A finance magazine made by NSBM university students in Sri Lanka.

3. CONTENTS
01 GLOBAL BANKING
ENVIRONMENT
04 BREXIT & THE EFFECT TO
WORLD FINANCE
06 IMPORTANCE OF INTERNATIONAL
TRADE IN THE PRESENT FINANCIAL
ENVIRONMENT
09 EFFECTS OF BLACK MONEY
TO AN ECONOMY
12 COLOMBO FINANCIAL CITY
15 THE IMPORTANCE OF A
STOCK EXCHANGE
17 IMPLICATIONS OF LOWER OIL
PRICES TO FINANCIAL SECTOR
19 EFFECTS OF INFLATION TO
FINANCIAL ENVIRONMENT
22 AN INTERVIEW WITH AN
BANKING PROFESSIONAL
25 CRYPTOCURRENCIES- WILL IT AFFECT THE
EXISTING FINANCIAL SYSTEM?

4. FINANCIAL MONTH Special Edition
111
Global
Banking
Environment
GLOBAL BANKING ENVIRONMENT
The history of banking began with
the first prototype banks where the
merchants of the world, who made
grain loans to farmers and traders
who carried goods between cities.
This was around 2000 BC in
Assyria and Sumeria. Later, in
ancient Greece and during the
Roman Empire, lenders based in
temples made loans. Coins, which
was a common medium of
exchange of varying sizes and
metals were used while accepting
deposits and performing the
change of money. Numerous
people, like priests or temple
workers whom one hoped were
both devout and honest who always
occupied the temples, added a
sense of security. There are records
from Greece, Rome, Egypt and
Ancient Babylon that suggest
temples loaned money out, in
addition to keeping it safe.
Temples generally handled large
loans, as well as loans to various
sovereigns.
Many histories position the crucial
historical development of a
banking system to medieval and
Renaissance Italy and particularly
the affluent cities of Florence,
Venice and Genoa. The most
famous Italian bank was the Medici
bank, established by Giovanni
Medici in 1397. The development
of banking spread from northern
Italy throughout the Holy Roman
Empire, and in the 15th and 16th
century to northern Europe. This
was followed by a number of
important innovations that took
place in Amsterdam during the
Dutch Republic in the 17th
century, and in London since the
18th century.
The word bank is rooted in the Latin
meaning “bench” and refers to the
seating in any Roman forum where
money lenders used to hang out.
Ancient Currencies used by Templar
knights from 1268 until 1314 AD.
Page 1
History of Banking
by Evantha Divulwewa

5. FINANCIAL MONTH
Page | 2
Present Banking
Environment
by Evantha Divulwewa
Innovation is necessary to
drive meaningful
improvements in
performance.
Banking has evolved since its beginnings and
today plays a major role in the financial
industry. With the development of the banking
industry various laws and regulations were
introduced to ensure the stability of banks.
Today banks play a major role in international
trade and swift transfer of funds. Without the
present banking system international trade
would not have developed to its present level.
Due to its dominant monopolistic role banks in
the past earned super profits perhaps
commensurate with the risk taken in lending
out depositor’s money.
However, the last few years has highlighted
weak and eroding profitability for many banks
around the world. Even in emerging markets,
profitability has been squeezed as global
economic growth has weakened. New
regulations on capital adequacy and liquidity
required banks to recapitalize and exercise
more care thus eroding its profitability. With
the new developments in the IT industry banks
had to invest heavily in software and upgrading
its core banking systems to be competitive in
the changing environment and to thwart
hacking of its systems.
With the rapid development of the IT industry
online banking facilities were offered by mostly
all banks. There is little need for most customers
to physically visit bank locations. In order to
curtail cost banks down sized its staff cadres,
perhaps mainly as a result of efficiencies arising
out of computerization.
To grow its balance sheet and profitability, and
to survive in the changing environment banks
must embrace and accept innovative ideas -
from both internal and external sources and be
in line with the industry best practices and
innovations. In order to attract its customers / to
retain existing customers banks need to invest to
retain its trained staff, upgrade its systems and
market its products which invariably will affect
its profitability.

6. FINANCIAL MONTH
Page | 3
Future of Banking
by Evantha Divulwewa
Banking is a rapidly changing industry,
and most of the banks are now moving
towards digital banking. This shift to
digital banking has come in many forms.
With the introduction of e-banking and
mobile banking apps, customers could
now manage their accounts from their
smartphones. And some startups have
taken this approach one step further by
creating digital-only banks that
completely remove the need for a physical
branch. This has resulted in a substantial
cost saving some of which was passed
down to clients thus having an advantage
over its rivals.
Digital-only banks hold key advantages
over traditional banking institutions, such
as freedom from historical tech
restrictions and the fees associated with
brick-and-mortar branches. And in many
nations, financial regulations also help
these banks to flourish. Digital-only
banks will soon be able to access
customers remotely/on line thus avoiding
cost associated with mass advertising.
Furthermore, new players can almost
always offer better rates and lower fees to
customers, and these banks could
typically provide innovative services that
can more easily be tailored to individual
customers' needs.
On top of this, the biggest banks have
already set aside major resources to
digitize their businesses. In fact, more
than 40% of North American banks have
dedicated more than 25% of their IT
budget to digital transformation.
This can include developing new
consumer-facing products and services and
modernizing core transactional systems.
With the rapid development of the
communications industry Telco’s pose a
major challenge to brick and mortar banks.
With its real-time transactions, friction free
enablers to carry out transactions and
speed Telco’s will soon take over a
lucrative part of traditional banks funds
transfer activities and with it a sizable fee
income. If and when Telco’s obtain
licenses to accept deposits and grant loans
this will be the beginning of the end of
traditional banks.
Hence it is time that banks consider IT a
strategic resource that could be made use
to further its interest and business
decisions. It should redefine its boundaries
to structure itself more efficiently and to
give a new experience to tech savvy new
generation whose loyalties will be with the
service provider offering convenience,
speed and efficiency.

