IBE All 145units

8/2/2019 IBE All 145units

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UNIT-I: Globalization Introduction to the field of Global Business, Significance, Nature and Scope of

Global Business, Modes of Global business Global Business Environment- Social, Cultural, Economic,

Political and Ecological factors

International Business EnvironmentInternational Business Environment

Learning Objectives

To understand the history and impact of international business. To learn the definition of international business. To recognize the growth of global linkages today. To appreciate the opportunities and challenges offered by international

business.

Need for International Business More and more firms around the world are going global, including: Manufacturing firms Service companies (i.e. banks, insurance, consulting firms) Art, film, and music companies

International business: causes the flow of ideas, services, and capital across the world offers consumers new choices permits the acquisition of a wider variety of products facilitates the mobility of labor, capital, and technology provides challenging employment opportunities

reallocates resources, makes preferential choices, and shiftsactivities to a global level

What is International Business?

International business consists of transactions that are devised and carried

out across national borders to satisfy the objectives of individuals,companies, and organizations.

International Business Questions

How will an idea, good, or service fit into the international market? Should trade or investment be used to enter a foreign market? Should supplies be obtained domestically or abroad?

W

hat product adjustments are necessary to be responsive to localconditions?

What are the threats from global competitors, and how can thesethreats be counteracted?


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Global Links Today

International business has created a network ofglobal links that bind

countries, institutions, and individuals with trade, financial markets,

technology, and living standards.

For example, a reduction in coffee production in Brazil wouldaffect individuals and economies worldwide.

Recent Changes in International Business

Total world trade declined dramatically after 2000, but is again on the

rise.

The rate of globalization is accelerating.

Regionalization is taking place, resulting in trading blocs.

The participation of countries in world trade is shifting.

The Composition of Trade

Between the 1960s and the 1990s the importance of manufactured

goods increased while the role of primary commodities (i.e. rubber or

mining) had decreased.

More recently, there has been a shift of manufacturing to countries

with emerging economies.

There has been an increase in the area of services trade in recent

years.

Globalization

Because ofglobalization, for the first time in history, the availability

of international products and services can be accessed by individuals in

many countries, from diverse economic backgrounds.

The Globalization Debate

Antiglobalization Protest

Globalization, Jobs and Debate

Globalization, Labour Policies and the Environment

Globalization and National Sovereignty

Globalization and the National Sovereignty


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MODES OF GLOBAL BUSINESS

Learning Objectives

y To learn how firms gradually progress through an internationalization

process.y To understand the strategic effects of internationalization.

y To study the various modes of entering international markets.

NEED

Managerial commitment is critical because foreign market penetration

requires a vast amount of market development activity, sensitivity

toward foreign environments, research, and innovation.

The Steps to Developing International Commitment

Become aware of international business opportunities.

Determine the degree of the firms internationalization.

Decide the timing of when to start the internationalization process and

how quickly it should progress.

Modes of International Business

y Licensing

y Franchising

y Inter firm cooperation

y Importing

y Exportingy Foreign Direct

y Investment

Licensing

The property licensed may include:

Patents:A patent is a set of exclusive rights granted by a state

to an inventor or his assignee for a limited period of time in

exchange for a disclosure of an invention.

Trademarks: A trademark or trade mark,[1] identified by the symbols (not

yet registered) and (registered), is a distinctive sign or

indicator used by an individual, business organization or other

legal entity to identify that the products and/or services to

consumers with which the trademark appears originate from a


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unique source of origin, and to distinguish its products or

services from those of other entities.

A trademark is a type of intellectual property, and typically a

name, word, phrase, logo, symbol, design, image, or a

combination of these elements.[2] Copyrights: Copyright is a form of intellectual property which

gives the creator of an original work exclusive rights for a certain

time period in relation to that work, including its publication,

distribution and adaptation; after which time the work is said to

enter the public domain.

Technology

Technical know-how

Specific business skills

Benefits and Costs of Licensing

Why go in for Licensing

Less risk of capital and no involvement with foreigncustomers

Avoids host-country regulations Allows a company to test the market Avoids cultural problems Trademark licensingpermits the names or logos to be

used on products made in foreign market

May be creating own future competitor


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Franchising The major forms of franchising are:

Manufacturer-retailer systems such as car dealerships, Manufacturer-wholesaler systems such as soft drink, companies Service-firm retailer systems such as fast-food outlets.

KeyReasons for Franchising

- Financial Gain

- Market Potential

- Saturated Domestic MarketsNeed for Franchising

Internationally, the firm must be able to offer unique products orselling propositions

Must offer a high degree of standardization, but be adaptable to localcircumstances

Growing fast internationally, but government intervention is a major

problem Selection and training of franchisees is also a problem area

Inter firm Cooperation

Reasons for inter firm cooperation include: Market development To share risk or resources To block and co-opt competitors

Types of Inter firm Competition

Informal CooperationIt has not binding agreement. It is where one country shows concern

to other country.

