Double taxation is a situation that affects mainly multinational corporations when business profits are taxed at both the corporate and personal levels. The corporation has to pay income tax at the corporate rate before any profits are to be paid to shareholders. Profits are distributed to shareholders through dividends are subject to income tax again at the individual rate according to tax regime of the country. This way corporate profit are counted as twice income taxes. The outcome of double taxation does not affect smaller corporations, which can distribute the earnings straight to shareholders without the intermediate step of paying dividends.… Read the rest
International Business Finance
Sovereign Wealth Funds (SWFs) – Meaning, Types, Benefits and Risks
Sovereign Wealth Funds (SWFs), investment vehicles of Governments are increasingly seen in action through acquisition of either natural resources like oil and gas fields or equity holdings in MNCs. While the reasons for establishing a SWF may vary from commercial to strategic ones, SWFs’ influence on the countries and corporate is substantial. Since they mostly stay invested for a long-term they do not pose threat of pulling out in the short term and creating huge volatility in the financial markets. Since their investment corpus run to billions, by staying invested for a long time, they have a stabilizing effect on the capital market even during crashes and short term fluctuations.… Read the rest
Understanding Inflation-Linked Bonds (ILBs)
The recent Monetary Policy released by Reserve Bank of India (RBI) laid its thrust on controlling the spiraling inflation, especially the food price inflation. One of the reasons behind the Cash Reserve Ratio (CRR) hike was to “curtail the rising inflationary expectations (higher expected price trends)”
In the past RBI has been concerned about the fact that a common man does not have any protection against rising prices, vis No Inflation Hedge. The common man has to rely on traditional but inefficient methods to hedge the real inflation risks, such as Gold and real assets such as commodities or real estate or even excessive stocking of goods
In developed markets like US, the government has issues “Treasury Inflation Protected Securities” known as TIPS.… Read the rest
Factoring Concept in Export Finance
What is Factoring?
Factoring is a financial transaction whereby a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount in exchange for immediate money with which to finance continued business. Factoring differs from a bank loan in three main ways. First, the emphasis is on the value of the receivables (essentially a financial asset), not the firm’s credit worthiness. Secondly, factoring is not a loan – it is the purchase of a financial asset (the receivable). Finally, a bank loan involves two parties whereas factoring involves three.
The three parties directly involved are: the one who sells the receivable, the debtor, and the factor.… Read the rest
Post-Shipment Finance
Post shipment finance is provided to meet working capital requirements after the actual shipment of goods. It bridges the financial gap between the date of shipment and actual receipt of payment from overseas buyer thereof. Whereas the finance provided after shipment of goods is called post-shipment finance.
DEFINITION:
Credit facility extended to an exporter from the date of shipment of goods till the realization of the export proceeds is called Post-shipment Credit.
IMPORTANCE OF FINANCE AT POST-SHIPMENT STAGE:
- To pay to agents/distributors and others for their services.
- To pay for publicity and advertising in the over seas markets.
- To pay for port authorities, customs and shipping agents charges.
Definition of Currency Arbitrage
Arbitrage traditionally has been defined as the purchase of assets or commodities on one market for immediate resale on another in order to profit from a price discrepancy. In recent years however arbitrage has been used to describe a broader range of activities. The concept of arbitrage is of particular importance in International finance because so many of the relationships between domestic and international financial markets, exchange rates, interest rates and inflation rates depend on arbitrage for their existence. In fact it is the process of arbitrage that ensures market efficiency.
The purchase of currencies on one market for immediate resale on another in order to profit from the exchange rate differential is known as currency arbitrage.… Read the rest