7. FINANCIAL MONTH
Page | 4
Brexit & How It Will Affect the
World Finance
by Heshani Imalsha
Brexit is the popular term
for the prospective
withdrawal of the United
Kingdom from the
European Union (EU). In a
referendum on 23 June
2016, 51.9% of the
participating UK
electorate voted to leave
the EU.
WHAT IS BREXIT?
The febrile behavior of financial markets ahead of the United Kingdom’s
referendum on June 23 on whether to remain in the European Union shows
that the outcome will influence economic and political conditions around the
world far more profoundly than Britain’s roughly 2.4% share of global GDP
might suggest.
The “Brexit” referendum is part of a global phenomenon: populist revolts
against established political parties, predominantly by older, poorer or, less-
educated voters angry enough to tear down existing institution and defy
“establishment” politicians and economic experts. Indeed, the demographic
profile of potential Brexit voters is strikingly similar to that of American
supporters of Donald Trump and French adherents of the National Front.
The Financial fallout post Brexit will be tremendous to the entire world
economy and the Financial Markets. It is too early to predict the extent of
the Financial impact of the impending “divorce” from the EU which will
certainly depend on the negotiations that are under way. However, the
following will be major impact post Brexit;
• Since the Brexit vote the British Sterling has plummeted to a 31 year
low against the USD and is expected to remain so.
• The rise of the USD vis a vis Euro will create fresh problems to the US
economy; exports being more costlier and imports cheaper resulting
in aggravating trade imbalance.
• As a result of the de- stability of major currencies there will be a flight
of capital to safer havens from the UK-EU epicenter. This will result in
the strengthening of other major currencies such as the USD and the
Yen. This will further aggravate the trade imbalances of these
countries.
• The high valued USD will prompt China to float the Yuan lower in
order to maintain its status as a major trading partner.

8. FINANCIAL MONTH
Page | 5
• With the departure of the UK from the EU, London will lose its preeminent status as the world’s largest
Financial hub.
• Loss of Financial hub status will prompt most companies to relocate their companies in other EU
countries which will have free access to other EU countries.
• Such relocation of major companies and banks will lead to loss of employment in the UK. This will lead
to a reduction of the per capita income of the Brits in the medium and long term.
Much will depend on the smooth transition post Brexit. Hence Financial Markets are
keenly following the Brexit negotiations in order to realign their strategies to ensure that
there will not be a major turmoil in the financial markets.
However, the fallout from Brexit on third world/emerging economies who are trading
partners of UK, USA, Japan and the EU countries will be tremendous. A few such
anticipated scenarios are as follows;
• Decline in the per capita income of Britain will lead to curtailment of imports
from emerging economies as a result of loss of income.
• Strengthening of the value of major currencies will result in the increase of cost
of imports from these countries.
• Reluctance of investors to invest in developing economies on the short term
preferring safer havens with stable currencies.

9. FINANCIAL MONTH
Page | 6
If you walk into a super market in the
USA or in any other foreign country and
find Sri Lankan Tea or Garments in the
shelves, that is International Trade at
its best. International trade is the
exchange of capital, goods and services
across the international borders or
territories. The international market
serves as an important place for the
exchange of goods and services that
are available in abundance or surplus in
the producing countries.
Top most traded commodities /
products at present are Petroleum
products, Electrical and Electronic
products, Machinery, Armaments,
Vehicles, Pharmaceutical products,
Iron, Steel etc.
Countries with the highest volume of
exports are the EU, USA, China,
Germany, UK and France. Many of the
developing and third world countries
are the largest importers of products
from these countries.
What is International
Trade?
IMPORTANCE OF INTERNATINAL TRADE
IN THE PRESENT
FINANCIAL ENVIRONMENT
by Ashinsa Udani
History of International Trade in the World
Barter of goods amongst different people which thereafter
expanded for the barter of goods among countries
probably was the beginning of International Trade. With
the development of the common medium of exchange:
Money, International Trade further developed. Efficiencies
in the communication industry and improvement in
logistics enabled International Trade to flourish to its
present state.
Advantages of International Trade
International Trade allows a country or a producer to
market its goods and services produced/available in excess
of the requirements of the producing country. It allows
surplus goods and services to be sold in different countries
thus expanding its markets. It further gives the consumers
and countries the opportunity to be exposed to goods and
services not available in their own countries. This will
enable these countries to be informed of the trends and
worldwide best practices to enable them to improve their
own products and services. Mass production of goods for
international trade will enable producing countries to
specialize the production process which will enable them
to reduce cost as well, because of economies of scale.
Exports creates jobs, gives much needed foreign exchange
and gives exposure to international best practices and
inventions which will further improve a countries economy.
International Trade will enable countries to participate in
the global economy, open borders, and have free market
access as a result of which attract FDI’s thus improving the
domestic economy. Increase in export trade and increased
FDI’s will improve the host county’s Balance of Payments.
These factors will improve the living standards of the
people of the country.

