Foreign exchange market plays the part of a clearing house, while, similarly, banks (authorized dealers in foreign exchange) act as clearing agents for international debts. The authorized dealers buy rights to wealth from those who have them to dispose of and sell rights to wealth who wish to acquire them. In practice, it is very much usual that when the exporter parts with his goods, either he wants money immediately or wants to be sure that it will be paid at the pre-determined date without any contestation. The importer, on the other hand, does not want to pay the goods until arrival of the carrying vessel. This two-faced problem in all cases is solved where both parties are favorable known to their own bankers. Depending upon the terms of agreement, the exporter can draw on his counterpart, the importer, or on the importer’s banks (or even on any third party) 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.
Rangarajan Committee on Balance of Payments
Dr. C. Rangarajan, former Governor, Reserve Bank of India who headed the high level Committee on balance of payments submitted its report on June 4, 1993. The Committee made the following findings and recommendations for correcting balance of payments: 1. The Committee stressed the fact that a realistic exchange rate and a gradual relaxation of restrictions on current account transactions have to go hand in hand. 2. In the medium-term care has to be taken to ensure that there is no capital flight through liberalized windows of transactions under invisibles. At the same time there is no escape from a very close control overall capital transactions so that future liabilities are kept under control. 3. The Committed suggested that Current account deficit of 1.6 per cent of GDP should be treated as ceiling rather than as target. 4. The Committee had given number of recommendations regarding to foreign borrowings, foreign Continue reading
Eurocurrency Market Characteristics
The Euro-currency market has no geographical limits or a common market place. Business is done by telex, telephone and other communication systems. Internationally-reputed brokers put through the transactions for the banks. Deposits are secured for the banks operating in the market by the general guarantee of its parent or holding company and in some cases, by its central bank and /or the government of the concerned country. Similarly, loans to commercial parties are guaranteed by their respective governments. Deposits and loans to banks are, however, not guaranteed except by the banks parent companies or their exchange control authorities. The amounts of loans and the periods of maturity vary over a wide range from a few thousands to millions of dollars and from call loans to maturities extending up to 10-15 years. Some of the loans may be syndicated and jointly sponsored by a number of banks. There are also varied Continue reading
Introduction to Export Finance
Credit and finance is the life and blood of any business whether domestic or international. It is more important in the case of export transactions due to the prevalence of novel non-price competitive techniques encountered by exporters in various nations to enlarge their share of world markets. The selling techniques are no longer confined to mere quality; price or delivery schedules of the products but are extended to payment terms offered by exporters. Liberal payment terms usually score over the competitors not only of capital equipment but also of consumer goods. The payment terms however depend upon the availability of finance to exporters in relation to its quantum, cost and the period at pre-shipment and post-shipment stage. Production and manufacturing for substantial supplies for exports take time, in case finance is not available to exporter for production. They will not be in a position to book large export order if Continue reading
Eurocurrency Market
Prior to 1980 Eurocurrency markets are the only international financial market of any significance. They are offshore markets where financial institutions conduct transactions which are denominated in currencies of countries other than the country in which the institutions currencies of countries other than the country in which the institutions are located. The Eurocurrency market is outside the legal preview of the country in whose currency the finance are raised in the market. Eurocurrencies are bank deposits denominated in currencies other than the currency of the country in which the bank is located. The bank deposits and loans are denominated in Eurocurrencies, particularly dollars. Eurodollars are dollar denominated time deposits held by financial intuitions located outside the US., including such deposits by branches of U.S.,including such deposits held by branches of U.S.,banks. Thus a dollar with a bank in London or Paris is a Eurodollar deposit. Similarly, a Deutsche mark deposit Continue reading
De jure and De facto Exchange Rate Regimes
de jure Exchange Rate Regimes The de jure exchange rate regimes can be defined as what a countries government ‘claims’ to do and in regard with the bipolar view, supports it and shows that countries are generally moving towards either corner of the bipolar view of fixed exchange rate or floating exchange rate. The de jure exchange rate regimes are important as a way of what the central bank communicates to the public as this is likely to have bearing on the outcome. By having a de jure fixed exchange rate and a de facto floating exchange rate, the breach of commitment will likely have negative consequences. On the other hand, having a de jure floating exchange rate and a de facto fixed exchange rate does not breach its commitments. de facto Exchange Rate Regimes The de facto exchange rate regime can be defined as what a countries government actually Continue reading