DIPLOMA International Finance

8/8/2019 DIPLOMA International Finance

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Thakur Institute of Management Studies and

Research, Mumbai.

Course : Diploma (2008-09)Semester : II

Marks : 100

Subject : International Finance

Faculty : Prof. Akshay DamaniFCA,MBA,Mcom,SET

References:

Books:International Financial Management SharanInternational Financial Markets H R MachiragnInternational Financial Management V K BHallaInternational Financial Management Sathye, Rose and Allen


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International Finance:

Chapter Name / Topic1 Balance of Payments (part 1 and 2)

(Structure and Equilibrium) Case studies and Problems2 Foreign Exchange Markets

3 Mechanics of Foreign Exchange Markets4 Economic Unions and Trade agreements5 Indias Foreign Trade Promotion & Control


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Chapter 1:

Balance of Payments:

Introduction: All the economies in the world carry out various transactions with eachother, which bear an economic value. For instance, goods sold by Italy to France for

cash payments or services rendered by a British resident to Russian resident and inreturn received goods of same value. Also there can be one sided transactions like giftreceived by an Indian resident from a foreigner. All these transactions are exactly in thesame spirit, as they would have been carried out by two residents or companies of thesame country. Then what so special about these transactions? Why these transactionsare worth studying in a special context? One obvious reason is the difference ofcurrency. The two persons in above transactions are capable of transacting in differentcurrencies. Hence to complete the trade, they will have to refer to the Foreign ExchangeReserves of the respective countries. To appreciate such transactions, which involveforeign exchange (Forex) i.e. foreign currency, the government should have soundposition in Forex reserves. It can be explicitly known even to the government if and onlyif it maintains separate accounts for such transactions.

THE BALANCE OF PAYMENTS (B0P):BoP is a standard double entry accounting record to capture all the transactions of aneconomy with Rest of the World (RoW). It is a regular double entry accounting statementof economic transactions between the residents of a country and the nonresidents. Forour reference it may be enough to interpret nonresidents as residents of foreigncountries. The term economic transactions denotes any transaction wherein somethingof economic value is provided by one party to another.Balance of payments is a record of payments and receipts of the country. Hence in strictsense it is a calculation of Balance of Payments and Receipts.

COMPONENTS OF THE BALANCE OF PAYMENTS:

As it is evident, balance of payment is a collection of accounts of all such eligibletransactions, which shall have bearing on the Forex position of the economy. This SoP,the collection of accounts is conventionally grouped into three main accounts withsubdivisions in each.

The three major accounts in the BoP are:(A) The Current account.(B) The Capital account.(C) The Reserve account.Table LI shows the general structure of Balance of Payments of the Government ofIndia. Items under A refer to the current account, B to the capital account and C, D,H (marked by) collectively refer to reserve account movements.

We shall discuss components of Balance ofPayments in detail in following paragraphs.

TABLE 1.1COMPONENTS OF BALANCE OF PAYMENTSTerm Credit Debit Net(A) Current Account(I) Merchandise(I) Private(II) Government(ii) Non-monetaryGold Movement


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(iii) Invisibles(I) Travel(II) Transportation(In) insurance(Iv) Investment Income(v) Government not elsewhere classifiedvi) Miscellaneousvii) Transfer Payments official and Private

Total Current Account (I + II + Iii)

(B) Capital Account(I) Private(I)Long Term01) Short Tern,(2) Banking(3) Official(I) Loans(ii) Amortization

(iii) MiscellaneousTotal CapitalAccount (I+ 2 + 3)(C) IMF(0) SDR Allocation(E)(B+C+O)(F)(A+E)(GJ Errors(H) Reserves and Monetary Gold

Note: C, V, H (marked by) collectivelyrefer to Reserve Account.(Source, Balance of Payments Compilation Manual RBI.).

THE CURRENT ACCOUNT:Current Account includes all trade transactions (Export-Import) of tangible goods andalso of services. It also includes transactions of gift and of income derived on foreigninvestments. Current Account transactions have effect in income statement of therespective entities. - -

Current account includes all trade transactions of tangible goods and of services It alsoincludes transactions of gift and of income derived on foreign investments. Currentaccount transactions have effect in income statement of the respective entities.

Goods: Transfer of tangible goods

Non monetary gold movements: held by RBI as a part of international reserves. Goldthat is traded.

Invisibles: Trade in services. Transportation, travel of tourists, Insurance, Bops, Kops,etc.

Non-services: Transfer payments from people working abroad. Remittances.


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CAPITAL account: Private sector capital flows: Loans received by private entities in Indiafrom NRIs, Investment by foreigners in shares of Indian companies, repayment of loansto residents by non-residents, etc.

Banking capital: This covers changes in assets and liabilities of commercial banks. Thisincludes government banks, private banks as well as co-operative banks that areauthorized to deal in foreign exchange. Assets are the balances held by foreignbranches of Indian banks and liabilities are deposits balances held by foreign banks in

India. Increase in asset is Debit and increase in liability is credit and vice versa

Official Capital Flows: this includes transactions of government of India and RBI thataffect foreign financial assets and liabilities of Government of India.

The Resaves account: 2 accounts namely: IMF, SDR and Reserves and Monetary Goldare collectively called as the Reserve account.

The Balance of Payments always balances: Consider a domestic situation where aperson earns Rs. 15000 as his salary for a month. His expenses for that month are16000. there is an imbalance of Rs. 1000. he has 2 options, either to take a loan orincur expenses on credit and repay in future. Another possibility is use hissavings/reserves.

However ultimately the account balances. The same logic applies to the BoP.

Class exercise:

1) The following BoP information is available for a particular economy.

Decline in foreign exchange reserves 500

Long term capital inflows (net) 600

Merchandise exports 2000

Export of services 3000

Import of services 2500

Determine BOP balance

2) The following BoP information is available for a particular economy.

Increase in foreign exchange reserves 500

Short term capital outflow (net) 1000


Merchandise imports 1700




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Q3 the following data pertains to the BoP for a country for the year 2000

Government loans from abroad 30

Government loans to abroad 60

Direct investment abroad 58

FDI in India 191

Foreign short term loans investment in India 60

Short term loans and investments abroad 451

Private remittance to abroad (transfers) 85

Private remittances from abroad (transfers) 211


Q4) the following Bop information is available:

Increase in foreign exchange reserves 450

Short term capital outflow (net) 1200


Merchandise imports 1500



Determine long term capital account only.


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India's Balance ofPayments (2008-09)

India's foreign exchange reserves stand at $252.97 billion as on April 10, 2009

BALANCE OF PAYMENT

Widening trade deficit

Indias trade deficit on a balance of payments (Bop) basis has widenedsignificantly by 52.04 percent to $ 105.33 26 billion in the nine months (April-December) of fiscal year* 2008-09 from $ 68.28 billion in the comparable period inprevious fiscal. The widening trade deficit is attributed to significant growth inimports. During the nine-month period (April-December, 2008) imports were up30.60 percent to $ 238.86 billion from $ 182.89 percent in the comparable periodin fiscal 2007-08.This is revealed in a report of the countrys central bankingauthorityReserve Bank of India (RBI) on India's Balance of PaymentsDevelopments during the Third Quarter (April-December 2008) of fiscal2008-09.