10. FINANCIAL MONTH
Page | 7
Disadvantages of International Trade
Opposing views of the above is that countries with
limited natural resources and low technology will be
unable to compete with countries with an
abundance of resources and improved technology.
Cost of production of these countries will be high
thus their products will be un competitive. Further,
cost of labor and capital of many developing
countries are high as a result, products
manufactured will be costlier than that of
developed nations. Hence countries with less
resources and high cost of labor and capital will find
it difficult to compete in the international market.
Further importing countries may impose high
tariffs, quotas and embargoes to protect their own
economies and industries. Hence overdependence
on exports alone will be detrimental to a country on
the long term. Another danger in International
Trade is the importation of cheap low-cost goods
manufactured by mass producing countries such as
China, which will kill the domestic industry thus
creating unemployment.
Importance of International Trade to the World
Economy
As mentioned elsewhere in this article expansion of
International Trade has created an arena for mass
production of goods as a result of which countries
/producers tend to specialize on products that they
are well suited to manufacture. Specialization
resulted in adoption of best industry practices and
further development of the product. Further being
exposed to foreign markets exposed exporters to
competition as a result of which innovative
production methods were evolved thus reducing
costs.
With the development of International Trade
movement of capital between countries took place
in order finance international trade. Trade financing
includes activities such as financing of
manufacturers, issuance of LC’s, Factoring, Export
Financing, Bills Discounting, Insurance etc.
Further the development of International Trade
also saw the development of the logistics industry,
mainly shipping and air freight. With the
development of International Trade globalization of
the production process took place with the
components of a product being manufactured in
many countries. For example, parts of an aircraft or
a motor vehicle is now manufactured in various
countries to gain advantages of specialization.
Capital Markets too grew in tandem with the
development of International Trade. Specially
Banking and Insurance. In addition, the
development of logistics such as shipping, airfreight
and other modes of transportation grew rapidly to
cater to International Trade.
Benefits of International trade outweigh the
disadvantages, and have been the main drivers of
the expansion of International Trade. Nations with
strong and favorable International Trade balances
have become very prosperous and have the power
to control the world economy and other small
countries today.
International trade has become the backbone of our
modern commercial world today. The development
of related services such as banking, insurance and
logistics could be attributed to International Trade.
Further improvement of International Trade can be
a major contributor to reduce poverty. Hence any
disruption to the smooth functioning of
International Trade will have dire consequences on
almost all sectors and all economies of the world.

11. FINANCIAL MONTH Special Edition
111

12. FINANCIAL MONTH Special Edition
Page | 9
EFFECTS OF
BLACK MONEY
TO AN
ECONOMY
By Urmi Thathsarani
Issue Date
Money generated through
unrecognized or illegal sources are
considered as Black Money. The
sources could vary from
undervaluation or even
overvaluation, corruption, fraud or
any other unfair or illegal means.
Black Money came into being
mainly due to tax evasion.
Black Money, also known as
tainted money is not only unlawful
but anti-social as well. It gives rise
to socio-economic disparity
creating a huge gap between the
rich and the poor. It is indeed
unfortunate that Black Money is
considered as an accepted practice
by all walks of life. It is like a cancer,
will ruin a country’s economy and
degrades human values.
Black Money invariably will result
in the creation of a parallel
economy outside the control of
governments, evading the
payment of taxes and gives rise to
generation of more corruption.
Black Money is highly attractive
and alluring and eliminating this
menace will be a difficult task.
Reasons for the Creation of Black Money
❖ Unreasonably high and complicated tax structures. Taxation
should be reasonable and collected with ease. Very often high
taxes with complicated returns will compel people to evade
taxes.
❖ High level of government control, licensing, permits etc. will
force people to resort to illegal means thus converting money
generated in the process to Black Money.
❖ Money generated thorough smuggling, drug peddling, extortion
etc., which cannot be declared as legitimate funds.
❖ Growing inflationary pressures will prompt businesses and
individuals from under declaring their income.
❖ Corrupt bureaucrats in public sector in positions of authority
resorting to accepting bribes to carry out their official duties.
❖ Corrupt tax collection officers aiding and abetting businesses to
falsify tax returns.

13. FIANCIAL MONTH
❖ Political donations which are
usually unreported. In
addition, profits generated
from business/contracts
gained by using undue
influence is generally under
stated.
❖ General deterioration of moral
and civic standards and
consciousness.
❖ High taxation imposed at the
time of importation of goods to
the country will compel
importers to under invoice
imports. Resulting in a major
part of the sales proceeds
being unreported.
Impact of Black Money on an Economy.
Growth of Black Money or parallel economy is a
bane to any government. Black Money will
invariably give rise to more corruption. Black Money
is an evil with far reaching consequences to a
country and even could end up with social unrest if
allowed to grow unchecked. Following are a few of
the impacts a parallel economy will have on a
country’s economy;
❖ Loss of tax revenue since business carried
out is beyond the governments control and
most often is unreported.
❖ Profits generated or money derived is very
often transferred out of the country through
clandestine channels violating forex laws of
a country. Or often money is held in hard
cash depriving these funds from being used
in a productive manner.
❖ Money earned from illegal means are very
often channeled /invested in undesirable
and illegal activities thus generating more
Black Money.
❖ Creation of a parallel economy outside the
control of the government gives rise to the
violation of many laws and regulations.
❖ In very extreme cases Black Money may even
finance terrorism.
❖ Very often such tainted money is invested in
real estate thus driving the prices of land
values.
❖ Loss of revenue to governments will retard
economic growth. Further government’s
may increase taxes on the general public in
order to finance budget deficits.
❖ The gap between the rich and the poor will
widen with the rich becoming richer and the
poor, poorer due to increased taxes.
❖ A county’s economy will be under estimated
since the transactions of the parallel
economy is not reported.
Page | 10

