The Sonoran Plain refers to a large desert area in North America, covering the South Western parts of the United States of America and the North Western parts of Mexico (Cohn 84). The desert covers large parts of the states of California and Arizona in the United States and the free and sovereign states of Sonora, Baja California and Baja California Sur (Cohn 84). It is one of the largest and hottest deserts in North America, spreading across the two neighboring countries of Mexico and the United States and covering five constituent states of both countries; three in Mexico and two in the United States. Each of these states have their own financial markets which have an impact on their host country’s financial markets and by extension on the international financial markets. This paper examines the financial markets of the five states within the Sonoran Plain individually and the impacts of these markets on their host country’s market. It then goes on to examine the collective impacts of these financial markets on the international financial markets. The paper argues that the financial markets within the Sonoran Plain can be considered as emerging international financial markets due to the impacts they have on their host country financial markets and the international financial markets.
Financial Markets: Definitions
A financial market is a place where people, companies and other entities trade for commodities and financial securities at low transaction costs that reflect the demand and supply curves of such items in the market (Bailey 9). The term market holds the basic meaning of a place where potential buyers and potential sellers are aggregated, provided with an opportunity to interact and transact business, and the business transactions that they carry out. Financial markets differ from normal markets in that they involve trading in securities rather than the normal goods and services traded in the normal markets (Bailey 9). Organizations that facilitate this kind of trading such as the stock exchange or the commodity exchange may either have physical locations such as the New York Stock Exchange in New York City, USA, the Japan Stock Exchange in Tokyo Japan, or they may be electronic based such as the NASDAQ (Bailey 15).
Types of Financial Markets
A financial market is recognize within the finance sector as a place where individuals, companies and other entities come to raise finance. Whereas capital markets are usually meant to raise long-term finance, money markets are used for short-term finances (Bailey 17). However, the term is more often used as a collective phrase for all the types of markets that deal in the exchange of financial securities and commodities. There are different types of financial securities traded in financial markets, thus leading to the existence of many different types of financial markets.
The capital market is financial market that involves the buying and selling of securities that are either equity backed or have a long-term debt (Bailey 21). The standard definition of capital markets is that it is a financial market where money is provided for periods that last longer than a year (Bailey 21). They direct the wealth of investors towards institutions and entities that are in a capacity to put it into productive long-term use such as banks or government institutions. Regulators in different countries oversee the capital markets within their jurisdiction to protect investors from fraud. Examples of such regulators is the Bank of England in England and the United States Security and Exchange Commission in America (Bailey 23). Capital markets are classified as either primary or secondary (Moyer et al. 33). In most cases, primary markets entail issuing bonds to investors and underwriting new stocks (Bailey 24). The key target investors in the primary market are governments and business enterprises. Governments invest exclusively in bond issues while business will either issue equity or bonds. The secondary market involves the buying and selling of existing securities among investors either through an exchange or over the counter (Bailey 25).
Another important distinction is that capital markets are divided into either stock markets or bond markets. A stock market is also referred to as an equity market or a share market. It is market where buyers and sellers of stock or equity or shares aggregate to transact their business. Stocks, equities and shares are evidence of ownership of interest in an asset or entity in the market (Bailey 26). They are valued in relation to the valuation of the asset or entities within which they are held. As the market keeps changing under the influence of a dynamic range of factors, the values of assets and entities within the markets keep changing. As the values of assets and entities change, so do the values shares and stocks within those entities and assets. Therefore, traders in the stock market seek to purchase shares when they are down and sell them at a profit when their values rise again as the market dynamics change.
The bond market, also known as the debt market or the credit market is the second largest market in the world after the foreign exchange market. It provides long-term funding for governments and business entities. The market involves the buying and selling of new debts in what is referred to as the primary market and the buying and selling of existing debt securities in what is referred to as the secondary market (Bailey 30). The bonds market is only one, part of the credit market, with bank loans forming the other most significant component of that market.