The key features of Indias BoP that emerged at the end of Q3 of fiscal 2008-09were: the key features of Indias BoP that emerged in April-December 2008 were:(I) widening of trade deficit led by high growth in imports and slowdown in exports,(ii) increase in invisibles surplus, led by remittances from overseas Indians andsoftware services exports, which financed about 65 per cent of trade deficit, (iii)higher current account deficit due to large trade deficit, (iv) lower net capital flowsmainly led by large net outflows under portfolio investment and large repaymentsunder short-term trade credit, and (v) sharp decline in reserves.

Major Items of India's balance of Payments (April-December, 2008)(In $ million)

April-December (2008-09)(P)

April-December (2007-08)(PR)

Exports 133,527 113,614

Imports 238,864 182,894

Trade Balance -105,337 -69280

Invisibles, net 68,868 53772

Current Account Balance -36,469 -15508Capital Account* 16,089 82,682

Change in Reserves#(+ indicates increase;-indicates decrease)

20,380 -67,174

Including errors & omissions; # On Bop basis excluding valuation; P: Preliminary,PR: Partially revised. R: revised
http://www.rbi.org.in/http://www.rbi.org.in/http://www.rbi.org.in/


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SOURCE: Reserve Bank of India Report

InvisiblesBoth invisibles receipts and payments recorded negative growth, though marginal,during Q3 of 2008-09 reflecting the impact of global economic slowdown.

(ii) Invisibles receipts registered a marginal decline of 0.6 per cent in Q3 of 2008-09 (as against an increase of 33.2 per cent in Q3 of 2007-08) on account of adecline in travel, transportation and insurance receipts in the services categoryand private transfers and investment income receipts. Overall services exports,however, witnessed a marginal increase of 0.5 per cent during the quarter(compared with a higher growth of 33.4 per cent in Q3 of 2007-08) due toincrease in software exports.

Private transfer receipts declined marginally during Q3 of 2008-09. Softwareservices receipts, on the other hand, increased by 11.8 per cent during thequarter.

(iv) Invisibles payments also recorded a marginal negative growth of 2.1 per centduring Q3 of 2008-09 mainly led by sharp decline in payments under travel,software and business services account. There was also a marginal decline inpayments under investment income in the form of interest payments anddividends.

(v) With the decline in invisibles payments higher than the receipts, the netinvisibles (invisibles receipts minus invisibles payments) rose moderately to US$21.7 billion in Q3 of 2008-09. At this level, net invisibles surplus financed 59.7 percent of trade deficit in Q3 of 2008-09 (82.6 per cent in Q3 of 2007-08).

Current Account Deficit

On account of large trade deficit and with moderate increase in net invisibles, thecurrent account deficit rose sharply to US$ 14.6 billion in Q3 of 2008-09 (US$ 4.5billion in Q3 of 2007-08). This level of CAD was the highest quarterly deficit since1990.

Capital Account and ReservesCapital account balance turned negative showing outflows of US$ 3.7 billionduring the Q3 of 2008-09 (net inflows at US$ 31.0 billion during Q3 of 2007-08) forthe first time since Q1 of 1998-99 mainly due to net outflows under portfolioinvestment, banking capital and short-term trade credit.

(ii) The gross capital inflows to India during Q3 of 2008-09 amounted to US$ 70.0

billion (US$ 127.3 billion in Q3 of 2007-08) as against gross outflows from India atUS$ 73.6 billion (US$ 96.3 billion in Q3 of 2007-08). Other components of thecapital account which recorded a fall during the quarter were inflows and outflowsunder foreign direct investment and external commercial borrowings, while inflowsunder short-term trade credit also declined during the quarter.

(iii) Net FDI flows (net inward FDI minus net outward FDI) amounted to US$ 0.8billion in Q3 of 2008-09 (US$ 2.0 billion in Q3 of 2007-08). Net inward FDI stoodat US$ 6.7 billion during Q3 of 2008-09 (US$ 7.9 billion in Q3 of 2007-08). Netoutward FDI remained buoyant at US$ 5.9 billion in Q3 of 2008-09 (US$ 5.8 billion


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in Q3 of 2007-08).

(iv) Portfolio investment primarily comprising foreign institutional investors (FIIs)investments and American Depository Receipts (ADRs)/Global DepositoryReceipts (GDRs) continued to witness net outflows at US$ 5.8 billion in Q3 of2008-09 (as against net inflows of US$ 14.9 billion in Q3 of 2007-08). Outflowsunder portfolio investment were led by large sales of equities by FIIs in the Indian

stock market and slowdown in net inflows under ADRs/GDRs due to drying-up ofliquidity in the overseas market. Another feature observed in the context ofportfolio flows was that not only net flows remained negative but both inflows aswell as outflows reduced sharply during the quarter.

(v) Net External Commercial Borrowings (ECBs) remained lower at US$ 3.9 billionin Q3 of 2008-09 (US$ 6.2 billion in Q3 of 2007-08) due to drying up of liquidityabroad and increased cost of borrowings.

(vi) Short-term trade credit to India witnessed a net outflow of US$ 3.1 billion (asagainst inflows of US$ 4.1 billion in Q3 of 2007-08) mainly due to lowerdisbursements reflecting tightness in the overseas market and increasedrepayments as roll over was difficult.

(vii) There was a turnaround in the inflows under the non-resident Indian (NRI)deposits to US$ 1.0 billion during Q3 of 2008-09 (outflow of US$ 0.9 billion duringQ3 of 2007-08) responding to the hike in ceiling interest rates on NRI deposits.

(viii) The foreign exchange reserves on BoP basis (i.e., excluding valuation)declined sharply by US$ 17.9 billion in Q3 of 2008-09 as against an accretion ofreserves of US$ 26.7 billion in Q3 of 2007-08. The decline in the reserves wasdue to widening of current account deficit combined with outflows under thecapital account. The largest decline in reserves on a BoP basis during any onequarter in earlier years at US$ 4.7 billion was observed in the Q3 of 2005-06.Even during the balance of payments crisis of the early 1990s, a decline of US$1.5 billion was seen in the third quarter (October-December 1990), while a declineof US$ 1.1 billion was observed during April-June 1991.

Balance of Payments (BoP) for April- December, 2008

Merchandise Trade (April-December, 2008)

(i) On a BoP basis, Indias merchandise exports posted a growth of 17.5 percentduring April-December 2008 (21.9 percent in the corresponding period of theprevious year).

(ii) According to the commodity-wise data available for April-November 2008 fromthe DGCI&S, the exports of engineering goods and petroleum products showedhigh growth, while growth in textile products, ores and minerals, and gems and

jewellery registered sharp slowdown. The exports of marine products, raw cotton,iron ore and handicrafts declined during the period.

