Three interrelated developments in global capital markets are: The sustained rise in gross capital flows relative to net flows; The increasing importance of securitized forms of capital flows; and The growing concentration of financial institutions and financial markets. Taken together these trends may signal what some others have referred to as a ‘quiet opening’ of the capital account of the balance of payments, which is resulting in the development, strengthening and growing integration of domestic financial systems within the international financial system. Finance is being rationalized across national borders, resulting in a breakdown in many countries in the distinction between onshore and offshore finance. It is particularly evident and most advanced in the wholesale side of the financial industry, and Continue reading
International Business Finance
Emerging Markets for International Capital Investments
Of late emerging markets have become a buzzword among the international investors for reaping greatest potential rewards which would be impossible if they stayed put in their affluent hinterlands. The term emerging markets (EMs) is a collective reference to the stock markets of the developing nations. A question, which overpowers a discerning mind, is why the international investors are looking towards emerging markets for investing their funds instead of established markets like US? Three reasons can be given to answer this question. First, the average total return of emerging markets has outstripped those of developed markets. Investments total return index computed by the IFC (International Finance Corporation) which measures the total return for each country based on those stock available Continue reading
Centralized Cash Management Operations of Multinational Corporations
International money managers attempt to attain on a worldwide basis the traditional domestic objectives of cash management: (1) bringing the company’s cash resources within control as quickly and efficiently as possible and (2) achieving the optimum conservation and utilization of these funds. Accomplishing the first goal requires establishing accurate, timely forecasting and reporting systems, improving cash collections and disbursements, and decreasing the cost of moving funds among affiliates. The second objective is achieved by minimizing the required level of cash balances, making money available when and where it is needed, and increasing the risk-adjusted return on those funds that can be invested. Restrictions and typical currency controls imposed by governments inhibit cash movements across national boundaries. These restrictions are different Continue reading
Definition of Forfaiting
Forfaiting is a specialized form of trade finance that allows the exporter to offer extended credit to the importer. Under forfaiting , the importer gives the exporter a bundle of bills of exchange or promissory notes covering the principal amount as well as the interest. Each tranche of the notes fall due at different points of time in the future, e.g. every six months, extending up to several years. The notes are backed by an aval or guarantee provided by a reputed bank in the importer’s country. The exporter can then discount these notes without recourse with banks who specialize in the forfaiting business to generate an immediate cash flow. This means that if either the importer or the guaranteeing Continue reading
Buyers Credit and Suppliers Credit
Buyer’s Credit Buyer’s Credits are a form of Eurocurrency loans designed to finance a specific transaction involving import of goods and services. Under this arrangement, lending bank(s) pay the exporter on presentation of shipping documents. The importer works out a deferred payment arrangement with the lending bank, which the bank treats as a loan. Large loans are club loans or syndicated loans. Many provisions in the loan agreement are quite similar to a general purpose syndicated credit. However, a number of formalities have to be completed before the exporter can draw funds. The interest rate of the loan is linked to a market index such as LIBOR. In some cases, a state Export Credit Agency from the exporter’s country may Continue reading
Double Taxation Relief
One of the major risk in the International Business is the payment of taxes in both the countries i.e. the country in which the business is actually effected and in the country where the MNC is having its head office. This type of double taxation will definitely impede the growth and development of the MNCs in multiple ways. So the provisions are made to avoid the double taxation (Double Taxation Relief) between the two countries through two types of relief namely Bilateral Relief and Unilateral Relief. Bilateral Relief Under this scheme, relief against the burden of double taxation is worked out on the basis of mutual agreement between two countries. There are two types of agreements. In one type, the Continue reading