rauscher and Tucker Anthony Sure for a combined $ 2 billion.

Most recently, the Royal bank bought Barclay's and its $ 2. 9 billion of private banking assets in the U. S. and Mexico. The Bank of Montreal is also buying U.

S. assets. This financial services company recently acquired CFB direct and Morgan Stanley's online-only accounts and placed them under its Harris Direct brand. Canada's major financial institutions are also getting involved in the Mexican market. The Bank of Montreal owns 16 percent of Mexico's largest bank, Grupo Financiers Bancomer, and Scotia bank owns 8 percent of Grupo Inverlat as well as maintains effective managing control. Canadian banks also have a slight advantage over U.

S. banks because of their long history of interstate branching and their experience with universal banking. These have just been recently allowed in the U. S. by the passing of the Gramm-Leach-Bliley Act. The reduction of Mexican barriers will provide new markets and opportunities for the Canadian financial sector that they previously did not have access to.

Canadian firms will be able to participate in sectors that were previously restricted. This essentially means access to Mexican banks, stock markets and investments that have limitless potential. The financial sector in Mexico compared to the United States and Canada was, and is, very small and not very diversified. This makes this market extremely attractive to the foreign banks given its huge growth potential. An additional important financial service for the United States and Canada is the investment fund market, which is virtually non-existent in Mexico. The Mexican stock market is also sure to benefit from NAFTA.

The "Bolsa" as it is called, is considered a young, inefficient and small stock market that holds much promise for U. S. and Canadian investors. The Mexican banking industry has been widely opened up to external competition. Mexico is the largest economy in the world where such an overwhelming majority of commercial bank assets (almost 80 percent) are controlled by foreign financial institutions. Since the establishment of NAFTA, the Mexican government, in conjunction with its banking sector, has concentrated on stabilization, modernization and a drive toward international comparable standards and objectives.

They have implemented and maintained strict monetary and fiscal discipline. Mexico has successfully hit inflation targets in recent years and was as low as 3 percent in 2003 compared to 52 percent in 1995. The result has led to a much improved and strengthened financial system. Financial institutions have moved quickly to implement new risk management policies and processes for credit administration. Asset liability management policies have been improved to better assess value of risk and mitigate liquidity and interest rate mismatches. While markets have generally stabilized over the past few years, the effects of these improvements in asset liability management are reflected in less volatile market-related gains and losses.

There are many other benefits that influence the Mexican financial service industry as well as the overall Mexican economy. NAFTA has resulted in increased competitiveness and efficiency of Mexican companies and greater stability in domestic employment. There is greater domestic savings flowing from increased public confidence in the stability of the financial system. They have enjoyed more rapid economic growth and development caused by lower interest rates on loans to businesses and consumers and greater availability of scarce capital. NAFTA has created a sizeable influx of new capital, encouraging more domestic savings and eventually, generating lower interest rates. It has also generated new financial expertise, resulting in a wider array of services for Mexican customers, and greater stability in the exchange value of the Peso.

This has attracted more imports of goods & services and more investment capital to raise living standards inside Mexico as well as inside NAFTA's trade area as a whole. Mexico has also seen substantial inflows of foreign capital seeking expanded business opportunities and new markets created by lower entry barriers and less regulation in Mexico. Since NAFTA was enacted, the economies of the United States, Canada, and Mexico have measurably improved. One indicator of this includes market capitalization increases in the growth domestic product across all three nations. The Canadian stock market capitalization increased from 45 percent of the GDP in 1990 to 92 percent in 1999.

The Mexican stock market capitalization increased from 15 percent of the GDP in 1990 to 25 percent in 1999. Finally, the U. S. stock market capitalization increased from 53 percent to 154 percent over the same nine year period. Other measurable indicators of NAFTA's positive economic impact include nation-wide growth, relatively low unemployment and low inflation rates.

On average, The U. S. and Canada have enjoyed a 4 percent growth rate and maintained a 4 percent unemployment rate-all while keeping inflation under 3 percent. Mexico has maintained a 7 percent growth rate while keeping unemployment and inflation at 7 percent and under 5 percent respectively.

NAFTA, at least from a corporate, financial view, has been a very positive endeavor. Although it should be noted that opposition to NAFTA does exist, with concerns residing primarily in the labor and environmental sectors. Nevertheless, the pact marked a bold revolution in trade agreements, as never before had industrialized nations created such a mammoth free-trade area with a developing-country neighbor. Overall, trade between Mexico, the United States and Canada has increased by more than 50 percent since NAFTA took affect, exceeding $ 560 billion in 1999. Clear, definite gains have been experienced by all participating nations. What's more, NAFTA is likely a first step toward a hemispheric bloc, although experts estimate that an expansion throughout Latin America will take much time and resources due to political maneuvering.

Regardless, the implications of such an agreement will most assuredly impact the economies of all countries involved in a dramatic and unparalleled fashion. REFERENCES Crary, D, "Royal Bank of Canada and Bank of Montreal Plan Merger", Associated Press, January 23, 1998. Chant, J, "The Financial Sector in NAFTA: A Tri national Analysis", S. Globerman and M. Walker, 2000. Gonzalez-Hermosillo, B, "Financial Integration in North America" Paper presented at the session "Capital Mobility and Financial Integration in North America, " Allied Social Science Associations annual meetings, Boston (MA), 3 - 5 January 2001.

Wonnacott, R. J. 2000. "The NAFTA: Fortress North America?" Commentary (C. D. Howe Institute), no. 54: 1 - 18. White, W.

R. 1999. "Some Implications of International Financial Integration for Canadian Policy" Technical Report No. 57. Ottawa: Bank of Canada. Garber, P. M. and Weisbrod, S. R. , Opening the Financial Services Market in Mexico", The Mexican-US Free Trade Agreement.


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Research essay sample on U S Banks Lower Interest Rates

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