(iii) Import payments, on a BoP basis, remained higher and recorded a growth of30.6 percent during April-December 2008 as compared with 28.3 percent in thecorresponding period of the previous year.


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(iv) According to the DGCI&S data, while oil imports recorded a significant growthof 43.3 percent in April-December 2008 (24 percent in the corresponding period ofthe previous year), growth in non-oil imports slowed down to 25 percent from 29.3percent in the corresponding period of the previous year. In absolute terms, oilimports accounted for about 34.7 percent of total imports during April-December2008 (31.7 percent in the corresponding period of the previous year).

(v) According to the DGCI&S data, out of the total increase in imports of $ 52.8billion in April-December 2008 over the corresponding period of the previous year,oil imports contributed an increase of $ 23.6 billion (44.6 percent as against 28.4percent in April-December 2007), while non-oil imports contributed an increase of$ 29.2 billion (55.4 percent as against 71.6 percent in April-December 2007).

(vi) According to the commodity-wise DGCI&S data available for April-November2008, the items under non-oil imports which showed a high growth were fertilizers,paper and paper products, manufactures of metals, project goods, export relateditems like pearls, precious and semi-precious stones, chemicals, and coal, cokeand briquettes, while imports of items like pulses, electronic goods, and gold andsilver declined.

(vii) The sharp increase in oil imports reflected the impact of the increase in oilprice of the Indian basket of international crude (a mix of Oman, Dubai and Brentvarieties), which had increased to an average of $ 132.5 per barrel in July 2008,but came down subsequently to an average of $ 40.6 per barrel in December2008. The average oil prices were higher at $ 95.5 per barrel in April-December2008 as compared with an average of $ 74.7 per barrel in the correspondingperiod of the previous year

INDIAs cumulative value of exports for the period April- February, 2009 stood at $156597 million (Rs.705231 crore) as against $ 145878 million (Rs.586233 crore)registering a growth of 7.3 percent in Dollar terms and 20.3 percent in Rupee termsover the same period last year. Imports during April-February 2009 were valued at $271687 million registering the growth of 19.1 percent and in Rupee terms it stood atRs. 1223213 signifying a growth of 33.4 percent.

EXPORTS & IMPORTS (April-February, FY 2008-09)

In $ Million In Rs Crore

Exports including re-exports

2007-2008 145878 5862332008-09 156597 705231

Growth 2008-09/2007-2008 (percent)

7.3 20.3

Imports

2007-08 228081 917179

2008-09 271687 1223213

Growth 2008-09/2007-2008 (percent)

19.1 33.4


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Trade Balance

2007-08 -82203 -330946

2008-09 -115090 -517982

Figures for 2007-08 are the latest revised whereas figures for 2008-09 areprovisional

The trade deficit for April- February, 2009 was estimated at $ 115090 million whichwas higher than the deficit at $ 82203 million during comparable period of fiscal2007-08.

Source: Federal Ministry of Commerce, Government of India

Trade Deficit

i) On a BoP basis, the merchandise trade deficit widened sharply to US$ 105.3

billion during April-December 2008 from US$ 69.3 billion in April-December 2007 onaccount of higher growth in imports coupled with the slowdown in exports

Invisibles

Invisible Receiptsi) Invisibles receipts witnessed a lower growth of 18.8 percent during April-December 2008 (30.1 percent in the corresponding period of the previous year)mainly due to slow pace of growth in travel, business services and investmentincome receipts.

(ii) Travel receipts at $ 8.2 billion during April-December 2008 rose moderately by

6.2 percent (26.2 percent in April-December 2007) reflecting slowdown in touristarrivals in the country.

viii) Private transfers are mainly in the form of (i) Inward remittances from Indianworkers abroad for family maintenance, (ii) Local withdrawal from NRI Rupeedeposits, (iii) Gold and silver brought through passenger baggage, and (iv)Personal gifts/donations to charitable/religious institutions.

(iv) Private transfer receipts, comprising mainly remittances from Indians workingoverseas, increased to $ 36.9 billion in April-December 2008 from $ 29.3 billion inthe corresponding period of the previous year. Private transfer receipts constituted14.4 percent of current receipts in April-December 2008 (13.5 percent in the

corresponding period of the previous year).

(vii) Under Private transfers, the inward remittances for family maintenanceaccounted for about 50.4 percent of the total private transfer receipts, while localwithdrawals accounted for about 44 percent in April-December 2008 as against49.7 per cent and 43.3 per cent, respectively, in April-December 2007.

viii) Software receipts at US$ 34.6 billion showed a steady growth of 26 per cent inApril-December 2008. The NASSCOM has projected a growth rate of 16-17 percent during 2008-09 with a target of software services export revenues at around $47 billion for the financial year.


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(ix) Miscellaneous receipts, excluding software exports, stood at $ 22.4 billion inApril-December 2008 ($ 20.6 billion in April-December 2007).

(x) The key components of the business services receipts and payments weremainly the trade related services, business and management consultancy services,architectural, engineering and other technical services, and services relating to

maintenance of offices abroad. These reflect the underlying momentum in trade ofprofessional and technology related services. While receipts under trade relatedand business and management consultancy services increased, the receipts underarchitectural, engineering, and other technical services declined during April-December 2008.

(xi) Investment income receipts amounted to $ 10.3 billion in April-December 2008as compared with $ 9.3 billion in April-December 2007.

Inflows & Outflows from NRI Deposits and Local Withdrawals

(In $ million)

Inflows Outflows Local Withdrawals

2006-07 (R) 19914 15593 13208

2007-08 (PR) 29401 29222 18919

April-December2007 (PR)

18,683 19614 12669

April-December2007 (PR)

27760 25645 16236

P: Preliminary, PR: Partially revised. R: Revised

SOURCE: Reserve Bank of India Report, 2009

Invisible Payments(i) Like invisibles receipts, invisibles payments also showed a lower growth of 8.7percent in April-December 2008 (13.2 percent in April-December 2007) mainly onaccount of slowdown in payments relating to travel, software services and a number

of business and professional services.

(ii) Travel payments growth remained lower at 5.9 percent during April-December2008 (31.1 percent in April-December 2007) reflecting a sharp reduction inoutbound travels. According to the International Transport Association, internationalpassenger volumes increased marginally by 1.6 percent in 2008 led by a 1.5percent decline for Asia-Pacific region.

(iii) Investment income payments, reflecting mainly the interest payments oncommercial borrowings, external assistance and non-resident deposits, andreinvested earnings of the foreign direct investment (FDI) enterprises operating inIndia declined marginally to $ 13.3 billion in April-December 2008 ($ 13.5 billion in


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the corresponding period of the previous year) mainly due to decline in interestpayments on NRI deposits and reinvested earnings of FDI companies in India

Invisibles Balance(i) Net invisibles (invisibles receipts minus invisibles payments) stood higher at $68.9 billion during April-December 2008 ($ 53.8 billion during April-December 2007)mainly led by receipts under private transfers and software services. At this level,

the invisibles surplus financed about 65.4 percent of trade deficit during April-December 2008 as against 77.6 percent during April-December 2007.