Commodity markets are markets in which primary economic sectors are traded than manufactured goods and products. Soft commodities include agricultural products such as wheat and sugar while hard commodities include minerals such as oil, diamonds and gold (Bailey 41). There are around fifty major commodity markets around the world where purely financial transactions and trades far outnumber the physical trades and transactions in which goods and commodities are delivered (Bailey 41). Investment in commodity markets involves committing to future contracts where commodities are priced according to their projective worth in the future to be delivered and paid for at a future date, referred to as the delivery date (Bailey 45). This standardized forward contract can then be traded by other parties except the ones that were involved in the initial trade off. The first futures contracts were done on agricultural products and then proceeded to include minerals and hard commodities. Financial futures were later introduced in 1972 and they include currency futures, stock markets index futures and interest rate futures (Bailey 44).
Money markets, on their part, provide short term debt financing and investment. In all financial markets, money is the commodity that is traded against a varying range of commodities and its projected future values (Bailey 33). The commodification of money necessitated the introduction of money markets as a component of the financial markets to facilitate the trading of assets that are involved in short term borrowing, lending and buying and selling with maturities that last for less than a year. Money market trading is only done over the counter and strictly in wholesale (Bailey 35). This means that interested parties carry out the trade directly without the supervision of an exchange and that it is only done between professional business users other than directly to consumers. There is a wide ranging number of money market instruments including treasury bills, deposits, bankers’ acceptances, bills of exchange, asset backed securities, short lived mortgage, repurchase agreements, commercial paper and federal funds (Bailey 35). All these have differing maturity periods, credit risks, currencies and structure and are therefore liable for use in distributing exposure.
Derivative markets provide the means for risk management in the financial markets. Here, companies, individuals and other entities trade in derivatives and other financial instruments such as options derived from other forms of assets and future contracts (Bailey 50). Sometimes, contracts are drawn up with valuations based on the projected performance of the underlying entity in the future. These contracts are referred to as derivatives (Bailey 47). Financial instruments are, on their part, monetary contracts between different parties which can be created, modified and settled as the involved parties’ agreements (Bailey 51). Financial instruments can be in the form of cash or currency, or in the form of shares which refers to the evidence of ownership of an interest in an entity or in the form of bond, which refers to the agreement by contract to receive or deliver cash. There are two main categories in the derivative market depending on whether the derivatives are traded through an exchange or over the counter. Derivatives that are traded either over an exchange are called exchanges derivatives while those that are traded directly between individual entities and do not involve any exchange in the transaction are called over the counter derivatives (Carruthers 2).
Future markets, also referred to as forward markets, facilitate the formulation of standardized forward contracts that guide the trading of products at future dates (Bailey 59). Through this type of financial market, parties commit to buy specific amounts of commodities at specified amounts of money with delivery, at specified times in the future. Unlike the futures exchange, in spots market, there is legally binding immediacy in trading whereby payment and delivery is done within two business days from the time of the transaction. The pricing of future instruments is informed by the behavior of the underlying asset such as stock, commodity or index in the market. This behavior is used to project the assets standing in the market at a future period, and therefore value it as such.
The foreign exchange market is most commonly known as the forex and it mainly involves the exchange of currencies (Bailey 90). It is globally decentralized, indicating that it occurs over the counter. Foreign exchange comprises any form of trade involving currencies such as the selling, buying and exchanging of such currency at determined and globally accepted rates. Forex is the largest trading market in the world with large international banks being the main players in this market. Institutionalized financial centers around the world facilitate the trade by providing the right marketplace for the different types of buyers and sellers in the market around the world. The trade goes on for 24 hours every day of the week except on weekends. The fact that trading in this market involves pairing up of currencies at every specific trade, it is impossible to set definitive value of every currency in the market. In the forex rather, the value of a currency is set as a relative value determined by a given market price for it should it be bought using another currency. Since currencies belong to different states with sovereign qualities, there is little supervisory authority governing the exchange in the Forex market.
