Name Harshal K Majithia; Roll no. PGEMP36/A/26 Finance Management Assignment no.

o. 01 Week 1 Application exercise Overview of International Finance Some of the practical issues relating to International Trade, on the basis of the recent liberalization of exchange control regulations, are given below. Please solve the following issues on the basis of the pre-session reading materials or on the basis of the exposure you got from your company. Before answering the following, give a backdrop of your company/division exports/imports in terms of: Products/ services rendered L&T is a diversified company with a wide range of products and services. It is into the business of pressure vessels, heat exchangers, defense, nuclear, aerospace, oil & gas, construction, shipbuilding, software, financials and industrial products. L&Ts heavy engineering division (which has presence in pressure vessels, heat exchangers, defense, nuclear and aerospace) exports many of its products. While, few raw materials are also imported. Volumes/ Value 17% of L&Ts revenues (i.e. around 9,200 crore INR) are from exports. Countries involved L&T exports finished goods mainly to Middle East countries like UAE, Oman, Qatar and Saudi Arabia. Latin America also marginally contributes to L&Ts exports. 1. Your company remits USD 25,000 to its US unit for office maintenance expenses. Please identify whether this Import of capital equipment will be treated as current or capital account transaction from our countrys perspective It is a current account transaction as it does not involve any purchase / sale of assets (i.e. a non capital transaction)

2. Your company is interested in exporting to Nigeria. Please try to find out the present economic status of this country. How is the forex reserve position of this country at present? Looking at their balance of trade, balance of payment and forex reserve position, will you be interested in exporting goods to this country. What all economic data is relevant to your company? Current Economic status: Nigeria is a middle income, mixed economy and emerging market, with expanding financial, service, communications, and entertainment sectors. It is ranked 30th in the world in terms of GDP (PPP) as of 2011, and its emergent, though currently underperforming manufacturing sector is the third-largest on the continent, producing a large proportion of goods and services for the West African region. Previously hindered by years of mismanagement, economic reforms of the past decade have put Nigeria back on track towards achieving its full economic potential. Nigerian GDP at purchasing power parity more than doubled from $170.7 billion in 2005 to $413.4 billion in 2011. Correspondingly, the GDP per capita doubled from $1200 per person in 2005 to an estimated $2,600 per person in 2011. It is the largest economy in the West Africa Region, 3rd largest economy in Africa (behind South Africa and Egypt), and on track to becoming one of the 20 largest economies in the world by 2025. Foreign Exchange reserves: Nigeria's foreign exchange reserves rose to their highest in more than four years and grew 3.8 percent month-on-month to $47.02 billion by February 21 2013, latest figures from the Nigerian central bank. The forex reserves of Nigeria, which is also Africa's top energy producer, were $45.26 billion a month earlier, while they rose 34.99 percent from a year ago when $34.83 billion were recorded. Balance of payment: The below table shows the BoP position of Nigeria over the past few years.
2006 $36,518,050,000.00 2007 $27,643,450,000.00

2008 $28,079,070,000.00 2009 $13,153,060,000.00 2010 $2,476,237,000.00

It indicates that the BoP has been reducing significantly, but still is positive. Thus, looking at all the above parameters, we will be interested in exporting to Nigeria. 3. Please analyze the foreign exchange reserve position of India. This data will be available in Reserve Banks website on every Friday. Try to collect the data for one month and analyze the ongoing trend. The following table shows the foreign exchange reserve position of India for the past two months and its difference:22nd March 2013
Item 1 Total Reserves 1.1 Foreign Currency Assets 1.2 Gold 1.3 SDRs 1.4 Reserve Position in the IMF Rs. (Bn) 15,821.80 14,046.70 1,413.80 235.6 125.7

22nd Feb 2013

Rs. (Bn) 15,857.40 14,054.60 1,437.50 238.2 127.1

Difference
Rs. (Bn)

-35.60 -7.90 -23.70 -2.60 -1.40

There has been a little drop in the foreign exchange reserves of India from the past month. However, in USD terms the foreign reserves has improved a bit. This may be primarily on account of appreciation of INR over the past one month. The drop in gold reserves is primarily due to fall in gold prices.