History of Syndicated Euro Credits Syndicated Euro Credits are in existence since the late 1960s. The first syndicate was organized by Bankers Trust in an effort to arrange a large credit for Austria. During the early seventies, Euromarkets saw the demand for Euro credits increasing from non-traditional and hitherto untested borrowers. The period after first oil crisis was marked by a boom phase. To cope with the increasing demand for funds, lenders expanded their business without undertaking due credit appraisal of their clients or the countries thus financed. Further, the European banks had short-term deposits while bulk of borrowers required long-term deposits. These landings were at fixed rates thus exposing these banks to interest rate risks. The banks evolved the concept of lending funds for medium longterm i.e. 7-15 years on a variable interest rate basis linked to the Interbank Rate (LIBOR). Revision of rates would take place every 3-6 Continue reading
International Finance
International finance is the branch of economics that studies the dynamics of foreign exchange,foreign direct investment and how these affect international trade. Also studies the international projects, international investment and the international capital flow .International Finance can be broadly defined, as the study of the financial decisions taken by a multinational corporation in the area of international business i.e. global corporate finance. International finance draws much of its background from the preliminary studies in the topics of corporate finance such as capital budgeting, portfolio theory and cost of capital but now viewed in the international dimension.
Fixed and Option Forward Contracts and it’s computation
Under the fixed forward contract the delivery of foreign exchange should take place on a specified future date. Then it is known as ‘fixed forward contract’. Suppose a customer enters into a three months forward contract on 5th January with his bank to sell Euro 15,000, then the customer would be presenting a bill or any other instrument on 7th April to the bank for Euro 15,000. The delivery of foreign exchange cannot take place prior to or later than the determined date. Though forward exchange is a mechanism wherein the customer tries to over come the exchange risk, the purpose will be defeated if the delivery of foreign exchange does not take place exactly on the due date. Practically speaking, it is not possible for any exporter to determine in advance the precise date on which he will be tendering export documents for reasons which are internal relating to Continue reading
Emerging Trends in International Capital Markets
Three interrelated developments in global capital markets are: The sustained rise in gross capital flows relative to net flows; The increasing importance of securitized forms of capital flows; and The growing concentration of financial institutions and financial markets. Taken together these trends may signal what some others have referred to as a ‘quiet opening’ of the capital account of the balance of payments, which is resulting in the development, strengthening and growing integration of domestic financial systems within the international financial system. Finance is being rationalized across national borders, resulting in a breakdown in many countries in the distinction between onshore and offshore finance. It is particularly evident and most advanced in the wholesale side of the financial industry, and is becoming increasingly apparent in the retail side as well. Taken together these three effects have contributed to a sharp rise in volatility — in both capital flows and asset Continue reading
Forex Operational Risk Management through Marketing Management
Operating risk in foreign exchange operations can be negotiated ably through marketing management strategies as well. These are: market selection, product strategy, pricing strategy and promotion strategy. Market Selection: Impact of exchange rate fluctuations on operating profit can be dealt through right mix of markets. Major strategic operations for an exporter are the markets in which to sell and the relative marketing support to devote to each market. Marketing management must take into account its economic risk and selectivity, adjust the marketing support, on a nation-by-nation basis, to maximize long-term profit. From the perspective of non-US companies, the strong U.S. dollar is a golden opportunity to gain market share at the expense of their U.S rivals. It is also necessary-to consider the issue of market segmentation within individual countries. A firm that sells differentiated products to more affluent customers may not be harmed as much by foreign currency devaluation. On Continue reading
Indian Depository Receipts (IDRs)
Indian Depository Receipts (IDRs) are transferable securities to be listed on Indian stock exchanges in the form of depository receipts created by a Domestic Depository in India against the underlying equity shares of the issuing company which is incorporated outside India. As per the definition given in the Companies (Issue of Indian Depository Receipts) Rules, 2004, Indian Depository Receipt is an instrument in the form of a Depository Receipt created by the Indian depository in India against the underlying equity shares of the issuing company. In an IDR, foreign companies would issue shares, to an Indian Depository (say National Security Depository Limited — NSDL), which would in turn issue depository receipts to investors in India. The actual shares underlying the IDRs would be held by an Overseas Custodian, which shall authorize the Indian Depository to issue the IDRs. The Indian Depository Receipts would have following features: Overseas Custodian: Foreign bank Continue reading
Balance of Payments (BoP) Accounting
Balance of payments (BoPs) is systematic statement that systematically summarizes, for a specified period of time, the monetary transactions of an economy with the rest of the world. Put in simple words, the balance of payments of a country is a systematic record of all transactions between the ‘residents’ of a country and the rest of the world. Three main elements of actual process of measuring international economic activity are: Identifying what is/is not an international economic transaction, Understanding how the flow of goods, services, assets, money create debits and credits, and Understanding the bookkeeping procedures for BoP accounting. Each transaction is recorded in accordance with the principles of double-entry book keeping. That is every transaction is recorded based on accounting principle. One of these entries is a credit and the other entry is debit. In principle, the sum of all credit entries is identical to the sum of all Continue reading