Current Account Deficit(i) Despite higher net invisibles surplus, the large trade deficit mainly on account ofhigher growth in imports coupled with slowdown in export growth in the third quarterled to higher current account deficit at $ 36.5 billion in April-December 2008 ($ 15.5billion during April-December 2007)

Capital Account

(i)The gross capital inflows to India during April-December 2008 decreased to $246.4 billion ($ 291.8 billion in April-December 2007) as against an increase inoutflows to $ 231.1 billion ($ 209.8 billion in April-December 2007)

(ii) Net capital flows, however, at $15.3 billion in April-December 2008 remainedmuch lower as compared with $ 82.0 billion in April-December 2007. Under netcapital flows, all the major components except FDI and NRI deposits, showeddecline during April-December 2008 from their level in the corresponding period ofthe previous year. The decline was sharp in the case of portfolio flows and short-term trade credits to India.

(iii) Net inward FDI into India remained buoyant at $ 27.4 billion during April-December 2008 ($ 20.0 billion in April-December 2007) reflecting relatively betterinvestment climate in India and the continuing liberalization measures to attract FDI.During April-December 2008, FDI was channeled mainly into manufacturing (21.4percent) followed by financial services (14.1 percent) and communication services(12 percent).

(iv) Net outward FDI from India continued to remain high at $ 12.0 billion duringApril-December 2008 even in the current economic situation. However, it wasmarginally lower than that of $ 13.1 billion invested during April-December 2007.Due to large inward FDI, the net FDI (inward FDI minus outward FDI) was higher at$ 15.4 billion in April-December 2008 as compared with $ 6.9 billion in April-December 2007.

(v) Portfolio investment comprising mainly foreign institutional investors (FIIs)investments and American depository receipts (ADRs)/global depository receipts(GDRs) witnessed large net outflows of $ 11.3 billion during April-December 2008(net inflows of $ 33.3 billion in April-December 2007) due to large sales of equitiesby FIIs in the Indian stock market reflecting bearish market conditions andslowdown in the global economy. The inflows under ADRs/ GDRs slowed down to $1.1 billion in April-December 2008 ($ 8.4 billion in April-December 2007).

vi) Net external commercial borrowings (ECBs) inflow slowed down to $ 7.1 billionin April-December 2008 ($ 17.4 billion in April-December 2007) mainly due to tightliquidity conditions in the overseas markets.


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(vii) Banking capital (net), including NRI deposits, turned marginally negative to $0.1 billion during April-December 2008 as against net inflows of $ 5.9 billion duringApril-December 2007. Among the components of banking capital, NRI depositswitnessed a net inflow of $ 2.1 billion in April-December 2008, a turnaround fromnet outflow of $ 0.9 billion in April-December 2007.

(viii) Gross disbursement of short-term trade credit stood at $ 31.4 billion duringApril-December 2008 ($ 32.2 billion in April-December 2007). Repayments of short-term trade credit were high at $ 30.8 billion during April-December 2008 (ascompared with $ 21.5 billion during April-December 2007) due to some problems inrollover observed during the third quarter. Net short-term trade credit stood at $ 0.5billion (inclusive of suppliers credit up to 180 days) during April-December 2008 ascompared with $ 10.7 billion during the same period of the previous year.

(ix) Other capital includes leads and lags in exports, funds held abroad, advancesreceived pending for issue of shares under FDI and other capital not includedelsewhere (n.i.e.). Other capital recorded net inflows of $ 1.9 billion in April-December 2008.

Variation in Reserves

(i) The decline in foreign exchange reserves on BoP basis (i.e., excluding valuation)was $ 20.4 billion in April-December 2008 (as against accretion to reserves of $67.2 billion in April-December 2007). Taking into account the valuation loss, foreignexchange reserves recorded a decline of $ 53.8 billion during April-December 2008(as against an accretion to reserves of $ 76.1 billion in April-December 2007).

(ii) At the end of December 2008, outstanding foreign exchange reserves stood at $256.0 billion.

Reconciliation of import data(i) During April-December 2008, based on the records of the DGCI&S imports dataand the BoP merchandise imports, the difference between the two data sets worksout to about $ 14.4 billion

Source: (indiaonestop.com)


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Chapter 2:

Exchange Rate Regimes:

Definition:Rate at which one currency may be converted into another. Also calledrate ofexchange orforeign exchange rate or currency exchange rate.(investorwords.com)

Floating and Fixed Exchange Rate Systems

There are two basic systems that can be used to determine the exchange rate between

one countrys currency and anothers; a floating exchange rate system and a fixedexchange rate system.

Under a floating exchange rate system, the value of a countrys currency is determinedby the supply and demand for that currency in exchange for another in a private marketoperated by major international banks.

In contrast, in a fixed exchange rate system a countrys government announces, ordecrees, what its currency will be worth in terms of something else and also sets up therules of exchange. The something else to which a currency value is set and the rulesof exchange determines the type of fixed exchange rate system, of which there aremany. For example, if the government sets its currency value in terms of a fixed weight

of gold then we have a gold standard. If the currency value is set to a fixed amount ofanother countrys currency, then it is a reserve currency standard.

As we review several ways in which a fixed exchange rate system can work, we willhighlight some of the advantages and disadvantages of the system. In anticipation, it isworth noting that one key advantage of fixed exchange rates is the elimination ofexchange rate risk, which can greatly enhance international trade and investment. Asecond key advantage is the discipline a fixed exchange rate system imposes on acountrys monetary authority, likely to result in a much lower inflation rate.

1. Gold Standard
http://www.businessdictionary.com/definition/rate.htmlhttp://www.investorwords.com/1240/currency.htmlhttp://www.investorwords.com/4036/rate_of_exchange.htmlhttp://www.investorwords.com/4036/rate_of_exchange.htmlhttp://www.investorwords.com/2044/foreign_exchange_rate.htmlhttp://www.businessdictionary.com/definition/exchange-rate.htmlhttp://www.businessdictionary.com/definition/rate.htmlhttp://www.investorwords.com/1240/currency.htmlhttp://www.investorwords.com/4036/rate_of_exchange.htmlhttp://www.investorwords.com/4036/rate_of_exchange.htmlhttp://www.investorwords.com/2044/foreign_exchange_rate.htmlhttp://www.businessdictionary.com/definition/exchange-rate.html


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2. Reserve Currency Standard3. Gold Exchange Standard4. Other Fixed Exchange Rate Variations

(Surannovic, S., (2005), International Finance Theory and Policy)

Bretton woods system:

Nations attempted to revive the gold standard following World War I, but it collapsedentirely during the Great Depression of the 1930s. Some economists said adherence tothe gold standard had prevented monetary authorities from expanding the moneysupplyrapidly enough to revive economic activity. In any event, representatives of most of theworld's leading nations met at Bretton Woods, New Hampshire, in 1944 to create a newinternational monetary system. Because the United States at the time accounted for overhalf of the world's manufacturing capacity and held most of the world's gold, the leadersdecided to tie world currencies to the dollar, which, in turn, they agreed should beconvertible into gold at $35 per ounce.

