When computing exchange rates for merchant transactions, the cover or the base rate at which the cover transaction can be undertaken in the Forex market is first computed, thereafter the profit margin as allowed by the Foreign Exchange Dealer's Association of India (FEDAI) is taken and the rate rounded off as per FEDAI Rule. In case of forward contracts, the procedure is similar except that while computing the base rate, the forward margin has to be appropriately taken. The forward margin is the extent to which the forward rate for a currency differs from its spot rate against a second currency. The forward margin when it tends to make a currency cheaper is called a 'Discount' while if it makes it costlier it is called a 'Premium.' Obviously if one currency is getting cheaper in the forward against another, the second should be getting costlier against the first. Thus while the first currency would be said to be at a discount against the second, the second would be at a premium against the first. Forward contracts for merchants generally provide for delivery within a specified period, with the merchant having the option of the date of delivery within the specified period. The ...

Recent financial market developments have also blurred the distinction between different segments of the financial markets. Creditors and investors now compete with each other for good financial transactions. In addition, borrowers can now structure the best deals available in the entire market rather than focusing on specific market segments. By borrowing in the most accessible financial market segment and then swapping aspects of the debt to other markets, successful borrowers tailor the currency, cost, maturity, and form of their financial transactions to their financial needs. These developments in international financial markets do entail some adverse consequences for developing country borrowers. Lenders and investors can be more selective in choosing their financial transactions, using swaps and other hedging techniques to pass on unacceptable risks. Given the present shortage of available financing, securitization provides flexibility and more accessible financing to creditworthy borrowers, limiting the options available to less creditworthy borrowers, such as developing countries. Borrowers can mitigate this impact by structuring financing proposals that address the ...

Global Depositary Receipts (GDR's) are a type of straight equity issues, which are issued in the offshore market. These are essentially those instruments, which possess a certain number of underlying shares in the custody of a depository bank. It is a negotiable instrument, which represents publicly traded local currency equity share. It is an instrument in the form of a deposition receipt or certificate issued by the overseas depositary bank outside India and issued to non-resident investors against the issue of ordinary shares or foreign currency convertible bonds of the issuing company. In case of a typical Global Depositary Receipt (GDR), it is denominated in US$ and the underlying shares are denominated in the local currency of the issuer. GDRs can be converted into equity shares by the cancellation of GDRs through the intermediaries, if so desired by the investor and the sale of underlying share in the domestic market through the local custodian. They are treated as common equity of the issuing company and are eligible to receive dividends and noting rights from the date of issuance. The depository receives the divided from the company in local currency and distributes ...

For the worldwide/global operation of firms, taxation plays a vital role. International taxation has become the core of various financing decisions which includes international investment decisions, international working capital decisions, fund raising decisions and the decisions related to dividend and other payments. The tax decision is also relevant in domestic firms also. The managing of taxation is an extremely difficult issue for the international corporations. The various reasons are given as follows: The firms are supposed to work in several tax jurisdiction or authorities where the tax rates are diverse and also the administration of the tax system is not uniform. The ultimate load of tax in the framework of international firms is determined by means of a more complex interaction of varying descriptions of the tax base. The difference in tax treatment in different nations will direct to distortions in worldwide trade and investment. The companies which are situated in the low-tax country can have a periphery over other firms in worldwide market. There are possibilities to divert the investment to those countries that have low cost rates. The ...

International financial markets provide links connecting the financial markets of each country and independent markets external to the authority of any one country. The heart of the international financial market is being governed by the currency market where the foreign currency is denominated by the international trade and investment. Hence the purchase of goods and services is preceded by the purchase of currency. The following are the reasons given for the enormous growth in the trading of foreign currency: Deregulation of international capital flows - Without the major government restrictions, it is extremely simple to move the currencies and capital around the globe. Gain in technology and transaction cost efficiency – The advancements in technology is not only taking place in the distribution of information, in addition to the performance of exchange or trading. This has resulted greatly to the capacity of individuals on these markets to accomplish instantaneous arbitrage.  Market upswings - The financial markets have become increasingly unstable over recent years. There are faster swings in the stock values and interest rates, adding to the enthusiasm ...

A Letter of Credit (L/C) or documentary credit is an undertaking issued by a bank, on behalf of the buyer (the importer), to the seller (exporter), to pay for the goods and services, provided that the seller presents documents, which comply with the terms and conditions of the letter of credit. Letters of credit are classified in to various categories on the basis of their nature which are used depending on the needs of the importer/opener. Revocable Letter of Credit: A revocable L/C is one that can be amended or cancelled at anytime by the issuing bank without the notice or reference to the beneficiary, consequently, revocable credit does not constitute a legally binding undertaking between the banks and the beneficiary as it can be modified or cancelled at any time without notice to the Beneficiary. Irrevocable Letter of Credit: An irrevocable L/C constitutes a definite undertaking of the issuing Bank, provided that the stipulated documents are presented to the nominated bank or to the issuing bank and that the terms and conditions of the credit are complied with. Confirmed Irrevocable Letter of Credit: A confirmation of an irrevocable credit by another bank ...