Ex.: At the times of Tsunami, countries around the globe helpedIndonesia to overcome that tragedy.

ConsortiaIt is where the firm shares its opportunities as well as its competences

along with other companies as a result of the inter firm competition.There may be new equity sharing or none. There will be more than 2

partners. Contractual Agreements

Strategic alliance partners may join forces for R&D, marketing,production, licensing, cross-licensing, cross-market activities, or

outsourcing.

Contract manufacturing allows the corporation to separate thephysical production of goods from the R&D and marketing stages.


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Management contracts involve selling ones expertise in running acompany while avoiding the risk or benefit of ownership.

A turnkey operation is a contractual agreement that permits a clientto acquire a complete system following its completion.

EquityParticipation

Some companies have acquired minority ownerships in companies thathave strategic importance for them.

Reasons for engaging in equity participation include:- It ensures supplier ability

- It builds working relationships

- It creates market entry and support of global operations FDI

It is of 2 types- Equity participation

- Non Equity participation (Portfolio Investment)

Global Business Environment

Culture Environment

Culture is an integrated system of learned behavior patterns that are characteristic of the

members of any given society.

Elements of Social and Culture

Language (verbal and nonverbal)

Religion

Values and Attitudes

Manners and Customs

Material Elements

Aesthetics

Education

Social Institutions

Political Environment

The Home Country Perspective

Major areas of governmental activity that are of concern to the international business manager:

Embargoes and Sanctions

Export Controls

Regulation of International

Business Behavior


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Host Country Political and Legal Environment

Political Action and Risk

o Varies widely from country to country

o Three Types of Political Risk

o Ownership Risk

Exposes property and life

o Operating Risk

Interference with the ongoing operations of a firm

o Transfer Risk

Limitations on the outflow of funds

Political Risk May Involve

Confiscation

The government takeover of a firm without compensation to the owners.

Expropriation

A form of government takeover in which the firms owners are compensated.

Domestication

The government demands transfer of ownership and management responsibility.

Economic Risk

o Less dangerous, but more common

Economic Environment

Economic Size

Economic Systems

Key Macroeconomic Indicators

Economies in Transition

UNIT-II:Theories of International Trade, Trading Environment of International Trade - FreeTrade Vs Protection- Tariff and Non-tariff Barriers Trade Blocks.


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Barriers to Trade (Read the below mentioned or material that is attached below)

It is of two types tariff and nontariff

Tariffs

Tariff barriers affect prices; nontariff barriers may affect either price or quantity

directly.

A tariff (sometimes called duty) is the most common type of trade control and is a tax

that

governments levy on an official boundary.

Tariffs also serve as a source of government revenue.

Export tariff

If the tariff collected by the exporting country are called Export tariff

Import tariff

If the tariff collected by importing country, it is an import tariff.

Transit tariff

If the tariff collected by a country through which the goods have passed, it is an transittariff.

Specific duty

A government may asses a tariff on a per-unit basis, in which case it is applying specific

duty.

Ad valorem duty

It may access a tariff as a percentage of the value of the item, in which case it is an ad

valorem duty

Compound duty

If it accesses both a specific duty & an ad valorem duty on the same product, the

combination is a compound duty. Dumping i.e., selling goods overseas, or both. Dumping ranges from predatory to

unintentional.

Predatory dumping is the tactic of a foreign firm that intentionally sells at a loss in

another country to

increase market share at the expense of domestic producers. This amounts to an

international price

war.

Unintentional dumping is the result of time lags between the date of sales

transactions, shipment &

arrival.

Non tariff barriers- rules , regulations and bureaucratic

Quotas

The quota is the most common type of quantitative imports or export restriction.

An import quota prohibits or limits the quantity of a product that can be imported in a

year.


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Quota raise prices just as tariffs do but, being defined in physical terms, they directly

affect the

amount of imports by putting an absolute ceiling on supply.

Quota generate revenues for those companies that are able to obtain a portion of the

intentionally

limited supply of the product that they can then sell to local customers.

Buy national restrictions

Another form of quantitative trade control is Buy local legislation or buy national

restrictions.

Government purchases are a large part of total expenditures in many countries;

typically

governments favor domestic products.

Sometimes governments specify a domestic content restriction- i.e., a certain

percentage of

products must be of local origin. Sometimes they favor domestic producers byestablishing price

mechanisms.