14. FIANCIAL MONTH
A parallel economy is a serious threat to the legitimate economy
of a country. It will impact economic growth and may compel
governments to increase indirect taxes in order to meet its
revenue targets. An in-depth study needs to be carried out to
identify the root cause of such evasion and meaningful steps taken
to contain it. Permitting conversion of Black Money in to White
Money, sometimes resorted by governments is only a temporary
solution. Steps need to be taken to eliminate the root cause in
order to free a country of this menace. As pure water loses its value
if contaminated or polluted, a country’s economy will be in
jeopardy if Black Money is allowed to grow unchecked.
Measures Available for a Government to Check Growth of Black Money.
Following are a few of the measures available for a government to curb the growth of the parallel
economy.
➢ Loosen tax policies to broaden the tax net.
➢ Simplify and rationalize tax collection making payment of taxes easier.
➢ Professionals who evade taxes or under declare their income to be taxed through their
expenditure if correct income cannot be estimated.
➢ Promote taxes such as withholding tax which will tax income at its source.
➢ Make audited financials of businesses mandatory and give strict instructions to auditors to be
more stringent and report instances of under reporting. Black list errant auditors for non-
compliance.
➢ Voluntary disclosure schemes.
➢ Issuance of bearer bonds in order to bring Black Money into circulation. However, such schemes
are now not looked upon favorably.
➢ Tax raids and seizures on suspected business establishments.
➢ Demonetization. In extreme instances governments may demonetize the currency in order to
bring Black Money back into circulation.
Page | 11

15. FIANCIAL MONTH
The Colombo
Financial City
by Ishani Thilakshana
Colombo Financial City (CIFC) is a special financial
zone which is expected to become an
International Financial Center. This will be
situated in land reclaimed from the sea adjacent
to the Galle Face Green. This will be between the
Southern edge of the new Colombo South Port
and the Fort lighthouse. The total area of sea to be
reclaimed is 269 hectares. The expected
investment is US$1.5 billion. This project will be
situated within the jurisdiction of Sri Lanka and will
be governed by the Government of Sri Lanka. The
Government of Sri Lanka and China Harbor
Engineering Company are the partners of this
project.
The initial agreement signed by the previous
government was renegotiated and a fresh
agreement was signed between the stake holder
thereafter. This resulted in the project being
converted to the Colombo International Finance
City. In 2016 this project was added in the
Megapolis plan.
History
The Port City was a concept of the former
president Mahinda Rajapaksa and according to the
concept of his government, construction was to
commence in 2012. However, the project got
delayed for various reasons and construction
ultimately commenced in September 2014. The
project was initially named The Colombo Port City
and was supposed to be a recreational center,
complete with race tracks, hotels and
infrastructure for other recreational activities. But,
after the change of government in 2015, the
project was halted, the terms amended and
instead of a recreational
center the project was converted to an
International Financial Center and the name
changed to Colombo International Financial
Center.
When the new government re started the project
again under a new policy they were highly
concerned about the environmental issues and its’
transparency, which were not considered by the
previous government.
Many environmentalists claim that the port city
contains many environmental hazards and the
adverse environmental impact the project will
cause would be far more than the economic
benefits it may have to offer. Therefore, a fresh
Environmental Assessment Impact was carried out
prior to recommencement of the project.
Maritime and security sector veterans also
pointed out the dangers Sri Lanka may face due to
giving outright ownership of land to China
especially in a high security zone. However, this
was also changed to a 99-year lease instead of
outright ownership with the renegotiation of the
project.
Page | 12

16. FIANCIAL MONTH
Benefits of Colombo Financial City
The Colombo Financial City is expected to fill the
vacuum for such a financial center between
Singapore and Dubai. For this purpose, the
government will propose new laws based on
English Law for governing offshore activities
similar to Dubai. The Financial City will contain a
Maritime University, Recreational Area,
Residential Area and an offshore Financial Area.
The Financial City is expected to attract an
investment of over USD 15 Billion, once completed
and will be a major income earner and an
employment provider for the country.
Through the proposed Financial City, it is
envisaged to engage in financial transaction of all
nature to facilitate international trade including
many new innovative financial products for
investment purposes via a new approach while
working closely with the South Asian countries
including India, Middle East and European
countries. The main intention of the International
Financial Center is to attract investment capital
and create a conducive environment to attract
investors.
The Financial City, as an international investment
zone, is estimated to realize financial assets worth
10% of the GNP within the next five years. It will
give Sri Lanka an opportunity to earn much
needed foreign exchange to meet its development
targets. The financial city will bring forth an
opportunity for Sri Lanka to play a dominant role
as a financial hub.
In addition to the Financial Center, local and
international investors are expected to invest in
shopping malls, hotels, apartments, an exhibition
center, educational institutions, health care
facilities, theme parks, restaurants etc. This
project is expected to generate between 80,000 to
100,000 new employment opportunities, 90% of
which will be available for Sri Lankans.
Page | 13

