Bretton Woods is the name of the town in the state of New Hampshire, USA, where the delegations from over forty five countries met in 1944 to deliberate on proposals for a post-war international monetary system. The two main contending proposals were “the White plan” named after Harry Dexter White of the US Treasury and the “Keynes plan” whose architect was Lord Keynes of the UK. Following the Second World War, policy makers from victorious allied powers, principally the US and UK, took up the task of thoroughly revamping the world monetary system for the non-communist world. The outcome was the so called “Bretton Woods System” and the birth of new supra-national institutions, the International Monetary Fund (the IMF or simply the “Fund”) and the World Bank. Under this system US Dollar was the only currency that was fully convertible to gold; where other countries currencies were not directly convertible Continue reading
International Business Finance
Global Depositary Receipts (GDR’s)
A depositary receipt (DR) is a type of negotiable (transferable) financial security that is traded on a local stock exchange but represents a security, usually in the form of equity, which is issued by a foreign publicly listed company. The DR, which is a physical certificate, allows investors to hold shares in equity of other countries. One of the most common types of DRs is the American depositary receipt (ADR), which has been offering companies, investors and traders global investment opportunities since the 1920s. Since then, DRs have spread to other parts of the globe in the form of global depositary receipts (GDRs) (the other most common type of DR), European DRs and international DRs. ADRs are typically traded on a U.S. national stock exchange, such as the New York Stock Exchange (NYSE) or the American Stock Exchange, while GDRs are commonly listed on European stock exchanges such as the Continue reading
Depositary Receipts – Definition, History and Types
A Depositary Receipt (DR) is a type of negotiable (transferable) financial security traded on a local stock exchange but represents a security, usually in the form of equity, issued by a foreign, publicly-listed company. The Depositary Receipt, which is a physical certificate, allows investors to hold shares in equity of other countries. One of the most common types of Depository Receipts is the American depository receipt (ADR), which has been offering companies, investors and traders global investment opportunities since the 1920s. Since then, Depository Receipts have spread to other parts of the globe in the form of global depository receipts (GDRs). The other most common type of Depository Receipts are European DRs and International DRs. ADRs are typically traded on a US national stock exchange, such as the New York Stock Exchange (NYSE) or the American Stock Exchange, while GDRs are commonly listed on European stock exchanges such as the Continue reading
Definition of Forfaiting
Forfaiting is a specialized form of trade finance that allows the exporter to offer extended credit to the importer. Under forfaiting , the importer gives the exporter a bundle of bills of exchange or promissory notes covering the principal amount as well as the interest. Each tranche of the notes fall due at different points of time in the future, e.g. every six months, extending up to several years. The notes are backed by an aval or guarantee provided by a reputed bank in the importer’s country. The exporter can then discount these notes without recourse with banks who specialize in the forfaiting business to generate an immediate cash flow. This means that if either the importer or the guaranteeing bank fails to pay when notes fall due, the forfaiter cannot ask the exporter for reimbursement. The credit risk is assumed entirely by the forfaiter. The forfaiter in turn, may Continue reading
Managing Foreign Exchange Risk with Money Market Hedge
Firms, which have access to international money markets for short-term borrowing as well as investment, can use the money market for hedging Forex transactions exposure. Important money market hedging tools used for managing Forex risk are : 1. Discounting Foreign Currency Denominated Bills Receivable: Discounting is used in cases where the export receivables are settled through bills of exchange. The system enables the recipient to receive cash prior to the settlement date itself. The discount represents the cost for the facility extended by the bank discounting the bill. It enables the exporter to guard himself from -losses arising out of an adverse change in-the foreign exchange rate. There are two options before the exporter while considering bill discounting. The first, is to get the bill discounted through a bank in the importer’s country. The foreign currency so obtained can be repatriated at the spot rate prevailing then. The second option Continue reading
History of Exchange Rate System
The world exchange rate systems of the world have it own history shows that the world community has in fact change from the fixed exchange rates system to floating exchange rate system. There are different combinations of fixed exchange rate systems as well as floating exchange rates exist currently, the created for exchange rate regulating together with specific some economical instruments also. Commodity money is a system that the most early existing in this world. This system happened when the development of production as well as a number of labor divisions. When appeared coins having an intrinsic value but not linked with commodity, until the 17th century there was no other monetary system exist. The value of the coin usually associated and combined with the gold in the coin with its content. The content of gold that in the coin can be found their exchange rate between different currencies and Continue reading