Any international business unit, whether manufacturing or trading is always looking for funds for their operations. Every company cannot take funds from its home country due to strict regulations or interest cost or taxes. All over the world the business community is in search of locations where their investments are safe and the funds can be taken out without any barriers and invested comfortably for any ventures in any part of the world. Currently, Mauritius, Malta, Panama, Man’s Island, Cyprus, Seychelles and Hawaii are a few centres attracting offshore banks. Since 2003, the Government of India has permitted banks to set up offshore banking operations in Special Economic Zones. Hence, the system of offshore banking has become part of international business. Offshore banks are banking units set up by foreign banks in territories where the restrictions and regulations are limited and the intervention of the country of location is minimal. Continue reading
International Economics
Conflicts with Firms Profit Maximization Objective
Profit maximization is the most popular hypothesis in economic analysis, but there are many other important objectives, which are not to be avoided by any firm. Modem business firms pursue multiple objectives. An important aspect of profit is its use in measuring and controlling performances of the individuals of the large business firms. Researches have concluded that the business individuals of middle and top management often deviate from profit objective and try to maximize their own utility functions. They give importance to job security, personal ambitions for promotion, larger perks, etc. But this often conflicts with firms profit-making objective. The reasons for conflicts are as follows: More energy is spent in expanding sales volume and product lines than in raising profitability. Subordinates spend too much time and money doing jobs perfectly regardless of its cost and usefulness. Individuals depend more to the needs of job security in the absence of Continue reading
Economic Impacts of Deficit Financing
Deficit financing can be regarded as a necessary evil which has to be tolerated, at least in the developing economies; only to the extent it can promote capital formation and economic development. This extent of tolerance is called the “safe limit of deficit financing”. This safe limit shows the amount of deficit financing that the economy can absorb and beyond which ‘inflationary forces’ may be set in motion. The economic impacts of deficit financing are: Deficit Financing and Price Level There are two opinions regarding the effect of deficit financing on the price level especially in a developing country. According to one view, deficit financing need not be inflationary in character especially if it is used during the peace time. The advocates of this view argued that: In a developing economy the existence of non-monetized sector will absorb the issue of new currency and shrink in its size over a Continue reading
Role of Government in Economy: An Economist’s Perspective
The question of government interference in economic activities has been debated for a very long time by the economists. While the early economists considered economics as a handmaid of politics, the modem view is that politics is the handmaid of economics. With the growing importance of the role of government in economic welfare, the modem economists firmly believe that the sphere of government in economic development has no boundary. However, there is no unanimity among the economists about the extent and mode of government intervention in the economic sphere. Hence, we can identify the following political ideologies regarding the government intervention in an economy. The earliest opinion was that the government has nothing to do in an economy as the society will regulate itself. This opinion also stated that the government will wither away over a period of time. These ideologists are called Anarchists. Opposing the anarchists view is the Continue reading
What is National Income?
National income is the final outcome of total economic activities of a nation. Economic activities generate two kinds of flow in a modern economy namely, product-flow and money-flow. Product-flow refers to flow of goods and services from producers to final consumers. Money flow refers to flow of money in exchange of goods and services. In this exchange of goods and services, money income is generated in the form of wages, rent, interest and profits, which is known as factor earning. Based on these two kinds of flows, national income is defined in terms of: Product flow Money flow National Income in Terms of Product Flow National income is the sum of money value of goods and services generated from total economic activities of a nation. Economic activities result into production of goods and services and make net addition to the national stock of capital. These together constitute the national income Continue reading
Reasons for the Increased Foreign Direct Investments
The factors that propel sustained economic development have not changed with time. They include the generation and efficient allocation of capital and labor, application of technology and the creation of skills and institutions. These fact determine how well each economy uses its endowments and adds to them. They also affect how flexibly and dynamically each country responds to changing economic conditions. However, the global context for development has changed enormous the past decades. These changes affect not only the role of Foreign Direct Investment (FDI) in host countries, but also government policies on FDI. The following three are of particular significance. 1. The Nature and Pace of Knowledge (Technological Knowledge Change) The creation and diffusion of productive knowledge have become central to growth and development. “Knowledge” includes not only technical knowledge (research and development, design, process engineering), but also knowledge of organisation, management and inter-firm and international relationships. Much of Continue reading