Under the Bretton Woods system, central banks of countries other than theUnited

Stateswere given the task of maintaining fixed exchange ratesbetween their currenciesand the dollar. They did this by intervening in foreign exchange markets. If a country'scurrency was too high relative to the dollar, its central bank would sell its currency inexchange for dollars, driving down the value of its currency. Conversely, if the value of acountry's money was too low, the country would buy its own currency, thereby driving upthe price.

The Bretton Woods system lasted until 1971. By that time, inflation in the United Statesand a growing American trade deficit were undermining the value of the dollar.Americans urged Germany and Japan, both of which had favorable payments balances,to appreciate their currencies. But those nations were reluctant to take that step, sinceraising the value of their currencies would increases prices for their goods and hurt their

exports. Finally, theUnited States abandoned the fixed value of the dollar and allowed itto "float" -- that is, to fluctuate against other currencies. The dollar promptly fell. Worldleaders sought to revive the Bretton Woods system with the so-called SmithsonianAgreement in 1971, but the effort failed. By 1973, the United Statesand other nationsagreed to allow exchange rates to float.

Economists call the resulting system a "managed float regime," meaning that eventhough exchange rates for most currencies float, centralbanks still intervene to preventsharp changes. As in 1971, countries with large trade surpluses often sell their owncurrencies in an effort to prevent them from appreciating (and thereby hurting exports).By the same token, countries with large deficitsoften buy their own currencies in order toprevent depreciation, which raises domestic prices. But there are limits to what can beaccomplished through intervention, especially for countries with large trade deficits.Eventually, a country that intervenes to support its currency may deplete its internationalreserves, making it unable to continue buttressing the currency and potentially leaving itunable to meet its international obligations.

(U.S. Department of State,About.com:Economics.com)

Freely Floating Exchange Rate Systems:
http://economics.about.com/od/goldstandardfiatmoney/http://economics.about.com/od/goldstandardfiatmoney/http://economics.about.com/od/supply/http://economics.about.com/od/supply/http://economics.about.com/od/unitedstates/http://economics.about.com/cs/economicsglossary/g/bretton_woods.htmhttp://economics.about.com/od/banking/http://economics.about.com/od/unitedstates/http://economics.about.com/od/unitedstates/http://economics.about.com/od/unitedstates/http://economics.about.com/od/unitedstates/http://economics.about.com/od/exchangerates/http://economics.about.com/od/exchangerates/http://economics.about.com/cs/economicsglossary/g/bretton_woods.htmhttp://economics.about.com/od/inflationanddeflation/http://economics.about.com/od/unitedstates/http://economics.about.com/cs/analysis/a/trade_deficit.htmhttp://economics.about.com/od/germany/http://economics.about.com/od/unitedstates/http://economics.about.com/od/unitedstates/http://economics.about.com/cs/economicsglossary/g/bretton_woods.htmhttp://economics.about.com/od/unitedstates/http://economics.about.com/od/unitedstates/http://economics.about.com/od/exchangerates/http://economics.about.com/od/exchangerates/http://economics.about.com/od/banking/http://economics.about.com/od/banking/http://economics.about.com/od/governmentdebtsdeficits/http://economics.about.com/od/governmentdebtsdeficits/http://usinfo.state.gov/http://economics.about.com/od/goldstandardfiatmoney/http://economics.about.com/od/goldstandardfiatmoney/http://economics.about.com/od/supply/http://economics.about.com/od/unitedstates/http://economics.about.com/cs/economicsglossary/g/bretton_woods.htmhttp://economics.about.com/od/banking/http://economics.about.com/od/unitedstates/http://economics.about.com/od/unitedstates/http://economics.about.com/od/exchangerates/http://economics.about.com/cs/economicsglossary/g/bretton_woods.htmhttp://economics.about.com/od/inflationanddeflation/http://economics.about.com/od/unitedstates/http://economics.about.com/cs/analysis/a/trade_deficit.htmhttp://economics.about.com/od/germany/http://economics.about.com/od/unitedstates/http://economics.about.com/cs/economicsglossary/g/bretton_woods.htmhttp://economics.about.com/od/unitedstates/http://economics.about.com/od/exchangerates/http://economics.about.com/od/exchangerates/http://economics.about.com/od/banking/http://economics.about.com/od/governmentdebtsdeficits/http://usinfo.state.gov/


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Exchange Rate Systems That Affect Market Behavior

Since an exchange operates in different types of exchange rate systems, it isfundamental to understand what these are. There are four main types of these exchangerate systems where an exchange rate can operate. Here is a description of the differenttypes of exchange rate systems.

Fixed Exchange Rates System

It is true that every government will be interested in its currency's performance. Acountry's currency performance affects other markets in the economy. The exchangerate of that currency also becomes a reflection of economic performance, politicalconditions, and the general mood of a country's economy.

In this exchange rate system a government would exercise control over the exchangerate. Thus inducing or maintaining that country's exchange rate to a narrowed-downprice range. Policies will be passed or direct-action (in the form of investments etc.) willbe used to keep the exchange rate pegged at the desired range.

This exchange rate system has certain advantages. Exporters and importers have amore stable profitability. Normally there would be less speculation in this exchange ratesystem. This helps the import/export firms ensure that their sales would remain robustwhatever the exchange rate is. The inflation rate would be kept to a minimum. And asteady price would attract more trade and investment.

Semi-Fixed Exchange Rate System

This system is pretty much like the fully fixed exchange rate system. In this exchangerate system currencies are allowed to move but only within a specified permitted range.Governments exercising this system would lend to economic policy making targeting theexchange rate. Interest rates may also be set to meet the targeted exchange rate.

In this exchange rate system there would be varying levels of control over exchangerates. There have been studies that show that in an economy of high capital mobility thissystem is unstable.

It allowed a country or a government that has poor monetary policy to exercisediscretionary power overwhelmingly. Thus in cases like this, this exchange rate systemwould not be beneficiary to a government's economic system.

Free Floating Exchange Rate System

In a free floating exchange rate system the forces of supply and demand solely

determine the value of the currency of a given country. Trade and capital flows directlyaffect forex market movements.

In contrast to fixed exchange rates a free floating exchange rate system allowsexchange rates to move without the intervention from a national government. Marketforces determine exchange rate movement. Changes and movements in market supplyand demand cause changes in the value of currency.

Countries with large payments deficits may benefit from this system. This is due to thefact that fluctuations provide an automatic adjustment.


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It also allows the monetary authorities in governments certain flexibility in interest ratedetermination. These would not be so concerned with influencing the exchange rate.

