Capital Account convertibility in its entirety would mean that any individual, be it Indian or Foreigner will be allowed to bring in any amount of foreign currency into the country. Full capital account convertibility also known as Floating rupee means the removal of all controls on the cross-border movement of capital, out of India to anywhere else or vice versa. Capital account convertibility or CAC refers to the freedom to convert local financial assets into foreign financial assets or vice versa at market-determined rates of interest. If CAC is introduced along with current account convertibility it would mean full convertibility. Complete convertibility would mean no restrictions and no questions. In general, restrictions on foreign currency movements are placed by developing countries which have faced foreign exchange problems in the past is to avoid sudden erosion of their foreign exchange reserves which are essential to maintain stability of trade balance and Continue reading
International Economics
Asset Securitization – Meaning, Process, Parties Involved and Benefits
Asset securitization is way of financing for lenders to obtain funds in the capital markets for the origination of consumer and business loans. It is different from the traditional way of financing, where lenders finance loan origination’s with deposits. Started in 1970, the asset securitization market had a remarkable history of growth and development. By 2000, it became the largest sector of the U.S fixed income securities market. In matured capital market, asset securitization has proven to be an efficient way of financing in that it reduces the ultimate funding cost for the borrower, improves the financial operation for the lender and provides diversified investment products for the investor. The Process of Asset Securitization In today’s world, asset securitization means a process by which one entity pools its interest in a series of identifiable future cash flows and then transfers the claims on those future cash flows to another entity Continue reading
Role of Fiscal Policy in Economic Development
Fiscal policy refers to the guiding principles of the financial work which are constituted by the state based on political, economic and social development tasks under a certain period. Its purpose is to regulate aggregate demand through government’s spending and tax policies. On the one hand, an increase in government spending will stimulate aggregate demand and increase the national income. Correspondingly, a decrease will depress aggregate demand and reduce national income. On the other hand, a tax is a kind of contraction strength to national income. Therefore, the aggregate demand and the national income will be restrained though increasing government revenue. And they will be increased due to reducing in government revenue as well. The fiscal policy with a distinct class character is formulated by the state, represents the will and interests of the ruling class, and is subject to a certain level of development of social productive forces and Continue reading
Theoretical Perspectives on Firm Internationalization
After the World War II, there has been rapid growth in international trade in both goods and services, resulting in various transactions across national borders for the purpose of satisfying the needs of individuals and organisations. The result of this global competition has forced organisations to expand their business by finding out new markets at home and foreign countries making them ‘Transnational firms’. Transnational Corporations (TNC) is defined as a firm that has power to co-ordinate and control operations in more than one country, even if it does not own them. The significance of TNC lies mainly in its ability to co-ordinate and control different transactions within transnational production networks, ability to take advantage of distribution factors of production and ability to be flexible in locations. The growing TNCs led to various patterns and trends in international business like rapid growth in world trade and investment, cross border mergers and Continue reading
Use of Exchange Controls to Eliminate a Nation’s Balance of Payments (BoP) Deficit
The exchange control refers to a set of restrictions imposed on the international transactions and payments, by the government or the exchange control authority. Exchange control may be partial, confined to only few kinds of transactions or payments, or total covering all kinds of international transactions depending on the requirement of the country. The main features of a full-fledged exchange control system are as follows: The government acquires, through the legislative measures, a complete domination over the foreign exchange transactions. The government monopolizes the purchase and sale of foreign exchange. Law eliminates the sale and purchase of foreign exchange by the resident individuals. Even holding foreign exchange without informing the exchange control authority’s declared illegal. All payments to the foreigners and receipts from them are routed through the exchange control authority or the authorized agents. Foreign exchange payments arc restricted, generally, to the import of essential goods and service such Continue reading
Commodity Price Stabilization in International Business
Many developing nations exports are concentrated in only one or a few primary products and thus unstable export markets, worsening terms of trade, and limited access to world markets for the products can significantly reduce export revenues and seriously disrupt domestic income and employment level. In addition, many developing nations feel that developed nations tend to insist that developing nations open their markets to industrial products from the developed world, yet refuse to open their markets to agricultural goods from the developing world. For example, United States have used aggressive antidumping and countervailing duties to limit access to their markets. As noted, the export prices and revenues of developing countries can be quite volatile. In an attempt to stabilize export revenues and prices, International Commodity Agreements (ICA) have been formed by producers and consumers of primary products about matters such as commodity price stabilization, assuring adequate supplies to consumers, and Continue reading