Every country has a currency different from others. There is no common medium of exchange. It is this feature that distinguishes international trade from domestic. Suppose the imports and exports of a country are equal, the demand for foreign currency and its supply conversely, the supply of home currency and the demand for it will be equal. The exchange will be at par. If the supply of foreign money is greater than the demand it will fall below par and the home currency will appreciate. On the other hand, when the home currency is in great supply, there will be more demand for the foreign currency. This will appreciate in value and rise above par. Economists have propounded the following theories in connection with determination of rate of exchange (Theories of Foreign Exchange). 1. Mint Par Theory Mint par indicates the parity of mints or coins. It means that Continue reading
Global Investment Management
Future Flow Securitization
Securitization of the future flow-backed receivables is a new phenomenon in developing economies. Future Flow Securitization has grown in emerging markets in response to finding lower cost funding instrument by investment grade firms in the emerging market economies where their abilities were hampered by sovereign rate ceiling. While many of these companies historically relied on bank loans, or straight debts syndicated by major foreign banks in the past, rising volatility of interest rates and foreign exchange rates as well as reduced risk tolerance of major lenders have pushed these institutions (sovereign and private companies) toward an alternative vehicle such as future flow securitization. Future flows, have successfully mitigated a variety of the risks associated with emerging-market investments, and consistently remained the most viable type of rated transactions for funding in emerging-market countries. Future Flow Securitization Model Future Flow Securitization involves the borrowing entity to sell future receivables that would have Continue reading
International Bonds
International bonds are a debt instrument. They are issued by international agencies, governments and companies for borrowing foreign currency for a specified period of time. The issuer pays interest to the creditor and makes repayment of capital. There are different types of such bonds. The procedure of issue is very specific. All these need some explanation here. Types of International Bonds 1. Foreign Bonds and Euro Bonds International bonds are classified as foreign bonds and Euro bonds. There is a difference between the two, primarily on four counts. First, in the case of foreign bond, the issuer selects a foreign financial market where the bonds are issued in the currency of that very country. If an Indian company issues bond in New York and the bond is denominated in a currency other than the currency of the country where the bonds are issued. If the Indian company’s bond is denominated Continue reading
What is Investment ? – Concept, Definition and Features
Concept of Investment Man, it is said, lives on hope. But, hope is only a necessary condition for life, but not sufficient. There are many other materialistic things that he needs – food, clothing, shelter, etc. And, like his hope, his needs too keep changing through his life. To make things more uncertain, his ability to fulfill the needs too changes significantly. When his current ability (current income) to fulfill his needs exceeds his current needs (current expenditure), he saves the excess. The savings may be buried in the backyard, or hidden under a mattress. Or, he may feel that it is better to give up the current possession of these savings for a future larger amount of money that can be used for consumption in future. In contrast to the above situation, if the amount available for current consumption is less than the current needs, he has to Continue reading
Comparison Between Merit Based Regulation and Disclosure Based Regulation
There are two basic models of regulatory system which is the supervision framework for securities market which is a merit based regulation and disclosure based regulation. These regulation systems are important to provide adequate investor protection and regulate business practices or codes of conduct that reduce systemic risks. Merit Based Regulation (MBR) A securities regulator is needed, which control all matters relating to securities and to take all reasonable measures to preserve the confidence of investors in the securities market by ensuring sufficient security for such investors. The securities regulator has the discretion to approve the proposals with such revisions and subject to such terms and conditions as it deems fit. The securities regulator also has the power to reject corporate proposals if it is reasonably satisfied that these proposals are not in the best interest of the public company and/or the investing public. Authorities regulate securities offering – Under the Continue reading
Types of Foreign Bonds
Yankee Bonds Yankee Bonds are US dollar denominated issues by foreign borrowers (usually foreign governments or entities, supranationals and highly rated corporate borrowers) in the US bond markets. Yankee bond has certain peculiar features associated with the US domestic market. SEC regulates the international bond issues and requires complete disclosure documents in detail than the prospectus used in Eurobond issues. Foreign borrower will have to adopt the US accounting practices and the US credit rating agencies will have to provide rating for these bonds. These bonds are sponsored by a US domestic underwriting syndicate and require SEBI (Securities and Exchange Board of India) registration prior to selling them in the domestic US market. Reliance Industries Ltd. has been the most successful corporate to tap this instrument with a 50-year, $50 million Yankee Bond issue. Samurai Bonds These are bonds issued by non-Japanese borrowers in the domestic Japanese markets. Borrowers are Continue reading