Customs valuation

It is difficult for customs officials to determine if invoice prices are honest

- They may arbitrarily increase value

- Valuation procedures have been developed.

Technical barriers

Restriction on services

Counter trade

It is a sale that encompasses more than an exchange of goods, services or idea formoney.

In International Market, Counter trade Transactions "are those transactions that have

as a basic

characteristic - linkage, legal or otherwise between exports & imports of goods or

services in

addition to or in places of Financial settlements

Trade bloc

A trade bloc is a type of intergovernmental agreement, often part of a regional

intergovernmental organization, where regional barriers to trade (tariffs and non-tariff

barriers) are reduced or eliminated among the participating states.[1]

One of the first economic blocs was the German Customs Union (Zollverein) initiated in

1834, formed on the basis of the German Confederation and subsequently German

Empire from 1871.


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Surges of trade bloc formation were seen in the 1960s and 1970s, as well as

in the 1990s after the collapse of Communism.

By 1997, more than 50% of all world commerce was conducted under the auspices of

regional trade blocs.[2]

Economist Jeffrey J. Scott of the Peterson Institute for International Economics

notes that members of successful trade blocs usually share four common traits: similar

levels of per capita GNP, geographic

proximity, similar or compatible trading regimes, and political commitment to regional

organization.[3]

Advocates of worldwide free trade are generally opposed to trading blocs, which, they

argue, encourage regional as opposed to global free trade.[4]

Scholars and economists continue to debate whether regional trade blocs are leading to

a more fragmented world economy or encouraging the extension of the existing global

multilateral trading system.

Trade blocs can be stand-alone agreements between several states (such as NAFTA)or part of a regional organization (such as the European Union).

Depending on the level of economic integration, trade blocs can fall into different

categories, such as:[7] preferential trading areas, free trade areas, customs unions,

common markets and economic and monetary unions.


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UNIT-III: Balance of Payment: Concept, Components of BOP, and Disequilibrium in

BOP Causes for disequilibrium and Methods to correct the disequilibrium in Balance

of Payment.

Material attached below or

IB by p.subbarao Pg no376-386


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UNIT-IV: Foreign Exchange Market: Nature of transactions in foreign exchange market and types of

players, Exchange rate determination, Convertibility of rupee Euro currency market.

Foreign Exchange Market

Foreign Exchange

Foreign exchange is the system or process of converting one national currency into

another, and of transferring money from one country to another

Foreign Exchange Market

The foreign exchange market is a market in which foreign exchange transactions

take place

Functions of foreign exchange marketTransfer of purchasing power

Provision of credit

Provision of Hedging facilities

Transactions in the foreign exchange markets

Spot and forward exchanges

Swap operations

arbitrage

Participants in foreign exchange marketsTraders- commercial banks

Brokers- brokerages firms

Speculators- long position and short position

Hedgers

Arbitrageurs

Governments

Exchange control

Exchange control is one of the important means of achieving certain national objectives

like

- an improvement in the balance of payments position

- restriction of inessential imports and conspicuous consumption

- facilitation of import of priority items

- control of outflow of capital and

- maintenance of the external value of the currency.


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Objectives of Exchange Control

To Conserve Foreign Exchange

To Check Capital Flight

To Improve Balance of Payments

To Curb Conspicuous Consumption

To make Possible Essential Imports

To Protect Domestic Industries

To Check Recession-induced Exports into the Country

To regulate foreign companies.

To regulate Export and Transfer of Securities

Facilitate Discrimination and Commercial Bargaining

Enable the Government to Repay Foreign Loans

To Lower the Price of National Securities held Abroad

To Freeze Foreign Investments and Prevent Repatriation of FundsTo Obtain Revenue

Determination of exchange rates

Purchasing power parity (PPP)- Gustav Cassel

Balance of payment theory-Demand and supply theory

Purchasing power parity

The purchasing power parity (PPP) theory uses the long-term equilibrium

exchange rate of two currencies to equalize their purchasing power.Developed by Gustav Cassel in 1920, it is based on the law of one price: the

theory states that, in ideally efficient markets, identical goods should have only

one price.

This purchasing power SEM rate equalizes the purchasing power of different

currencies in their home countries for a given basket of goods.

Using a PPP basis is arguably more useful when comparing differences in

living standards on the whole between nations because PPP takes into

account the relative cost of living and the inflation rates of different countries,

rather than just a nominal gross domestic product (GDP) comparison.

The best-known and most-used purchasing power parity exchange rate is the

Geary-Khamis dollar (the "international dollar").

PPP exchange rates (the "real exchange rate") fluctuations are mostly due to

market exchange rates movements.


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Balance of payment theory

The balance of payments theory of exchange rate is also named as general

equilibrium theory of exchange rate.