The Sonoran Plain
The Sonoran plain is the largest and hottest desert in the North American continent. It connects south western part of the United States to the north western part of the Mexico, covering border sates of California in America and Sonora in Mexico (Cohn 84). The larger parts of the American states of California and Arizona are covered by the Sonoran desert as well as significant portions of Sonora, Baja California and Baja California Sur (Cohn 84). Each of these states has a strong economy and makes significant contributions to its mother country’s gross domestic product. They all engage in agricultural practices, producing soft commodities, and have natural resources that comprise of the hard commodities produced from the plain. These commodities sustain their economy and help their governments to effectively perform their functions. The capital generated in these sovereign states enables them to create their own financial markets to enable people, companies and entities within them to engage in the buying and selling of commodities, currencies and financial units at low transactions costs that reflect the supply and demand curves within those states (Hennessey 432). There are different types of exchanges and markets, ranging from capital markets, money markets, commodity markets, derivative markets, future markets and foreign exchange markets (Chui 3). Some financial markets such as money markets are done over the counter and do not require an exchange while the foreign exchange markets rely on their mother country’s currency sovereignty, as the states do not produce their own forms of currency.
The state of California is the most populous in the United States and the third largest by area. Its immediate American neighbors are Nevada, Arizona and Oregon. It shares an international border with the Mexican state of Baja California (Hennessey 432). Her capital city is Sacramento and Los Angeles is the most populous city in the state, and the second most populous in the United States after New York City (Hennessey 432). Los Angeles County is the most populous county in America while San Bernardino County is the largest county in the United States (Hennessey 432). The state of California has three deserts in it; the Mojave Desert, the Colorado Desert and the Great Basin Desert in order of size (Hennessey 432). The Colorado Desert lies in the south eastern side of the state, running on through the southern part of the state of Arizona and southwards to the Mexican states of Sonora, Baja California and Baja California Sur (Hennessey 432). The Colorado Desert in California is a part of the larger Sonora desert.
Despite being scarcely populated, the Colorado Desert, like all the other deserts in the Californian state makes great economic contributions to the state’s gross domestic product. By the 1994 California Desert Protection Act, a large number of desert areas within the state were designated national parks and wilderness areas (Hennessey 432). They were recognized by the state to hold archaeological, environmental, cultural, historical, educational and recreational values that necessitated their preservation for the benefit of the people of all generations (Hennessey 432). These national parks and wilderness areas earn the state revenue through visitations by tourists from different parts of the country and beyond the American borders. Deserts and wildlands in California generate $1.4 billion annually and have created 3,700 jobs in the four counties in the region which include Inyo, San Bernardino, Riverside and Imperial counties (Hennessey 432). These revenues are generated from different types of value creation activities carried out in the wilderness and wildlands. These include recreation, scientific research, off-site benefits, educational benefits, ecosystem service benefits and passive use values (Hennessey 432). These are only examples of a wide range of benefits and values created by desert and wildland areas in the state of California. Further, wildland visitors in the state have been determined to generate an annual total of $120 million in local income and an estimated $190 million in annual output (Hennessey 432).
These expenditure levels and revenue generation activities have made the desert areas in California state economically viable and thus important state resources. The counties within which they are located have benefitted from the revenue generating activities and have grown as a direct impact of such activities. Local residents have gained employment in these areas and have been able to achieve better living standards. Further, the desert areas have been important as they have made it possible for scientific research and archaeological activities to be carried, increasing human knowledge in these areas. These factors have made it economically viable to protect and preserve the desert areas within those regions. The deserts have also made a great impact on California’s economy and made great contributions to the state’s gross domestic product.
Financial Markets in California
There are several financial markets in the south western state of California. The main financial markets in the region concern themselves with stock exchange.
The Pacific Stock Exchange
Until 2001, the Pacific Stock Exchange was the leading financial market in California. The history of the Pacific Stock Exchange dates back over a century ago in 1882 when the San Francisco Stock and Bond Exchange was founded (Mala and White 54). Seven years later, in 1889, the Los Angeles Oils Exchange would be founded (Mala and White 54). These two financial markets operated concurrently within the same state for over half a century until in 1956 they merged to form the Pacific Coast Stock Exchange (Mala and White 54). Their assets and liabilities were merged together to for one of the largest financial markets in the country with trading floors maintained in both cities. More changes would occur close to 20 years later in 1973 when the Pacific Coast Stock Exchange changed its name to the Pacific Stock Exchange and unilateral headquarters opened in San Francisco (Mala and White 54). Just a year after acquiring the Pacific Stock Exchange, Archipelago Holdings formed a popular merger with the New York Stock Exchange in 2006 (Gorham and Singh 119). Pacific Stock Exchange equities are now bought exclusively through New York Stock Exchange’s electronic portal Arca (Mala and White 54).