17. FIANCIAL MONTH

18. FIANCIAL MONTH
➢ History of Stock Exchanges.
The world’s first Exchange was established in 1460
in Antwerp, Belgium. It solely traded in financial
securities; mostly bonds. The Amsterdam Stock
Exchange established in 1602 is considered as the
oldest stock exchange in the world. The Bombay
Stock Exchange is the oldest exchange in Asia and
was listed (in August 2007) as the exchange with
the largest number of listed companies with 4700
companies listed. The New York Stock Exchange is
the largest exchange in the world by market
capitalization.
➢ The Colombo Stock Exchanges
Share trading in Sri Lanka dates back to 1896 with
the establishment of Stock Brokers Association
(SBA). In 1904 Colombo Brokers' Association was
formed to compete with SBA. In 1985 Colombo
Brokers Association & Stock Brokers Association
merged and formed Colombo Securities Exchange.
In 1990 the business was renamed as the Colombo
Stock Exchange.
The Colombo Stock Exchange (CSE) is the main
stock exchange in Sri Lanka. It is one of the
exchanges in South Asia, providing an automated
trading platform. The headquarters of the CSE is
located at the World Trade Center Towers in
Colombo. It has branches across the country in
Kandy, Jaffna, Negombo, Matara, Kurunegala,
Anuradhapura, and Ratnapura.
As of end September 2017, the CSE had 295
companies listed, representing 20 business
sectors. The market capitalization as of September
2017 was Rs. 2,919 Bn. The CSE has two indices
namely the All Share Price Index and the S&P SL 20
Index. In addition to the main listing board the
exchange has a second board named “Diri Savi”
with less stringent listing requirements.
The CSE was selected as a member of the World
Federation of Exchanges (WFE) being one of the
first exchanges in South Asia to be admitted to this
prestigious organizations. WFE is the trade
association for 52 publicly regulated stock
exchanges. This is the central referral point for the
securities industry and exchanges and offer
members business strategies, management
practices and guidance.
The Importance of Stock
Exchange to an Economy
by Githmi Hansika
Page | 15

19. FIANCIAL MONTH
➢ Importance of Stock Exchanges to an
Economy.
Stock Exchanges play an important part of any
economy. It plays a pivotal role in the economic
growth and development of the corporate sector.
It is highly important for corporates to raise capital
and debt equity. The stock exchange facilitates
corporates to raise much needed capital. The
growth of an economy is often gauged by the
vibrancy and the growth of the country’s stock
exchange. The following could be attributed as the
main functions of a stock exchange.
• Acts as a platform where shares of publicly
held companies are sold and bought.
• Raising of capital without a repayment
burden and without any fixed cost.
• It will help capital formation which could be
utilized for large investments and expansion
of existing businesses.
• Stock exchanges help attract foreign capital
to a country, which will vastly benefit the
growth of an economy and boost the
balance of payments of a country.
• It also helps mobilize savings for investment
purposes. Public could invest their savings in
high yielding economic sectors and be
partners of the development process. It will
also create investment opportunities to
small time investors.
• Governments too could raise large sums of
funds to finance their development
activities.
• As a result of compliance with stringent
listing requirements it will definitely improve
corporate governance and maintenance of
better management/financial records of
listed companies.
• Expansion of the corporate sector will give
more job opportunities.
• Increase in profitability of the corporates as
a result of expansion will give governments
more revenue through collection of taxes.
• It will also promote investors to healthy
speculation to reap rich profits through
fluctuation of stock prices.
• Stock exchanges are indeed a barometer to
judge an economy.
The role of a stock exchange is an important part
in today’s financial environment. Especially in
small economies where the savings rate is low and
raising of debt capital is very costly. Stock
exchanges will fill the void in raising much needed
capital for development and expansion of an
economy. It further ensures of a high standard of
corporate governance and adoption of industry
best practices in order to ensure stability of the
share price. It will also provide small time investors
the opportunity to be partners/stake holders of
large corporates and be a part of the development
process. Hence in the current context stock
exchanges play a pivotal role in the development
activities of an economy and has become an
essential institution in the complex financial world.
It would not be incorrect to state that the stock
exchange of a country is the driver of the economy
or the business engine of the country.
Page | 16

20. FIANCIAL MONTH
The prices of oil have fallen sharply since mid-2014
and reached a 10 year low in early 2016. Prices
have dropped by almost 70% during this period.
What is the cause of such drastic decline of this
precious scarce natural resource? The price of
crude oil is determined by demand and supply
factors. Is it supply factors that played a large role
in this price decline, larger than demand factors?
The general consensus is that both demand and
supply factors played an equal role in the decline
of oil prices. For some time, members of OPEC
(cartel of oil exporting countries) have been in
disagreement of production cuts. In addition,
discovery of new oil fields in countries other than
OPEC have resulted in increased output and has
pushed the price of crude oil down. Further, lower
global growth too contributed to a major extent in
the lower oil prices. Decrease in demand for
petroleum products also stemmed from the fact of
the successes in the quest for alternatives to oil.
Are lower oil prices good or bad on an economy?
The answer lies whether you are an oil producing
country or an oil importing country. Let us discuss
below the benefits of low oil prices on the world
economy and the financial sector as a whole.
• Lower cost of oil will support global
growth, as a result of low cost of
production. Low costs will increase
demand thus spurring more employment
opportunities and increase in GDP of
countries.
• Low cost of fuel will result in more money
remaining in the hands of the consumer,
thus increasing their spending power.
These funds could be spent on other
goods and services thus stimulating the
economy. Even if the excess funds are not
spent, savings and investments will be
beneficial to an economy. Savings and
investments are considered as seed corn
of a prosperous economy.
• Low petroleum prices will help
redistribution resources thus reducing
social disparities.
• Low cost of fuel will help reduce transport
cost thus reducing overall prices of goods
and services. This will result in lowering of
inflation.
• Lower cost of petroleum products will have
a favorable effect on the Balance of
Payment of countries. Central Banks could
keep the interest rates low, stimulating the
economy without fear of inflationary
pressures.
The above mentioned favorable benefits will
accrue only if the effects of lower oil prices are
passed on to the consumer by oil producing
companies and governments. Even if governments
decide to maintain high rates of fuel despite low
international prices, the cost savings will help
governments in meeting their budget targets
Implications of Lower Oil Prices on the
Financial Sector
by Savani Jayasinghe
Page | 17