According to this theory, the exchange rate of the currency of a country

depends upon the demand for and supply of foreign exchange.

If the demand for foreign exchange is higher than its supply, the price of

foreign currency will go up. In case, the demand of foreign exchange is lesser

than its supply, the price of foreign exchange will decline.

The demand for foreign exchange and supply of foreign exchange arises from

the debit and credit items respectively in the balance of payments.

The demand for foreign exchange comes from the debit side of balance of

payments.

The debit items in the balance of payments are import of goods and services

and loans and investments made abroad.

The supply of foreign exchange arises from the credit side of the balance ofpayments.

It is made up of the exports of goods and services and capital receipts. If the

balance of payments of a country is unfavourable, the rate of foreign exchange

declines.

On the other hand, if the balance of payments is favourable, the rate of

exchange will go up. The domestic currency can purchase more amounts of

foreign currencies.

Exchange Rate Systems

Fixed exchange rates

Flexible exchange rates

Fixed Exchange Rates

Countries following the fixed exchange rate (also known as stable exchange rate

and pegged exchange rate) system agree to keep their currencies at a fixed,

pegged rate and to change their value only at fairly infrequent intervals, when the

economic situation forces them to do so.

Under the gold standard, the values of currencies were fixed in terms of gold.

Until the breakdown of the Bretton Woods System in the early 1970, each

member country of the IMF defined the value of its currency in terms of gold or

the US dollar and agreed to maintain (to peg) the market value of its currency

within:!: I per cent of the defined (par) value.


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Flexible Exchange Rates

Under the flexible exchange rate system, exchange rates are freely determined

III on open market primarily by private dealings, and they, like other market

prices, vary from day-to-day.

Under the flexible exchange rate system, the first impact of any tendency toward

a surplus or deficit in the balance of payments is on the exchange rate. surplus in

the balance of payments will create an excess demand for the tOlIl1try's currency

and the exchange rate will tend to rise. On the other hand, deficit in the balance

of payments will give rise to an excess supply of the countrys currency and the

exchange rate will, hence, tend to fall.

Automatic variations in the exchange rates, in accordance with the variation in

the balance of payment position, tend to automatically restore the balance of

payments equilibrium.

Convertibility of the Rupee

Free convertible-

Partial convertibility -1992-93 in current account

LERMS- Market rate and Official rate

Free convertible

Free convertibility of a currency means that the currency can be

exchanged for any other convertible currency, without any restriction, at

the market determined exchange rates.

Convertibility of the rupee, thus means that the rupee can be freelyconverted into dollar, pound sterling', yen, Deutsche mark, etc. and vice

versa at the rates of exchange determined by the demand and supply

forces.

LERMS

According the Liberalized Exchange Rate Management System (LERMS)

introduced in March 1992, 60 per cent of all receipts under current

transactions (merchandise exports and invisible receipts) could be

converted at the free market exchange rate quoted by the authorized

dealers.

The rate applicable for the remaining 40 per cent was the official rate fixed

by the Reserve. Bank.

This 40 per cent of the total foreign exchange receipts under the current

account was exclusively meant to cover government needs and to import

essential commodities.


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In addition, foreign exchange at official rate was to be made available to

meet 40 percent of the value of the advance licenses and special import

licenses.

In short, it was a dual exchange rate system.

Why partial convertibility?

To make foreign exchange available at a low price for essential prices.

At times of large deficit in current account- it is risky to go for full convertibility

To bring in a stability in rupee value

One major reason for introducing partial convertibility was to make foreign

exchange available at a low price for essential imports so that the prices of the

essentials would not be pushed up by the high market price of the foreign

exchange.

It was risky to introduce full convertibility when the current account showed largedeficit.

While introducing the partial convertibility, the government announced its

intentions to introduce full convertibility on the current account in three to five

years, However, full convertibility on trade account was introduced by the Budget

for 1993-94.

The fact that the free market rate was ruling fairly stable at a reasonable Ievel

might have encouraged the government to introduce full convertibility.

Merits of convertibility

Real value of rupee

It encourages exports

Encourages import substitutions

Attracts remittances by NRIs

It gives an indication of the real value of the rupee.

It encourages exports by increasing the profitability of the exports

Profitability increases as the free market rate is higher than the official exchange

rate.

It encourages those exports with no or less import intensity. As the proportion of

the imported inputs in the exportables increases, the prof-itability cause of the

higher free market exchange rate gets correspond-ingly reduced. This could

encourage import substitution in export pro-duction.

The high cost of foreign exchange could encourage import substitution in other

areas also It provides incentives for remittances by NRIs.


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The convertibility and the liberalisation of gold imports have been ex-pected to

make illegal remittances and gold smuggling less attractive. thereby increasing

the remittances through proper channels.