Once located in San Francisco, the Pacific Stock Exchange, known simply as the Pacific Exchange was a financial market for the state of California and the entire country. It was formed after a merger between the San Francisco Stock Exchange, founded in 1882, and Los Angeles Oil Exchange which was founded in 1889 (Mala and White 54). The merger started in 1956 and was only finalized in 1957 when the Pacific Coast Stock Exchange was unveiled (Mala and White 54). The Pacific Stock Exchange changed its name to Pacific Stock Exchange in 1973 and then to the Pacific Exchange in 1997 (Mala and White 54). Trading floors were initially kept open in both cities, although the ones in Los Angeles were closed in 2001 and those in San Francisco followed suit later in 2002 (Mala and White 54). The move to change the name to pacific Exchange and close the trading floors in both cities was occasioned by the demutualization of the Stock Exchange. The Pacific Exchange was the first financial market in the United States to be demutualized in 1997 (Mala and White 54). Demutualization refers to the process of turning a not-for-profit company into a profit making company with more public appeal to the shareholders (Mala and White 54). This process was started in 1997 and completed in 1999. The demutualized Pacific Exchange would later be acquired by Archipelago holdings in 2005 which would later be bought the New York Stock Exchange in 2006 and see the official end of the name Pacific Exchange (Mala and White 54). Equities and shares for the Pacific Exchange can now only be accessed through the electronic portal for the New York Stock Exchange referred to as NYSE Arca (Mala and White 54).
Arizona is a landlocked southwestern state of the United States of America neighboring Utah, New Mexico, Nevada and the Mexican state of Sonora to the south (Dorn 81). It borders to the west the state of California and the Mexican state of Baja California (Dorn 81). These three states have the Sonoran Desert in common between them. Arizona is one of four corner states that border each other at the Colorado River along with California, Utah and New Mexico (Dorn 81). It is the sixth largest state in America and the one with the second lowest percentage of water with only 0.32 percent of its total area consisting of water (Dorn 81). New Mexico has the least percentage of water with only 0.18 percent of its total area consisting of the most important natural resource (Dorn 81).
There is a total of four deserts in the United States and Arizona is the only state in the country where each one of them can be found. The Mojave Desert, the Great Basin Desert, the Chihuahuan Desert and the Sonoran Desert all have parts of them touching on Arizona (Dorn 81). Of these, the Sonoran Desert is the largest by land mass covered (Dorn 81). It extends to the the southern parts of the state as far as Phoenix, Tucson, Gila Bend, and Yuma. Unlike in California where the desert is named the Colorado Desert, the Sonoran Desert retains its name in Arizona.
Like in California, the Sonora Desert in Arizona is a great source of revenue for the state. Revenues are raised from large of tourists visiting the desert region for recreational, archaeological, educational and environmental purposes. The state of Arizona has put in place a diverse range of measures to ensure the conservation of the Sonora desert in the state. The Sonoran Desert Heritage Act was introduced to the United States House of Representatives in 2015 (Drake, Griffis-Kyle and McIntyre 01652). The bill was sponsored by the Arizona State government and aimed at conserving the desert which is considered part of the state’s heritage. The bill was aimed at conserving he desert from increased human encroachment occasioned by growing human population in regions surrounding the desert. For example, the West Valley of Maricopa County hosts 21 percent of Phoenix’s population (Drake, Griffis-Kyle and McIntyre 01652). Projected continued prosperity and growth in the area is expected to lead to population growth. By 2030, the area is projected to host an approximated 34 percent of Phoenix’s population (Drake, Griffis-Kyle and McIntyre 01652). While this may be an indicator of stronger economic growth within the state and the county in particular, it poses a threat to the national monument that is the Sonoran Desert. These conditions have made it necessary for legislation to be made to preserve the desert, whose economic advantages parallel its socio-ecological importance.