21. FIANCIAL MONTH
without taxing the public and will help in the
Balance of Payments.
However, the effect of low oil prices, on oil
producing countries will be quite different. Lower
income from Petroleum products will result in
revenue shortfall affecting the GDP of these
countries. However, in the medium and long-term,
oil producing countries will also stand to benefit
with low cost of imports from other countries,
since most of the other requirements of these
countries are met through imports. Low cost will
prevent further investment in exploration for new
oil fields and up grading of existing refineries.
However, most oil producing countries have now
diversified and are in a better position to
withstand a slump in oil prices. Banks who have
lent to oil companies will stand to lose money
should oil companies default due to lower
revenues, resulting in tightening of global credit.
Low oil prices will invariably increase in demand of
this natural resource thus increasing the depletion
of this scarce natural resource. Lower fuel cost
may increase consumption leading to more traffic
and increased pollution levels. Increase in
consumption will also lead to increased imports
resulting in petroleum cost of a country remaining
the same. Hence the impact on the environment
because of lower oil prices will be high. Further
less investments will be made in developing
alternate greener energy sources as a result of
cheaper oil prices.
The benefits of lower oil prices will surely
outweigh the negative aspects, since more
countries stand to benefit from low petroleum
prices. With low cost of production, the long-term
effects of lower oil prices could be derived even by
consumers in oil producing countries who will be
adversely affected in the short term. In the
financial sector lower cost will result in high GDP
growth, decrease in unemployment, favorable
Balance of Payments of countries and the
resultant lowering of inflation and interest rates.
However, efforts in investment in cleaner and
greener alternate energy should not be reduced
since the damage to the environment from usage
of fossil fuels is greater.
Page | 18

22. FIANCIAL MONTH
Effects of
to Financial
Environment
“I just spent 60 cents to buy a loaf of bread”. Older
generations use these kinds of phrases to
emphasize their lives were better than current
generations. Is it true? Is inflation just a modern
phenomenon that did not affect to our older
generations? Ironically although price levels were
low comparatively during olden times, inflation did
prevail during those times as well.
Causes of Inflation
There are three main causes for inflationary
conditions. These could be classified as follows;
• Demand pull inflation – This occurs when
large amount of money goes after a limited supply
of goods and services. In line with the normal
theory of demand and supply, increased demand
will push the prices of goods and services up.
• Cost push inflation – Occurs when the price
of inputs used in production increases and such
increase is passed on to the consumer. i.e..
Increase in the prices of petroleum products, steel
etc.
• Monetary
inflation – Happens
when governments
print money
excessively, much
more than the
increase in the
production of
goods and services
in an economy.
Also happens
with increase in
lending by
commercial
banks.
by Ashen Peiris
What is Inflation
To state it simply inflation happens when a lot of
money goes after a limited number of goods and
services. Money supply grows faster than the
growth of goods and services available in an
economy. It refers to the increase of prices of a
basket of goods and services compared over a
period of time. It is measured by the movement
or change in price index of a basket of goods and
services. Why should inflation be in an economy?
Is it good to see increasing prices of goods and
services? The answer is debatable. Anything in
excess is not good. So is inflation. Controlled
inflation is indeed good for an economy as
opposed to stagflation; which is the opposite of
inflation. During a period of stagflation
economies experience slow growth and high
unemployment. Stagflation endangers
economies whereas during controlled
inflationary periods there will be excessive
demand and more investments made in order to
meet this demand. Whereas the negative
consequences of deflation or stagflation could be
worse.
Page | 19

23. FIANCIAL MONTH
Effects of Inflation
During a period of high inflation, the prices of
essentials increase rapidly. As a result, the value of
money in the hands of the consumer erodes;
falling of spending power of fixed wage earners.
Trade unions may request for higher wages thus
increasing inflationary conditions further.
The impact to the financial environment through
inflation is more drastic. Unless the nominal
interest rate paid for depositors is more than the
inflationary rate, the depositors may receive a
negative real interest rate. This may discourage
depositors who will opt to spend their savings thus
exacerbating inflationary conditions. Whereas
borrowers will gain since the assets/goods
purchased with their borrowing will increase in
value during inflationary periods. In addition,
uncertainty of future inflation will make
corporates and consumers invest less.
International trade too will be affected if the
domestic inflation rate is more than that of the
trading partners; exports will be costlier.
Tools Available to Curtail Inflation
Governments use various tools to curtail inflation.
A few of such available tools are;
•Increase of domestic interest rates. This will
encourage depositors to save more and
discourage borrowers.
•Increase of Statutory Reserve Ratio of banks to
curtail their lending.
•Devalue domestic currency to make imports
more dearer and exports cheaper.
•Restrict government spending.
•Restrict money supply.
•Price controls and restrict bank lending. These
are short term measures and considered too
restrictive.
As mentioned above controlled inflation is good
for an economy. There will be excessive demand
for goods and services and more investments
made in order to meet this demand. This will in
turn increase job opportunities and reduce
unemployment. Further increased demand will
increase the profitability of businesses thus
increasing government revenue through taxes.
However, in order to obtain the desired effects of
inflation central banks of countries should keep
inflation under control and should be able to take
preventive measures swiftly should inflation go
out of control.
Page | 20

