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 1. TT Selling Rate (TT stands for Telegraphic Transfer) This is the rate to be used for all transactions that do not involve handling of documents by the bank. Transactions for which this rate is Continue reading
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.
Types of Buying Rates in Foreign Exchange Markets
In a purchase transaction the bank acquires foreign exchange from the customer and pays him in Indian rupees. Some of the purchase transactions result in the bank acquiring foreign exchange immediately, while some involve delay in the acquisition of foreign exchange. For instance, if the bank pays a demand drawn on it by its correspondent bank, there is no delay because the foreign corresponded bank would already have credited the nostro account of the paying bank while issuing the demand draft. On the other hand, if the bank purchases on âOn demandâ bill from the customer, it has first to be sent to the draws place for collection. The bill will be sent to the correspondent bank for collection. The correspondent bank will present the bill to the drawee. Depending upon the tine of realization of foreign exchange by the bank, two types of buying rates are quoted in India. Continue reading
The Asian Development Bank (ADB)
Origin During the 1950s, it was strongly felt that there should be a bank for Asia like the World Bank to meet the development needs of this region. This view was suggested for the first time at the ministerial Conference on Asian Cooperation held at Manila in December 1963. The Conference constituted a working group of experts which submitted its report to the UN Economic commission for Asia and Far East (ECAFE) at its session held at Wellington in March 1965. It was on the basis of this report that an Agreement Establishing the Asian Development Bank was drafted and adopted at the Second Ministerial Conference on Asian Economic Cooperation at Manila in November-December 1965. By January 1966, 33 countries had signed its Charter and the Asian Development Bank was set up on December 19, 1966 with its headquarters at Manila in the Philippines. Objectives The main aim for the Continue reading
The World Bank or The International Bank for Reconstruction and Development (IBRD)
The International Bank for Reconstruction and Development (IBRD) or the World Bank was established on December 27, 1945 following international ratification of the Bretton Woods Agreement of 1944 , which emerged from the United Nations Monetary and Financial Conference (July 1-22,1944).to assist in bringing about a smooth transition from a war time to peace time economy. It is the sister institution of IMF. Since its inception in 1944, the World Bank has expanded from a single institution to an associated group of coordinated development institutions. The Bankâs mission evolved from a facilitator of post-war reconstruction and development to its present day mandate of worldwide poverty alleviation, social sector funding and comprehensive development framework. The term âWorld Bankâ now refers to World Bank Group which includes International Bank for Reconstruction and Development (IBRD) established in 1945 for providing debt financing on the basis of sovereign guarantees. International Financial Corporation (IFC) established Continue reading
The Bretton Woods System â Background, Design and Reasons for Collapse
Since the beginning of the 19th century, globalization, international trade and free trade between countries became the new economic order and several attempts have been made since then to develop policies and schemes to ensure the stability of the international monetary system. It is safe to say that in truth, the world economy has never been in a state of utopia, but nevertheless, we have never stopped trying to attain such. The Bretton Woods era of 1944 to 1977, one of the few fairly successful schemes the world powers created in trying to achieve economic utopia, though existed for a short period, has been accredited as being one of the most successful international monetary systems, so impressive was the economic stability and growth of the era that there have been ongoing talks for a comeback of the system. Background of the Bretton Woods System At the end of the World Continue reading
Working of International Monetary Fund (IMF)
Recommended Reading: International Monetary Fund (IMF) 1. Financial Resources: IMFâs resources mainly come from two sources Quotas and Loans. The capital of the Fund includes quotas of member countries, amount received from the sale of gold, General Arrangements to Borrow (GAB), New Arrangements to Borrow (NAB) and loans from members nations. Quotas and Loans and their Fixation: The Fund has General Account based on quotas allocated to its members. When a country joins the Fund, it is assigned a Quota that governs the size of its subscription, its voting power, and its drawing rights. The country will be assigned with an initial quota in the same range as the quotas of existing members that are broadly comparable in the economic size and characteristics.  At the time of the formation of the IMF, each member is required to pay its subscription in full or on joining the Fund â of which Continue reading