It is described as a self balancing mechanism because the total imports and

other current account payments will be confined to the. total current account

receipts unless there are imports financed by foreign currency loans.

Eurocurrency market

The money market in which Eurocurrency, currency held in banks outside of the

country where it is legal tender, is borrowed and lent .

Definition and background

y The Eurocurrency market consists of banks (called Eurobanks) that accept

deposits and make loans in foreign currencies.

y A Eurocurrency is a freely convertible currency deposited in a bank located in a

country which is not the native country of the currency.

y The deposit can be placed in a foreign bank or in the foreign branch of a

domestic US bank. [Note of caution! The prefix Euro has little or nothing to do

with the newly emerging currency in Europe.]

y In the Eurocurrency market, investors hold short-term claims on commercial

banks which intermediate to transform these deposits into long-term claims on

final borrowers.

y The Eurocurrency market is dominated by US $ or the Eurodollar.

y Occasionally, during weak dollar periods (latter part of 1970s and 1980s), the

EuroSwiss franc and the EuroDM markets increased in importance.

y The Eurodollar market originated post WWII in France and England thanks to the

fear of Soviet Bloc countries that dollar deposits held in the US may be attached

by US citizens with claims against communist governments!

THRIVING ON GOVERNMENT REGULATION

By using Euromarkets, banks and financiers are able to circumvent / avoid certain

regulatory costs and restrictions. Some examples are:

a) Reserve requirements

b) Requirement to pay FDIC fees

c) Rules or regulations that restrict competition among banks


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y Continuing government regulations and taxes provide opportunities to engage in

Eurocurrency transactions.

y However, ongoing erosion of domestic regulations have rendered the cost and return

differentials much less significant than before.

y As a result, the domestic money market and Eurocurrency markets are closely

integrated for most major currencies, effectively creating a single worldwide money

market for each participating currency.


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UNIT-V: World Trade Organization Objectives, Organization Structure and

Functioning, WTO and India, International liquidity: Problems of liquidity; International

Financial institutions - IMF, IBRD, IFC, ADB Their role in managing international

liquidity problems

World Trade Organization

World Trade Organization

y WTO is the international organization dealing with the global rules of trade

between nations.

y Its main function is to ensure trade flows as smoothly, predictably & freely as

possible

y Heart of the system known as the multilateral trading system is the WTOs

y

A

greements, negotiated and signed by a large majority of the worlds tradingnations, and ratified in their parliaments.

y Goal is to improve the welfare of the peoples of the member countries.

y The basic purpose of the WTO is to promote international trade without any

discrimination-1st Jan, 1995

y The World Trade Organization came into being in 1995. One of the youngest of

the international organizations, the WTO is the successor to the General

Agreement on Tariffs and Trade (GATT) established in the wake of the Second

World War.

Functions ofWTO

WTO shall facilitate the implementation, Administration and operation of the

plurilateral trade agreement.

WTO shall provide a forum for the negotiation among its members concerning

their multilateral trade relations

WTO shall administer the understanding on rules and procedures governing the

settlement of disputes

WTO shall administer the trade policy review mechanism and

WTO shall co operate as appropriate with IMF AND IBRD and with the affiliated

agencies


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WTO administers the 28 agreements contained in the final act and the no of

plurilateral agreements and the government procurement through various

councils and committees

It oversees the implementations of issues related to tariff cut an non tariff

measures agreed to in the trade negotiations

It examines the trade regimes of the individual member countries

WTO provides dispute settlement courts and panel

It acts as a management consultant for world trade

It provides technical co-operations and training

It can be used as a forum for continuous negotiations

It co-opts with the international institutions like IMF,IBRD etc for making global

economic policy

And it oversees the national trade policies of member governments.

Organization Structure ofWTO

Ministerial Conference-policy and strategy making body

General Council-executive body of WTO-disputes settlement and trade related

policy

Councils-trade in goods , trade in services and trade related aspects of

intellectual property bodies

Committees and Management Bodies-committee on trade and development,

balance of payment and budget, finance and administrations

The WTO has 153 members, accounting for over 97% of world trade. Around 30

others are negotiating membership.

The WTOs top level decision-making body is the Ministerial Conference which

meets at least once every two years.

Below this is the General Council (normally ambassadors and heads of

delegation in Geneva, but sometimes officials sent from members capitals)

which meets several times a year in the Geneva headquarters. The General

Council also meets as the Trade Policy Review Body and the Dispute SettlementBody.

At the next level, the GOODS COUNCIL, SERVICES COUNCIL, &

INTELLECTUAL PROPERTY (TRIPS) COUNCIL report to the General Council.