Managed Floating Exchange Rates System

This is the system that most governments would prefer. It is quite like a hybrid of thefloating exchange rate and the fixed rate system. The government has a bit of leveragein this system. This system may also be a part of a fixed exchange rate system in a way.

Understanding how each system behaves and how they affect market movement wouldhelp a trader regarding planning and trading. Given all these systems a trader would beable to make profits whether a currency rate would either raise or drop depending on theprofit making decisions they make. (wallstreetforex.eu)

Dirty Float:

A system in which exchange rates are determined by supply and demand in the foreignexchange market, but where governments buy and sell currencies in order to influencethe market. (answers.com)

Currency Devaluation and Revaluation:

Under a fixed exchange rate system, devaluation and revaluation are official changes inthe value of a countries currency relative to other currencies. Under a floating exchangerate system, market forces generate changes in the value of the currency, known ascurrency depreciation or appreciation. In a fixed exchange rate system, bothdevaluation and revaluation can be conducted by policy makers, usually motivated bymarket pressures.

Under a fixed exchange rate system, only a decision by a countrys government ormonetary authority can alter the official value of the currency. Governments do,occasionally, take such measures, often in response to unusual market pressures.Devaluation, the deliberate downward adjustments in the official exchange rate, reducesthe currencys value; in contrast, a revaluation is an upward change in the currencysvalue.

Motives for Revaluation of currency

When countries revalue their currency -- that is effect an upward change in thecurrency's value -- there are implications on both the capital and the current account. Onthe current account, imports become cheaper (where revaluation has been undertaken)

and exports become more expensive. Cheaper imports will lower the cost ofimported raw materials, and overtime, even wages, which would allow exports tobe priced lower.

To what extent this happens depends on factors ranging from the import intensity ofexports and productivity changes effected by the exporter. The effect on the capitalaccount is for speculative investments to immediately unwind in the revaluing currency.Dollars could flow from China to the yen, and other emerging Asian markets,strengthening their currencies.

The longer-term anti-inflationary impact of a revaluation (via cheaper imports) makes forlower interest rates. From a monetary point of view, this would induce an outflow of


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resources from China to those currencies whose interest rate differential vis--visChinese rates has gone up.

Lower interest rates could spur investment and attract more FDI, attracting inflows andreinforcing the currency's tendency to harden.In the case of China, it has been under pressure especially from the US to revalue, giventhe huge trade deficit of $162bn, which the US runs with Beijing. Yuan appreciation willmean that Chinese firms could lose their competitive edge and may have to brace for

lower margins. (aussiestockforums.com)

What is capital account convertibility?

There is no formal definition of capital account convertibility (CAC). The Tara porecommittee set up by the Reserve Bank of India (RBI) in 1997 to go into the issue of CAC

defined it as the freedom to convert local financial assets into foreign financial assets and

vice versa at market determined rates of exchange.In simple language what this means is that CAC allows anyone to freely move from local

currency into foreign currency and back.

How is CAC different from current account convertibility?

Current account convertibility allows free inflows and outflows for all purposes other

than for capital purposes such as investments and loans. In other words, it allowsresidents to make and receive trade-related payments receive dollars (or any other

foreign currency) for export of goods and services and pay dollars for import of goods

and services, make sundry remittances, access foreign currency for travel, studies abroad,medical treatment and gifts etc. In India, current account convertibility was established

with the acceptance of the obligations under Article VIII of the IMFs Articles of

Agreement in August 1994.

Can CAC coexist with restrictions?

Contrary to general belief, CAC can coexist with restrictions other than on externalpayments. It does not preclude the imposition of any monetary/fiscal measures relating to

forex transactions that may be warranted from a prudential point of view.

Why is CAC such an emotive issue?

CAC is widely regarded as one of the hallmarks of a developed economy. It is also seen

as a major comfort factor for overseas investors since they know that anytime they

change their mind they will be able to re-convert local currency back into foreigncurrency and take out their money.

In a bid to attract foreign investment, many developing countries went in for CAC in the

80s not realising that free mobility of capital leaves countries open to both sudden and

huge inflows as well as outflows, both of which can be potentially destabilising. Moreimportant, that unless you have the institutions, particularly financial institutions, capable

of dealing with such huge flows countries may just not be able to cope as was

demonstrated by the East Asian crisis of the late nineties.

Following the East Asian crisis, even the most ardent votaries of CAC in the World Bank

and the IMF realised that the dangers of going in for CAC without adequate preparation


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could be catastrophic. Since then the received wisdom has been to move slowly but

cautiously towards CAC with priority being accorded to fiscal consolidation and financial

sector reform above all else.

In India, the Tarapore committee had laid down a three-year road-map ending 1999-2000for CAC. It also cautioned that this time-frame could be speeded up or delayed depending

on the success achieved in establishing certain pre-conditions primarily fiscal

consolidation, strengthening of the financial system and a low rate of inflation. With theexception of the last, the other two pre-conditions have not yet been achieved.

What is the position in India today?

Convertibility of capital for non-residents has been a basic tenet of Indias foreign

investment policy all along, subject of course to fairly cumbersome administrativeprocedures. It is only residents both individuals as well as corporates who continue

to be subject to capital controls. However, as part of the liberalisation process the

government has over the years been relaxing these controls. Thus, a few years ago,

residents were allowed to invest through the mutual fund route and corporates to invest in

companies abroad but within fairly conservative limits.

Buoyed by the very comfortable build-up of Forex reserves, the strong GDP growth

figures for the last two quarters and the fact that progressive relaxations on currentaccount transactions have not lead to any flight of capital, on Friday the government

announced further relaxations on the kind and quantum of investments that can be made

by residents abroad. These relaxations are to be reviewed after six months and if the

experience is not adverse, we may see further liberalization and in the not-too-distantfuture full CAC. (welcome-nri.com).


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Chapter 3: Foreign Exchange Markets:

Features: Market where foreign currencies are traded Round the clock market Global market Large volume of transactions

Participants

Individuals: tourists, migrants Firms: importers and exporters Banks: short position, long position, square position Governments/ monetary authorities: market intervention International agencies: lending Two tier market:

First tier: ultimate customer and banker Second tier: between banks

Classification of participants

Non-banking enteritis: business transactions and hedging

Banks: foreign exchange dealers Arbitrageurs: profit seeking from variations in rates in different markets Speculators: profit seeking from movements in exchange rates

Types of markets Spot market Forward market Derivatives markets: currency futures and options

Spot market


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Currencies traded for immediate delivery at rates prevailing at the time oftransaction

Actual delivery (electronic transfer) may take two working days

Currency arbitrage: buying a currency at cheaper rate in one market and sellingat a higher rate in another market

Two point arbitrage Triangular (three point) arbitrage three currencies

Currency speculation: buying and holding a currency for sale at a higher rate inthe near future

Forward market Contract for future delivery Hedging:

Currencies are bought or sold for forward delivery Reduces foreign exchange risk

Speculation: Reap profit from changes in exchange rates in future (difference between

forward rates and future spot rates) Arbitrage:

Reaping profit from disparity between forward differential and interest rate

differentialFutures market It is a derivatives market Currency futures market is of recent origin (1972) Currencies can be bought and sold in the futures market

Size and maturity of contracts are standardized Transactions made with the help of brokers through the clearing house Margin deposit and daily marking to the market Hedging: to reduce risk Futures may not provide a perfect hedge ( mismatch in size and maturity) Speculation: to reap short term profit

Types of Transaction:

Spot market finance - definition

Throughout different securities and commodities markets, a price that is good only ata particular moment in time. In the foreign exchange market, the spot market

involves a straightforward trans-action in which one currency is directly exchangedfor another. A spot market is in contrast to the futures market or forward market, in

which the price refers to a certain time in the future. References to the spot marketare often found in the foreign exchange market. The terms cash market and spot

market are generally interchangeable (http://www.yourdictionary.com/finance/spot-market)

Forward foreign exchange rateThe exchange rateavailable today to exchange currencyat some specified date in the future.Forward contracts:

Forward contractAcontract that specifies the price and quantity of an assetto be delivered on in the future.Forward contracts are not standardized and are not tradedon organized exchanges. (financial-dictionary.thefreedictionary.com)

Forward premium/ discount:

= n day forward rate spot rate x 365 x 100
http://financial-dictionary.thefreedictionary.com/Exchange+ratehttp://financial-dictionary.thefreedictionary.com/Exchange+ratehttp://financial-dictionary.thefreedictionary.com/Currencyhttp://financial-dictionary.thefreedictionary.com/Currencyhttp://financial-dictionary.thefreedictionary.com/Contracthttp://financial-dictionary.thefreedictionary.com/Contracthttp://financial-dictionary.thefreedictionary.com/Assethttp://financial-dictionary.thefreedictionary.com/Assethttp://financial-dictionary.thefreedictionary.com/Tradehttp://financial-dictionary.thefreedictionary.com/Tradehttp://financial-dictionary.thefreedictionary.com/Organized+exchangehttp://financial-dictionary.thefreedictionary.com/Exchange+ratehttp://financial-dictionary.thefreedictionary.com/Currencyhttp://financial-dictionary.thefreedictionary.com/Contracthttp://financial-dictionary.thefreedictionary.com/Assethttp://financial-dictionary.thefreedictionary.com/Tradehttp://financial-dictionary.thefreedictionary.com/Organized+exchange


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Spot rate n

Swap contracts:

Simultaneous purchase and sale of identical amounts of a currency at different valuedates. Swaps are transacted between two banks and a bank and a customer.

Example: one bank enters into an agreement with another bank to buy 1 million

Japanese Yen for US dollars in Spot market and also simultaneously agrees with thesame bank to sell 1 million Japanese Yen for US Dollars after 60 days. Exchange ratesfor both the transactions are agreed at the time of contract. This is a swap deal.(investopedia.com)

Uses of Swaps:a) to take advantage of arbitrage opportunityb) to correct mismatch in positionc) Banks use it as a cover for early delivery and cancellation or extension of

contracts.

Structure of Foreign exchange market:

a) Whole sale market : Sub divided into giant transaction layer (large giantcommercial banks)and other transaction layer.(smaller commercial banks)

b) Retail market: - Central banks.

Forex quotations and Arbitrage:

Clearing house inter bank payment system (CHIPS)SWIFTFED WIRE

Bid And Ask Rate:Bid rate: if the customer gives one US $ to the banker, banker is willing to payRs. 49.0501 to him. This is bankers bid price for dollar in terms of Rupees.

Ask rate: If the customer desires to buy a US $ from the banker, he has to pay Rs.48.2051 to the banker. The banker is ASKING for 48.2051 rupees per dollar.

Difference between the Bid and Ask rate is Spread.

Spread = Ask (sell) rate Bid (buy rate) x 100Ask (sell) rate

Qt) quotation for Us $ in Indian rupees is Rs. / $ 48.3004/3120. Caluculate percentagespread.

Spread = (48.3120 48.3004)/48.3120 x 100

Types of Quote:

American quoteEuropean quoteDirect quoteIndicative quote


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Syndication:What Does Syndicated Loan Mean?A loan offered by a group of lenders (called a syndicate) who work together to provide funds for asingle borrower. The borrower could be a corporation, a large project, or a sovereignty (such as agovernment). The loan may involve fixed amounts, a credit line, or a combination of the two.Interest rates can be fixed for the term of the loan or floating based on a benchmark rate such asthe London Inter-bank Offered Rate (LIBOR).

Typically there is a lead bank or underwriter of the loan, known as the "arranger", "agent", or"lead lender". This lender may be putting up a proportionally bigger share of the loan, or performduties like dispersing cash flows amongst the other syndicate members and administrative tasks.

Also known as a "syndicated bank facility". (investopedia.com)

Futures and Options:

Futures and options represent two of the most common form of "Derivatives". Derivatives are financialinstruments that derive their value from an 'underlying'. The underlying can be a stock issued by a company,a currency, Gold etc., The derivative instrument can be traded independently of the underlying asset.

The value of the derivative instrument changes according to the changes in the value of the underlying.

Derivatives are of two types -- exchange traded and over the counter.

Exchange traded derivatives, as the name signifies are traded through organized exchanges around theworld. These instruments can be bought and sold through these exchanges, just like the stock market.Some of the common exchange traded derivative instruments are futures and options.

Over the counter (popularly known as OTC) derivatives are not traded through the exchanges. They are notstandardized and have varied features. Some of the popular OTC instruments are forwards, swaps,swaptions etc.

Futures

A 'Future' is a contract to buy or sell the underlying asset for a specific price at a pre-determined time. If you

buy a futures contract, it means that you promise to pay the price of the asset at a specified time. If you sella future, you effectively make a promise to transfer the asset to the buyer of the future at a specified price ata particular time. Every futures contract has the following features:

Buyer

Seller

Price

Expiry

Some of the most popular assets on which futures contracts are available are equity stocks, indices,commodities and currency.

The difference between the price of the underlying asset in the spot market and the futures market is called

'Basis'. (As 'spot market' is a market for immediate delivery) The basis is usually negative, which means thatthe price of the asset in the futures market is more than the price in the spot market. This is because of theinterest cost, storage cost, insurance premium etc., That is, if you buy the asset in the spot market, you willbe incurring all these expenses, which are not needed if you buy a futures contract. This condition of basisbeing negative is called as 'Contango'.

Sometimes it is more profitable to hold the asset in physical form than in the form of futures. For eg: if youhold equity shares in your account you will receive dividends, whereas if you hold equity futures you will notbe eligible for any dividend.

When these benefits overshadow the expenses associated with the holding of the asset, the basis becomespositive (i.e., the price of the asset in the spot market is more than in the futures market). This condition iscalled 'Backwardation'. Backwardation generally happens if the price of the asset is expected to fall.


