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Sovereign Wealth Funds- Sources of Investment in Qatar & Dubai - Term Paper Example

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This term report gives detailed information about Sovereign Wealth Funds- Sources of Investment in Qatar & Dubai. Sovereign wealth funds investment is one of the most debatable topics in recent times…
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Sovereign Wealth Funds- Sources of Investment in Qatar & Dubai
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Download file to see previous pages Due to SWFs importance gained in the recent times, many types of research are being conducted in order to deal with the concerns and problems identified in its current position and in the expected growth that is to occur in future.
Sovereign Wealth Funds (SWFs) and Investment: Sovereign funds investment is a government-owned and controlled investment fund. Such an investment fund is called Sovereign Wealth fund (SWFs). There is no one accepted definition of SWFs; however, these funds are usually funded by fiscal (government) surpluses or foreign exchange reserves. The sources of foreign exchange reserves could be profit and surpluses from exports of commodities and other means like an investment in international markets. Government is involved in various revenues generation activities, the revenue obtained can be invested within the country or sometimes it is invested in foreign countries. The investment of these funds is put up in foreign financial assets like stocks and bonds of different international companies. (Truman, Edwin.M. 2010)
Establishment of Sovereign Wealth Funds in Qatar and Dubai: About 60% of the SWFs were formed after 2004 when the oil and gas sector faced a sudden boom and the countries involved in exports of these commodities piled up large reserves of foreign exchange reserves could be profit and surpluses from exports of commodities and other means like investment in international markets.
Qatar’s SWF is known as ‘Qatar Investment Authority’, established in 2005; while Dubai’s SWF is called “Investment Corporation of Dubai”, established in 2006. The total funds of Qatar Investment Authority and Investment Corporation of Dubai are 70 and 82 billion dollars respectively in 2009-2010. (Truman, Edwin.M. 2010)
Structure of Sovereign Wealth Funds in Qatar and Dubai: The Persian Gulf countries dominate global SWFs. UAE, Saudi Arabia, Kuwait, and Qatar combined accounts for more than half of the world’s assets. Researches show that regardless of countries have a current account deficit or surplus, SWFs are generally associated with countries involved in exports of oil, gas and natural resources and have piled up large foreign exchanges due to these exports. Qatar and Dubai invest most of its foreign exchange reserves directly in SWFs international assets and therefore do not have large reported foreign exchange reserves.
These countries buy dollars and invest in SWFs internationally rather letting their exchange rate appreciates. Oil sales being dollar-denominated has made it easier for gulf countries. This leads to a drop in the value of the dollar due to excessive dollars in the market which results in preserving the value of SWFs when expressed in local currency terms. In 2008 UAE reported US$ 751 billion in its SWF international assets and only US$ 32 billion as foreign exchange reserve while Qatar showed US$ 70 billion in its SWF international assets and only US$ 10 billion as foreign exchange reserve which showed their positions relatively low on foreign exchange to GDP ratio in comparison with countries which reports a large number of foreign exchange reserves. (Truman, Edwin.M. 2010; Raphaeli, Nimrod, Gersten, Bianca.2008) ...Download file to see next pages Read More
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