Numerous SPECIALIZED COMMITEES, WORKINGGROUPS and WORKING

PARTIES deal with the individual agreements and other areas such as the


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environment, development, membership applications and regional trade

agreements.

WTO AND INDIA

India

y India is a founder member of the General Agreement on Tariffs and Trade

(GATT) 1947 and its successor, the World Trade Organization (WTO), which

came into effect on 1.1.95 after the conclusion of the Uruguay Round (UR) of

Multilateral Trade Negotiations.

y Indias participation in an increasingly rule based system in the governance of

international trade is to ensure more stability and predictability, which ultimately

would lead to more trade and prosperity for itself and the 134 other nations which

now comprise the WTO.

y India also automatically avails of MFN and national treatment for its exports to all

WTO Members.

y INDIAs ranking in leading exporters and importer in world merchandise

trade,2007 is 26 , & in leading exporters and importer in world commercial

services 2007 is 9.

y This fourth Trade Policy Review of India has greatly improved our understanding

of Indias trade and trade related policies and the challenges it faces insustaining, and indeed improving, its economic growth.

y Members all agreed that Indias economic performance has been impressive,

with GDP growth averaging over 7% between 2001/02 (fiscal year, April-March)

and 2006/07; growth has been particularly rapid since 2003, averaging over 8.5%

and has translated into improved social indicators, including a reduction in the

percentage of the population living below the poverty line.

Additional (Optional to write)

y While import tariffs have declined, the export regime remains highly complex,partly as a consequence of various measures to neutralize duties levied on

imported inputs used in exports; export processing zones and special economic

zones also offer tax holidays to investors.

y Indias active role in the multilateral trading system was commended, and

members encouraged it to continue to show leadership in bringing the Doha

Round to a successful conclusion.


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y India remains a major user of anti-dumping measures, although the number of

investigations and measures in force has been declining. Members urged India to

exercise maximum restraint in initiating anti-dumping and safeguard actions and

in imposing such measures.

y Members commended India for taking steps to align its national standards with

international norms. They expressed concerns on SPS (sanitary and

phytosanitary measures), but welcomed measures adopted to streamline SPS

procedures.

y Members noted continued government intervention in agriculture through; inter

alia, high tariffs, price support, and direct subsidies to inputs. Moreover,

agricultural growth remains slow and erratic, causing considerable distress,

especially among small and marginal farmers. Some concerns were expressed

about the development of the manufacturing sector, which is being held back by

the complex customs duty structure, as well as the relatively high tariffs in textiles

and clothing, and automobiles.y This Review has been very informative and has given a useful overview of Indias

trade policies and practices and the challenges it faces.

International Monetary Fund

IMF is a post war international monetary institution.

It came into existence to promote economic and financial cooperation among

member countries

The International Monetary Fund (IMF) is an international organization thatoversees the global financial system by following the macroeconomic policies of

its member countries, in particular those with an impact on exchange rates and

the balance of payments.

It is an organization formed to stabilize international exchange rates and

facilitate development.[2]

It also offers financial and technical assistance to its members, making it an

international lender of last resort.

Its headquarters are located in Washington, D.C., USA.

The International Monetary Fund was created in 1944 [1], with a goal to stabilize

exchange rates and assist the reconstruction of the world's international payment

system.

Countries contributed to a pool which could be borrowed from, on a temporary

basis, by countries with payment imbalances. (Condon, 2007)

The IMF describes itself as "an organization of 185 countries (Montenegro being

the 185th, as of January 18, 2007), working to foster global monetary


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cooperation, secure financial stability, facilitate international trade, promote high

employment and sustainable economic growth, and reduce poverty".

Objectives of IMF

Avoid the competitive devaluation and exchange control

Establish and maintain currency convertibility with stable exchange rate

To promote international monetary cooperation

To facilitate balance growth rate

To lend confidence to members by making the funds resources available

To provide short term assistance to correct the balance of payment

Additional

Today

The IMF's influence in the global economy steadily increased as it accumulated more

members. The number of IMF member countries has more than quadrupled from the 44

states involved in its establishment, reflecting in particular the attainment of political

independence by many developing countries and more recently the collapse of the

Soviet bloc.

In 2008, faced with a shortfall in revenue, the International Monetary Fund's

executive board agreed to sell part of the IMF's gold reserves. On April 27, 2008,

IMF Managing Director Dominique Strauss-Kahn welcomed the board's decision

April 7, 2008 to propose a new framework for the fund, designed to close a

projected $400 million budget deficit over the next few years. The budget

proposal includes sharp spending cuts of $100 million until 2011 that will include

up to 380 staff dismissals.[5]

At the 2009 G-20 London summit, it was decided that the IMF budget will be

tripled to $1 trillion, to better meet the needs of the global community amidst thelate 2000s recession.[6][7]

International Liquidity and Special Drawing rights

Assets like bullion, commercial credit , currencies, foreign securities and SDRs

maintained by the countries to settle the deficit in the BOP and the aggregate


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total of such stock of all the central banks in the world is known as international

liquidity,.