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It is common that, as the futures contract approaches maturity, the futures price and the spot price tend toclose in the gap between them i.e., the basis slowly becomes zero.

Options

Options contracts are instruments that give the holder of the instrument the right to buy or sell the underlyingasset at a predetermined price. An option can be a 'call' option or a 'put' option.

A call option gives the buyer, the right to buy the asset at a given price. This 'given price' is called 'strikeprice'. It should be noted that while the holder of the call option has a right to demand sale of asset from the

seller, the seller has only the obligation and not the right. For e.g.: if the buyer wants to buy the asset, theseller has to sell it. He does not have a right.

Similarly a 'put' option gives the buyer a right to sell the asset at the 'strike price' to the buyer. Here thebuyer has the right to sell and the seller has the obligation to buy.

So in any options contract, the right to exercise the option is vested with the buyer of the contract. The sellerof the contract has only the obligation and no right. As the seller of the contract bears the obligation, he ispaid a price called as 'premium'. Therefore the price that is paid for buying an option contract is called aspremium.

The buyer of a call option will not exercise his option (to buy) if, on expiry, the price of the asset in the spotmarket is less than the strike price of the call. For e.g.: A bought a call at a strike price of Rs 500. On expirythe price of the asset is Rs 450. A will not exercise his call. Because he can buy the same asset from themarket at Rs 450, rather than paying Rs 500 to the seller of the option.

The buyer of a put option will not exercise his option (to sell) if, on expiry, the price of the asset in the spotmarket is more than the strike price of the call. For eg: B bought a put at a strike price of Rs 600. On expirythe price of the asset is Rs 619. A will not exercise his put option. Because he can sell the same asset in themarket at Rs 619, rather than giving it to the seller of the put option for Rs. 600. (rediff.com)

Offshore banking:

An offshore bankis abanklocated outside the country of residence of the depositor,

typically in a low tax jurisdiction (ortax haven) that providesfinancial and legal

advantages. These advantages typically include:

greaterprivacy(see alsobank secrecy, a principle born with the 1934 Swiss

Banking Act)

low or no taxation (i.e. tax havens) easy access to deposits (at least in terms of regulation) protection against local political or financial instability

While the term originates from the Channel Islandsbeing "offshore" from the United

Kingdom, and most offshore banks are located in island nations to this day, the term isused figuratively to refer to such banks regardless of location, including Swiss banks and

those of other landlocked nations such as LuxembourgandAndorra.

(http://en.wikipedia.org/wiki/Offshore_bank. Accessed on 27.5.2009)

Mechanics of Foreign trade exchange market:

Contracts

Credits

Documentations
http://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Tax_havenhttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Privacyhttp://en.wikipedia.org/wiki/Privacyhttp://en.wikipedia.org/wiki/Bank_secrecyhttp://en.wikipedia.org/wiki/Bank_secrecyhttp://en.wikipedia.org/wiki/Swiss_bankhttp://en.wikipedia.org/wiki/Swiss_bankhttp://en.wikipedia.org/wiki/Taxationhttp://en.wikipedia.org/wiki/Tax_havenhttp://en.wikipedia.org/wiki/Deposit_(bank)http://en.wikipedia.org/wiki/Channel_Islandshttp://en.wikipedia.org/wiki/Channel_Islandshttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Swiss_bankshttp://en.wikipedia.org/wiki/Luxembourghttp://en.wikipedia.org/wiki/Luxembourghttp://en.wikipedia.org/wiki/Andorrahttp://en.wikipedia.org/wiki/Andorrahttp://en.wikipedia.org/wiki/Offshore_bank.%20Accessed%20on%2027.5.2009http://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Tax_havenhttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Privacyhttp://en.wikipedia.org/wiki/Bank_secrecyhttp://en.wikipedia.org/wiki/Swiss_bankhttp://en.wikipedia.org/wiki/Swiss_bankhttp://en.wikipedia.org/wiki/Taxationhttp://en.wikipedia.org/wiki/Tax_havenhttp://en.wikipedia.org/wiki/Deposit_(bank)http://en.wikipedia.org/wiki/Channel_Islandshttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Swiss_bankshttp://en.wikipedia.org/wiki/Luxembourghttp://en.wikipedia.org/wiki/Andorrahttp://en.wikipedia.org/wiki/Offshore_bank.%20Accessed%20on%2027.5.2009


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Risks in I nternational Transactions:

Foreign exchange risk, Settlement risk, Counter party /Third party risk.

Types of Credit:

Important credit clauses

Procedure for establishing credit.

Chapter 4: Presentation on:

Economic Union and trade agreements:

International trade organization

General agreement on tariffs and trade

Uruguay round

North south divide and dialogue

European economic and community and integration 1992.

Impact of currency blocks on world trade

IMF

World Bank

WTO

Chapter 5:

Indias Foreign trade promotion and control


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Export Import bank of India

Export credit guarantee corporation (ECGC) its functions, policy, management and

current operations

Foreign exchange control FERA/FEMA

Websites: {Accessed Date for Web references = 27.5.09}

1) http://www.aussiestockforums.com/forums/showthread.php?t=1724Accessed date:27.5.09)2) http://www.answers.com/topic/exchange-rate-dirty-float. Accessed date: 27.5.2009)3) http://financial-dictionary.thefreedictionary.com/4) http://www.indiaonestop.com/economy/balanceofpayments/economy-macro-balance%20of%20payments.htm5) http://www.investopedia.com/terms/s/swap.asp6) http://www.investopedia.com/terms/s/syndicatedloan.asp7) http://www.investorwords.com/1806/exchange_rate.html8) http://www.rediff.com/money/2007/aug/01cspec.htm9) Surannovic, S., 2005, International Finance Theory and Policy.http://internationalecon.com/Finance/Fch80/F80-1.php)10) U.S. Department of State, About.com: Economics.http://economics.about.com/od/foreigntrade/a/bretton_woods.htm. Accessed date:27.5.2009)11) http://www.wallstreetforex.eu/exchange-rate-systems.html Accessed date: 27.5.2009)12) http://www.welcome-nri.com/cac.htmAccessed date: 27.5.09
http://www.aussiestockforums.com/forums/showthread.php?t=1724http://www.indiaonestop.com/economy/balanceofpayments/economy-macro-balance%20of%20payments.htmhttp://www.indiaonestop.com/economy/balanceofpayments/economy-macro-balance%20of%20payments.htmhttp://usinfo.state.gov/http://usinfo.state.gov/http://www.welcome-nri.com/cac.htmhttp://www.aussiestockforums.com/forums/showthread.php?t=1724http://www.indiaonestop.com/economy/balanceofpayments/economy-macro-balance%20of%20payments.htmhttp://www.indiaonestop.com/economy/balanceofpayments/economy-macro-balance%20of%20payments.htmhttp://usinfo.state.gov/http://www.welcome-nri.com/cac.htm

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