Firms engaged in international business must have an idea about the exchange rate arrangement prevailing in different countries as this will facilitate their financial decisions. In this context, it can be said that over a couple of decades, the choice of the member countries has been found shifting from one form of exchange rate arrangement to the other, but, on the whole, preference for the floating rate regime is quite evident. At present as many as 35 of a total of 187 countries have an independent float, while the other 51 countries have managed floating system. The other 7 countries have a crawling peg, while 53 countries have pegs of different kinds.… Read the rest
International Finance
International finance is the branch of economics that studies the dynamics of foreign exchange,foreign direct investment and how these affect international trade. Also studies the international projects, international investment and the international capital flow .International Finance can be broadly defined, as the study of the financial decisions taken by a multinational corporation in the area of international business i.e. global corporate finance. International finance draws much of its background from the preliminary studies in the topics of corporate finance such as capital budgeting, portfolio theory and cost of capital but now viewed in the international dimension.
Detailed Information about Bretton Woods Exchange Rate System and The Special Drawing Rights (SDRs)
Bretton Woods Exchange Rate System (1944)
In 1944, as World War II drew toward a close, the Allied Powers met at Bretton Woods, New Hampshire, in order to create a new post-war international monetary system. The Bretton Woods Agreement, implemented in 1946, whereby each member government pledged to maintain a fixed, or pegged, exchange rate for its currency vis-Ã -vis the dollar or gold. These fixed exchange rates were supposed to reduce the riskiness of international transactions, thus promoting growth in world trade. The Bretton Woods Agreement established a US dollar-based international monetary system and provide for two new institutions, The IMF and the World Bank.… Read the rest
Detailed information about The Gold Standard Exchange Rate System
The Gold Standard (1876 — 1913):
A system of setting currency values whereby the participating countries commit to fix the prices of their domestic currencies in terms of a specified amount of gold. The gold standard as an international monetary system gained acceptance in Western Europe in the 1870s. The United States was something of a latecomer to the system, not officially adopting the standard until 1879.
The rules of the game under the gold standard were clear and simple. Each country set the rate at which its currency (paper or coin) could be converted to a weight of gold. The United States, for example, declared the dollar to be convertible to gold at a rate of $20.67/ounce of gold (a rate in effect until the beginning of World War 1).… Read the rest
Foreign Exchange Control in India
Any transaction in foreign Exchange is governed by Foreign Exchange Management ACT 1999. The FERA had its origin by defense of India rules (DIR) 1935. This control was exercised in order to ensure the foreign exchange particularly due to severe constraints on exchange reserve due to Second World War. Later on 23 March 1947 this rule became in the State Book as Foreign Exchange Regulation Act 1947. Later this act modified with certain amendments in 1973 and become effective from 01.01.1974. Further relaxation of this affect was effected since 1994. The same was repealed from 1st June, 2000 and all foreign exchange transactions from this date will be governed by the provisions of the Foreign Exchange Management Act 1999.… Read the rest
Role of FEDAI in Foreign Exchange
Authorized Dealers in Foreign Exchange (Ads) have formed an association called Foreign Exchange Dealers Association of India (FEDAI) in order to lay down certain terms and conditions for transactions in Foreign Exchange Business. Ad has to given an undertaking to Reserve Bank of India to abide by the exchange control and other terms and conditions introduced by the association for transactions in foreign exchange business. Accordingly FEDAI has evolved various rules for various transactions in order to protect the interest of the exporters, importers general public and also the authorized in dealers. FEDAI which is a company registered under Section 25 of the companies Act, 1956 has subscribed to the
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Types of Selling Rates in Foreign Exchange Markets
When a bank sells foreign exchange it receives Indian rupees from the customer and parts with foreign currency. The sale is affected by issuing a payment instrument on the correspondent bank with which it maintains the nostro account. immediately on sale, the bank buys the requisite foreign exchange from the market and gets its nostro account credited with the amount so that when the payment instrument issued buy its is presented to the corresponded bank it can be honoured by debit to the nostro account. However, depending upon the work involved, viz., whether the sale involves handling of documents by the bank or not, two types of selling rates are quoted in India, they are
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