What Is International Liquidity?

It used to be that the term international liquidity meant the relative amount of

resources available to a nations monetary authorities that could be used to settle

a balance of payments deficit.

In the days ofthe gold standard, this would mean access to gold that could be

used to redeem a nations currency held by foreigners.

After Breton Woods and the advent of the dollar-gold exchange standard,

liquidity came to mean access to dollars, either held as reserves or as credit

lines, or the SDR system maintained by the International Monetary Fund.

After 1971, with the abandonment of the dollar-gold exchange standard , as

the world entered an era of managed exchange rates, some floating, some

pegged, international liquidity came to mean the resources available to national

monetary authorities to maintain the value of their currencies as required by theirexchange management programs.

Today, the international reserves of a national central bank is often less

important than the credit and reserves available to residents of that country that

permit them to import goods whatever the reserve position of the monetary

authorities.

Additional

Liquidity In A Post-Gold-Standard World

After the Asian financial crises of 1997, it became clear that with globalization

and open economies, national monetary authorities often no longer had even

nominal control over their exchange rates.

As countries abandoned the licensing of imports, exports, and international credit

and investment operations, control of foreign exchange assets passed to the

private sector.

For countries operating without exchange licensing, the access to resources

needed to settle a balance of payments deficit, no longer were managed bycentral banks, but were controlled by private businesses and individuals.

Under liberal trading systems, Central banks often do not even have a way to

accurately measure foreign exchange assets controlled by private citizens, much

less the ability to determine the access of the private sector to international lines

of credit.


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Individualized Balance of Payments

Today, the international reserves of a national central bank is often less

important than the credit and reserves available to residents of that country that

permit them to import goods whatever the reserve position of the monetary

authorities.

If a country is not trying to peg its exchange rate to a specific foreign currency,

the aggregate trade deficit of that country is not necessarily relevant to an

individual businessperson who controls his or her own assets and credit.

International Liquidity Is A Fuzzy Concept

Consequently, international liquidity sometimes retains the older meaning,

related to the foreign currency assets of the monetary authority, for countries that

manage exchange rates and exercise various degrees of direct control over

international transactions of residents.

However, for countries with free trading regimes and floating exchange rates,

international liquidity may more properly be thought of as the foreign exchange

assets and credit available to residents of a country that would allow them to

import from abroad at their discretion.

Todays international economy is supported by monetary authorities with varying

degree of control over their nations balance of payments and foreign currencyreserves.

Consequently, the meaning of international liquidity is somewhat vague, relative

to the particular foreign exchange policies of a specific country.

Problems of international liquidity

Imports, Globalization and structural shifts

International Bank for Reconstruction and Development

IBRD was established to provide long term assistance for the reconstruction and

development of economies of the economies of the member countries

The International Bank for Reconstruction and Development (IBRD) is

institutions that comprise the World Bank Group.


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The IBRD is an international organization whose original mission was to finance

the reconstruction of nations devastated by World War II.

Now, its mission has expanded to fight poverty by means of financing states.

Its operation is maintained through payments as regulated by member states.

It came into existence on December 27, 1945 following international ratification of

the agreements reached at the United Nations Monetary and Financial

Conference of July 1 to July 22, 1944 in Bretton Woods, New Hampshire.

The IBRD provides loans to governments, and public enterprises, always with a

government (or "sovereign") guarantee of repayment subject to general

conditions (pdf).

Commencing operations on June 25, 1946, it approved its first loan on May 9,

1947 ($250m to France for postwar reconstruction, in real terms the largest loan

issued by the Bank to date).

The IBRD was established mainly as a vehicle for reconstruction of Europe and

Japan after World War II, with an additional mandate to foster economic growthin developing countries in Africa, Asia and Latin America. Originally the bank

focused mainly on large-scale infrastructure projects, building highways, airports,

and power plants.

Functions of IBRD

To assist in the reconstruction and development and development of its member

countries

To promote private foreign investment by means of guarantees

To promote long range balanced growth of international trade and the

maintenance of equilibrium in the BOP of member countries

Additional

The funds for this lending come primarily from the issuing of World Bank bonds

on the global capital marketstypically $1215 billion per year.

