FRANCERITESH CHOUDHARY

FINANCE 2

SS 08/10

ROAD MAP• History of France• About France• Macroeconomic Factors• Monetary Policy• Balance of Payments• FDI• Capital account convertibility• Political Risk Analysis• Scams• Conclusion

Currency history of France• Due to its decimal structure the franc can only be a

creation of the French Revolution. One of the fathers of the new coin is the gentleman shown here: Napoleon Bonaparte

• The French currency had been weakened by inflation and the constant degradation of the metals used for centuries.

• At the beginning of the French Revolution the inflation increased and saved assets continued losing value. People took their gold and silver abroad to save them.

• • As a result emergency currencies and paper bills were

issued. In 1794 the leaders decided in Paris that the French monetary system had to be reorganized and reformed.

Currency history of France

• One year later, in 1795, the new currency, the franc based on 5 grams of silver was officially issued.

franc was adopted by Belgium in 1832 and later, by Switzerland in 1850 Even the German mark was strongly influenced by the franc and remained the national currency until the introduction of the euro in 1999 (for accounting purposes) and 2002 (coins and banknotes).

French franc against the euro was set at a fixed parity of 1 EUR=6.55957 FRF

. .

INTRODUCTION OF FRANCE

• France officially the French Republic is a country located in Western Europe, with several overseas islands and territories located on other continents.

• Is bordered (clockwise from the north) by Belgium, Luxembourg, Germany, Switzerland, Italy, Monaco, Andorra, and Spain.

• France covers 547,030 square kilometres (211,209 sq mi )• CAPITAL – Paris , OFFICIAL LANGUAGE –French• ECONOMY – 5th Largest , POPULATION- 65.1mn• The French Republic is a unitary semi-presidential republic

with strong democratic traditions • The French parliament is a bicameral legislature comprising a

National Assembly and a Senate.

BANQUE DE FRANCE

• Headquarters Paris, France

• Established18 January 1800

• Governor Christian Noyer

Exchange Rate Regime

• From 1971 to 1974, France maintained a two-tier exchange rate structure, composed of a fixed Commercial Franc Rate (for foreign trade transactions) and a freely fluctuating Financial Franc Rate (for all other remittances )

• In 1979, France participated the ERM of EMS. In accordance with this agreement, France maintains the spot exchange rates

• In January 1, 1999, France participated in a currency union (EMU) comprising 11 members of the EU. Internal conversion rates in respect to the national currencies of EMU participants were fixed to the euro, whereas the external exchange rate of the euro is market determined.

Macro Economic Analysis

• GDP GROWTH RATE -1.2% ( April 09)• GDP - composition by sector: agriculture: 2.2%

industry: 20.3% services: 77.4% (2008 est.)

• $2.097 trillion (08) $2.083 trillion (07)• $2.074 trillion (06)• Investment : 21% of GDP (08)• Inflation rate : 1% (08) • FOREX RESERVES :125,222 mn $ (09)• Exchange rates: euros (EUR) per US dollar -

0.6827 (08), 0.7345 (07)

Macro Economic Analysis

• Budget: revenues: $1.439 trillion• expenditures: $1.525 trillion (08)• Public debt: 67% of GDP (08)• Infrastructure:• 31,939 kilometers (19,846 miles) of rail

lines . • 828,000 kilometers (514,605 miles) of

roads .,• 47 per cent of the waterways are heavily

used. • 474 airports in France,

Balance Of Payments France

EURO MILLIONS

2006 2007 2008

Current account -9,205 -18,879 -44,014

goods -30,395 -40,461 -59,087

services 13,411 15,000 14,457

income 29,688 29,309 24,843

Current transfers -21,909 -22,727 -24,227

Balance Of Payments France

EURO MILLIONS

2006 2007 2008

Capital account -197 1,854 696

Financial account

6,049 37,644 78,112

Net errors and omissions

3,353 -20,619 -34,794

Official reserves

-8,775 -478 8,518

NOTE- official reserves already being added in financial account , given only for information.

GRAPHICAL REPRESENTATION OF BALANCE OF PAYMENT

EXPORTS OF FRANCE

• Exports: $761 billion (08 )• Commodities: machinery and transportation equipment,

aircraft, plastics, chemicals, pharmaceutical products, iron and steel, beverages

• Exports - partners: Germany 14.9%, Spain 9.3%, Italy 8.9%, UK 8.1%, Belgium 7.3%, US 6.1%, Netherlands 4.1% (08)

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2006 2007 2008

exports

IMPORTS OF FRANCE

• Imports: $833 billion (08 )• Imports - commodities: machinery and equipment,

vehicles, crude oil, aircraft, plastics, chemicals• Imports - partners: Germany 18.9%, Belgium

11.4%, Italy 8.4%, Spain 7.1%, Netherlands 7%, UK 5.6%, US 4.4%, China 4%

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2006 2007 2008

imports

FOREIGN DIRECT INVESTMENT OF FRANCE

EURO BILLIONS

2006 2007 2008

FDI OUTWARD

-88,222 -123,523 -136,774

FDI INWARD

57,273 75,892 66,338

NET FDI -30,949 -47,631 -70,436

FDI FRANCE

-150,000

-100,000

-50,000

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100,000

2006 2007 2008

FDI IN

FDI OUT

CAPITAL ACCOUNT CONVERTIBILITY The French government began to loosen its

draconian exchange control sat the end of 1983• In 1985, the socialists began to liberalize virtually

all transactions, including authorizing Eurobond issues denominated in French francs.

• When the Right-wing government of Jacques Chirac Came to power in 1986 and 1988 France continued to liberalize, though the pace slowed and focused on other transactions, such as the purchase of secondary residences abroad and exchange purchases and sales by firms.

• The socialists finished the task upon their return to power. • In January 1990 was France’s capital account fully liberalized.

Regional Comparison

Country Risk Tier• France CRT-1• Germany CRT-1• Spain CRT-2• Italy CRT-2• Switzerland CRT-1• United Kingdom CRT-1

SCAMS IN FRANCE

• President Jacques Chirac (UMP) was accused by the Canard enchaîné of disposing of 50 million euros in a Japanese bank account in the Tokyo Sowa Bank owned by Shōichi Osada, who has since been sentenced to prison in Japan. (2006)

• 2005 THE CIVIL UNREST.

• April 2006 prime ministry Dominique de Villepin, was accused of spying over his political rival Nicholas Sarkozy in 2004

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