International Business

International Business Management deals with the maintenance and development of a multinational operation across national borders, whose manager has the knowledge and the skills to manage and handle cross-cultural processes, stakeholders and business environments in a right way.

Fixed Exchange Rates, 1945-1973

Fixed Exchange Rates, 1945-1973

The currency arrangement negotiated at Bretton Woods and monitored by the IMF worked fairly well during the post-World War II period of reconstruction and rapid growth in world trade. However, widely diverging national monetary and fiscal policies, differential rates of inflation, and various unexpected external shocks eventually resulted in the system‘s demise. The U.S. dollar was the main reserve currency held by central banks and was the key to the web of exchange rate values. Unfortunately, the United States ran persistent and growing deficits on its balance of payments. A heavy capital outflow of dollars was required to finance these deficits and to meet the growing demand for dollars from investors and businesses.… Read the rest

Abey Francis

Merchant Rate and Exchange Margin in Foreign Exchange Markets

Merchant Rate

The foreign exchange dealing of a bank with its customer is known as  merchant business and the exchange rate at which the transaction takes place is the merchant rate. The merchant business in which the contract with the customer to buy or sell foreign exchange is agreed to and executed on the same day is known as ready transaction or cash transaction. As in the case of interbank transactions a value next day contract is deliverable on the next business day and a  spot contract is deliverable on the second succeeding business day following the date of the contract.… Read the rest

Abey Francis

Special Drawing Rights (SDRs)

Special Drawing Rights (SDRs), also known as the paper gold, are a form of international reserves created by the International Monetary Fund (IMF) in 1969 to solve the problem of international liquidity. They are not paper notes or currency. They are international units of account in which the official account of the IMF are kept.

Origin of  Special Drawing Rights

Special Drawing Rights  were created through the First Amendment of the Fund Articles of Agreement in 1969 following persistent US deficits in balance of payments to solve the problem of liquidity. Until December 1971, an SDR was linked to 0.88867 gram of gold and was equivalent to US $1.… Read the rest

Abey Francis

Definition of arbitrage and its types

Sometimes companies deal in foreign exchange to make a profit, even though the transaction is not connected to any other business purpose, such as trade flows or investment flows. Usually, however, this type of foreign exchange activities is more likely to be persuaded by foreign exchange traders and investors. One type of profit   seeking activity is arbitrage, which is the purchase of foreign currency on one market for immediate resale on another market (in a different country) in order to profit from a price discrepancy.   Hence, arbitrage may be defined as an operation that consists in deriving a profit without risk from a differential existing between different quoted rates.… Read the rest

Abey Francis

Inter bank deals in forex trading

Primary dealers quote two-way prices and are willing to deal either side, i.e. they buy and sell the base currency up to conventional amounts at those prices. However, in interbank markets this is a matter of mutual accommodation. A dealer will be shown a two-way quote only if he / she extends the privilege to fellow dealers when they call for a quote.

Communications between dealers tend to be very terse. A typical spot transaction would be dealt as follows:

BANK A : “ Bank A calling. Your price on mark — dollar please.”

BANK B : “ Forty forty eight.”… Read the rest

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Different Types of Transactions in the Foreign Exchange Market

A very brief account of certain important types of transactions conducted in the foreign exchange market is given below

Spot and Forward Exchanges Spot Market:

The term spot exchange refers to the class of foreign exchange transaction which requires the immediate delivery or exchange of currencies on the spot. In practice the settlement takes place within two days in most markets. The rate of exchange effective for the spot transaction is known as the spot rate and the market for such transactions is known as the spot market.

Forward Market:

The forward transactions is an agreement between two parties, requiring the delivery at some specified future date of a specified amount of foreign currency by one of the parties, against payment in domestic currency be the other party, at the price agreed upon in the contract.… Read the rest

Abey Francis