24. FIANCIAL MONTH

25. FIANCIAL MONTH
An Interview with a Banking Professional
Established in 1995, as the 8th indigenous bank, Union Bank of Colombo PLC is
amongst the top 5 private commercial banks in Sri Lanka in market capitalization
offering a full range of banking products and services to personal and commercial
sectors through an island wide branch network and other alternate
channels.
Below is an extract of an interview had with Mr.Ravi Divulwewa VP Credit of Union
Bank of Colombo PLC, on 27th December 2017.
(The opinion given below are the personal opinion of the interviewee and not necessarily the opinion of the bank)
What is your current position in this field?
I’m the Deputy General Manager in Union Bank of
Colombo in charge of SME credit with 38 years of work
experience. Out of which almost 30 years of
experience in lending to the personal and corporate
sectors.
How did you archive this position?
Mainly through experience and by upgrading my
knowledge and skills through professional exams. I
started my career at Commercial Bank as a clerk. From
there onwards with regular promotions and sheer
dedication and hard work I have achieved my present
position.
What are the obstacles that you faced in this path?
Obstacles in the sense, I would say it’s mainly human
relations. Your colleagues sometimes undermine you
and it is a matter of judgement, flexibility and
maintaining cordial relationship with your superiors,
peers and subordinates. Banking environment is very
competitive and getting promotions was difficult. At
the start of my career I worked in many outstation
branches and was unknown to many in the Head
Office. This I think was a disadvantage when it came to
promotions and career advancement. Other than that,
if you do your work properly, do your exams and work
with sheer dedication there won’t be much obstacles
in your career path.
How did you overcome the obstacles?
Well not been promoted did not discourage me. I
continued to work even harder to be recognized.
However, this also made me look around for job
opportunities. I was successful and found alternate
employment with another bank to a position two
ranks higher than my existing position. My advice is
if you are overlooked for promotion, not to be
discouraged and work even harder to be recognized.
And update yourself with the latest developments in
your respective fields and be qualified.
Can you explain your position and how it benefitted
the bank?
As I mentioned before out of the 38 years of
experience about 30 years, I was in approving loans
and advances. By approving and granting loans, the
bank earns an income to generate profits. It is
through this income that banks pay interest to the
depositors and meet its salaries and overhead cost.
Granting loans is the bread and butter of a bank.
Also, you must exercise all due care when approving
loans and ensure that you can recover it so there
won’t be any non-performing or bad debts which will
be a burden on the profitability of a bank.
Page | 22

26. FIANCIAL MONTH
What is the effect of the banking system to
financial environment?
A very complex question, but in brief banks play
a crucial role in the finance & economic
development of any country. By granting loans
and advances banks provided much needed
capital for businesses to expand. Without banks
I don’t think any of these businesses will flourish
because most of the businesses expand by
getting loans. So, if banks are not there to help
them, there won’t be much of an expansion in
the business field. Further, banks help small SME
customers to commence or expand their
businesses and uplift their living standards. Lastly
banks also provide an opportunity for clients to
deposit their excess funds and earn an interest
as well.
Do you think the services provided by banks are
sufficient to the society?
Not enough. There is a lot more banks can do.
Most of the bank lending are security based.
Without security it is difficult for small clients to
obtain facilities from banks. However, banks too
have their own constraints and have to comply
with a host of regulations. Lack of a credit
guarantee agency is a major weakness in today’s
financial environment.
What are the weaknesses that you see in banking
industry?
Weaknesses of course it’s the realization of
security and the long delay in court procedure.
When facilities go bad banks have to file action
to recover. These cases take more than 3 to 5
years. Sometimes more than this. That of course
is a major weakness. If the process of realization
of security is made easier banks can do a lot
more.
What are the key features to be improved in the
banking system?
The overhead costs of banks are very high. In
most of the banks, (the big banks) the cost is
about 60% of the income.
The overhead costs of smaller banks are even
higher. Cost should be reduced further. Increase
of the profitability in the banking sector will be a
big boost to the economy and stability to the
banking industry. But with the development of the
IT industry banks have been able to reduce costs.
What are the concepts for a better banking
environment?
Since banking is a service-oriented industry
selection of staff should be done carefully. My
view is that customer interaction should be
handled professionally. Staff should be polite and
cordial. Also, they should be abIe to multi task and
be able to handle any task requested by a client
instead of redirecting them. Further, staff should
keep abreast the latest developments in the
banking industry and qualify themselves to meet
the future challenges. Also, since banks carry out
international transaction they should adopt
international best practices and technologically be
up to date.
What are the main decisions that you take in your
position?
It’s mainly credit decisions. Whether to grant a
facility or not. On an average work day more than
50 credit decision are made.
How do you decide whether to give a loan or not?
First, we do a good background check of the client.
We go through the background, how the client’s
past performance had been, whether he is
knowledgeable in what he is doing. Next will be
the viability of the business of the client; if we give
a facility whether he has a sufficient cash flow to
repay the facility. Further the products or services
the customer intends providing should be
marketable. The business should be generating
sufficient profits to enable the client to repay the
loan comfortably. And of course, we do a credit
check through credit information bureau to
ascertain the clients past credit history. And lastly
the security. If everything else is good security also
should be there as a last resort of recovery.
Page | 23