These bonds are rated AAA (the highest possible) because they are backed by

member states' share capital, as well as by borrowers' sovereign guarantees. (Inaddition, loans that are repaid are recycled, or relent.) Because of the IBRD's

credit rating, it is able to borrow at relatively low interest rates. As most

developing countries have considerably lower credit ratings, the IBRD can lend to

countries at interest rates that are usually quite attractive to them, even after

adding a small margin (about 1%) to cover administrative overheads.


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As Japan and its European client countries "graduated" (achieved certain levels

of income per capita), the IBRD became focused entirely on developing

countries. Since the early 1990s the IBRD has also provided financing to the

post-Socialist states of Eastern Europe and the republics of the former Soviet

Union.

International Development Association

Established in 1960 as an affiliate to IBRD

Objectives

To provide development finance on easy terms to less developed member

countries

To provide assistance for poverty alleviation in the poorest countries

To provide finance at concessional interest rates

International Finance Corporation (IFC)

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve people'slives.

IFC is a member of the World Bank Group and is headquartered in Washington, DC.

It shares the primary objective of all World Bank Group institutions: to improve the

quality of the lives of people in its developing member countries.

Established in 1956, IFC is the largest multilateral source of loan and equity

financing for private sector projects in the developing world.

It promotes sustainable private sector development primarily by:

1. Financing private sector projects and companies located in the developing world.

2. Helping private companies in the developing world mobilize financing ininternational financial markets.

3. Providing advice and technical assistance to businesses and governments.


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Ownership and management

IFC has 181 member countries , which collectively determine its policies and

approve investments.

To join IFC, a country must first be a member of the International Bank for

Reconstruction and Development (IBRD). ADDITIONAL

IFC's corporate powers are vested in its Board of Governors, to which member

countries appoint representatives.

IFC's share capital, which is paid in, is provided by its member countries, and voting

is in proportion to the number of shares held.

IFC's authorized capital (the sums contributed by its members over the years) is

$2.45 billion; IFC's net worth (which includes authorized capital and retained

earnings) was $9.8 billion as of June 2005. [2]

[edit] Funding

The IFC's equity and quasi-equity investments are funded out of its paid-in capital

and retained earnings (which comprise its net worth).

Strong shareholder support, triple-A ratings and a substantial capital base allow the

IFC to raise funds on favorable terms in international capital markets.

As of June 30, 2006, retained earnings represented almost three-quarters of the

IFC's $9.8 billion net worth.

Activities

Private sector financing is IFC's main activity, and in this respect is a profit-oriented

financial institution (and has never had an annual loss in its 50-year history). Like a

bank, IFC lends or invests its own funds and borrowed funds to its customers and

expects to make a sufficient risk-adjusted return on its global portfolio of projects.

IFC's activities, however, must meet a second test of contributing to a reduction in

poverty in line with its mandate.

In practice, this is broadly interpreted, but considerable time and effort is devoted toboth (i) selecting projects with positive developmental outcomes,

(ii) improving the developmental outcome of projects by various means.

Apart from its core investment activities, IFC also carries out technical cooperation

projects in many countries to improve the investment climate.


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Asian Development Bank

y The Asian Development Bank (ADB) is a regional development bank established

in 1966 to promote economic and social development in Asian and Pacific

countries through loans and technical assistance.

y It is a multilateral development financial institution owned by 67 members (as of

2nd February 2007)[1], 48 from the region and 19 from other parts of the globe.

ADB's vision is a region free of poverty.

y Its mission is to help its developing member countries reduce poverty and

improve the quality of life of their citizens.

y The work of the Asian Development Bank (ADB) is aimed at improving the

welfare of the people in Asia and the Pacific, particularly the 1.9 billion who live

on less than $2 a day. Despite many success stories, Asia and the Pacific

remains home to two thirds of the world are poor.

y The bank was conceived with the vision of creating a financial institution thatwould be "Asian in character" to foster growth and cooperation in a region that

back then was one of the worlds poorest.

y ADB raises funds through bond issues on the world's capital markets, while also

utilizing its members' contributions and earnings from lending. These sources

account for almost three quarters of its lending operations.

Organization

y ADB is headquartered in Mandaluyong City, Philippines.

y Traditionally, and because Japan is one of the largest shareholders of the bank,the President has always been Japanese. The current President is Haruhiko

Kuroda.

ADDITIONAL

y The highest policy-making body of the bank is the Board of Governors composed

of one representative from each member state.

y The Board of Governors, in turn, elect among themselves the 12 members of the

Board of Directors and their deputy. Eight of the 12 members come from

regional (Asia-Pacific) members while the others come from non-regional

members.

y The Board of Governors also elect the bank's President who is the chairperson of

the Board of Directors and manages ADB.

y The president has a term of office lasting five years, and may be reelected.


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IBE All 145units

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