164. What do you know about frontier financial services markets?

There is no universal definition of what constitutes the frontier market, but it essentially consists of companies and investments in nations that are economically even less developed than emerging market countries, many of which don’t have their own stock exchange.

A type of emerging market, a frontier market is considered to have lower market capitalisation and less liquidity than many emerging markets. Generally, they appeal to investors because they offer potential high returns with low correlation to other markets. The expectation is that over time the frontier market will become more liquid and take on characteristics of the majority of emerging markets.

Securities markets in the least developed of the emerging markets. Mexico, Taiwan are generally considered emerging marketswhile Zimbabwe, Jamaica, and Kenya are considered frontier markets. Political factors are especially important to the trading andvaluation of securities traded in frontier markets

Less advanced capital markets from the developing world. Frontier markets are countries with investable stock markets that are less established than those in the emerging markets. 

Frontier markets refer to equity markets in small nations that are at an earlier stage of economic and political development than larger and more matureemerging markets. In other words, think of frontier markets as the smaller siblings of emerging markets. Frontier equity markets typically have modest market capitalization, limited investability and liquidity, and few market information sources. On the positive side, they generally possess favorable demographics and good long-term growth prospects. As these markets probably constitute the last frontier of investing in an increasingly interlinked global economy, investors should be aware of their risks and rewards, and the options available to invest in them.

165. What do you know about offshore financial services markets?

Offshore finance is, at its simplest, the provision of financial services by banks and other agents to non-residents. These services include the borrowing of money from non-residents and lending to non-residents. This can take the form of lending to corporates and other financial institutions, funded by liabilities to offices of the lending bank elsewhere, or to market participants. It can also take the form of the taking of deposits from individuals, and investing the proceeds in financial markets elsewhere.

An offshore financial centre (OFC), though not precisely defined, is usually a small, low-tax jurisdiction specializing in providing corporate and commercial services to non-resident offshore companies, and for the investment of offshore funds.

Although most offshore financial centres originally rose to prominence by facilitating structures which helped to minimise exposure to tax, tax avoidance has played a decreasing role in the success of offshore financial centres in recent years. Most professional practitioners in offshore jurisdictions refer to themselves as "tax neutral" since, whatever tax burdens the proposed transaction or structure will have in its primary operating market, having the structure based in an offshore jurisdiction will not create any additional tax burdens.

Offshore centres benefit from a low burden of regulation. An extremely high proportion of hedge funds (which characteristically employ high risk investment strategies) who register offshore are presumed to be driven by lighter regulatory requirements rather than perceived tax benefits. Many capital markets bond issues are also structured through a special purpose vehicle incorporated in an offshore financial centre specifically to minimise the amount of regulatory red-tape associated with the issue.

Offshore financial structure

• Offshore company

• Offshore partnership

• Offshore trust

• Private foundation

Main offshore financial centres

• Bahamas

• Bermuda

• Cayman Islands

• Luxembourg

• Switzerland

• Panama

• British Virgin Islands

Singapore