27. FIANCIAL MONTH
How Central Banks can have an effect on the
banking system?
As the regulator the Central Bank has been
providing a yeoman service in regulating the
banking industry. They ensure that the banks
comply with the existing regulation and meet all
international standards. This is carried out
through constant inspections and returns that
banks need to furnish. Further they have been
maintaining interest rate stability in the market
which is very important to the banking industry.
Do the banks corporate with other banks?
Yes. Very much. If a customer comes and if you are
not sure of the customer we find out where he is
banking and make informal inquires as to how the
client is. Some banks don’t help but they just at least
generally tell whether the customer is good or bad.
However, with the development of the Credit
Information Bureau, the need to make banks
inquiries have been eliminated since the client’s past
debt repayment record could be obtained.
Page | 24

28. FIANCIAL MONTH
Cryptocurrency – Will it
Affect the Existing
Financial System?
by Ruwanthika Sewwandi
BITCOIN THE CURRENT STANDARD
Uses peer-to-peer technology, which enables all
functions such as currency issuance, transaction
processing and verification to be carried out
collectively by the network while this
decentralization renders Bitcoin free from
government manipulation or interference. The
flipside is that there is no central authority to
ensure that things run smoothly or to back the
value of a Bitcoin. Bitcoin are created digitally
through a mining process that requires powerful
computers to solve complex algorithms and
crunch numbers. The issuance of Bitcoins is
expected to be limited with 21 million Bitcoins, a
level that is expected to be reached in 2140.
Perhaps with many opting to recognize Bitcoins,
this limit may be reached much earlier than
anticipated.
These characteristics make Bitcoin fundamentally
different from a fiat currency, which is backed by
the full faith and credit of its government. Fiat
currency issuance is a highly centralized activity
and issued by legitimate governments.
Crypto currency is created and managed
using advanced encryption techniques, a
leap from being an academic concept to
(virtual) reality with the creation of Bitcoin
in 2009. While Bitcoin attracted a growing
following, in subsequent years it captured
significant investor and media attention
when it peaked to a record $266 per bitcoin
in April 2013, after surging 10- fold in the
preceding two months. And in 2017 it
peaked at $ 19,000 drawing the attention
of many finance specialist and speculators.
Bitcoin sported a market value of over
$2billion at its peak, but a 50% plunge
shortly thereafter sparked a raging debate
about the future of crypto currencies in
general and Bitcoin in particular. So, will
these alternative currencies eventually
supplant conventional currencies, and
become as ubiquitous as Dollars and Euros
someday?
Page | 25

29. FIANCIAL MONTH
• THE FUTURE
Some of the limitations that crypto currencies
presently face, such as fact that one's digital
fortune can be erased by a computer crash, or
that a virtual vault may be ransacked by a
hacker may be overcome with time through
technological advances. What will be harder to
surmount is the basic paradox that bedevils
crypto currencies, is that the more popular
they become, the more regulation and
government scrutiny they are likely to attract,
which erodes the fundamental premise for
their existence. While the number of
merchants who accept crypto currencies has
steadily increased, they are still very much in
the minority for crypto currencies to become
the more widely accepted medium of
exchange. They must first gain widespread
acceptance among consumers.
• SHOULD YOU INVEST IN CRYPTO
CURRENCIES?
If you are considering investing in crypto
currencies, it may be best to treat your
investment in the same way you would treat
any other highly speculative venture. In other
words, recognize that you run the risk of losing
most of your investment, if not all of it. As
stated earlier, a crypto currency has no intrinsic
value apart from what a buyer is willing to pay
for it a point in time. This makes it very
susceptible to huge price swing which in turn
increase the risk of loss to an investor. If you
cannot stomach that kind of volatility, look
elsewhere for investments that are better
suited to you. While opinion continues to be
deeply divided about the merits of Bitcoin and
other Cryptocurrencies as an investment,
supporters point to its limited supply and
growing usage as value drivers, while
detractors see it as a ruse, is one debate that a
conservative investor would do well to
consider.
• WHAT IS CRYPTO CURRENCIES? HOW
DOES IT WORK AND WHY DO WE USE IT?
Crypto currencies are a form of digital money that
is designed to be secure in many cases. It is a
currency associated with the internet that uses
cryptography, the process of converting legible
information in to an almost uncrackable code, to
track purchases and transfers.
Cryptography was born out of the need for secure
communication in the second world war, it has
evolved in the digital era with elements of
mathematical theory and computer science to
become a way to secure communication,
information and an online digital currency.
The development of Bitcoins has started to
snowball and has drawn the attention of many in
the Financial sector. Will Bitcoins be a rival to
currencies issued by legitimate governments?
Presently there is no central authority to control
and regulate Crypto Currencies. In addition, the
existing financial system is well secured with laws
governing the financial system in place. Perhaps
these reasons may be draw backs holding many
from investing in such virtual currency. Will
Crypto Currencies do to the financial system what
Internet did to the media? This will indeed happen
sooner than later unless the financial sector and
traditional banks do adopt digital technology and
have digital offering that could be accessed even
by customers remotely.
Page | 26

30. Ruwanthika Sewwandi
10021363
Cryptocurrency- Will It
Affect the Existing Financial
System
Ashen Peris
10022244
Effects of Inflation to
Financial Environment
Heshani Imalsha
10011070
Brexit & How it will affect
the World Finance
Group Contribution
Evantha Divulwewa
10021928
World Banking Environment
Urmi Beddewela
10022409
Effects of Black Money to
an Economy
Githmi Hansika
10022238
The Importance of Stock
Exchange to an Economy
Savani Jayasinghe
10022563
Implications of Lower Oil
Prices on the Financial
Sector
Ishani Thilakshana
10022197
The Colombo Financial City
Ashinsa Udani
10022005
Importance of International
Trade in the Present
Financial Environment