Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
The objective of this course is to introduce students to the contemporary issues in Global
Business that illustrates the unique challenges faced by managers in the global business
environment and to assist students to develop a truly global perspective.
UNIT-I: Globalization – Introduction to the field of Global Business, Significance, Nature and
Scope of Global Business, Modes of Global business – Global Business Environment- Social,
Cultural, Economic, Political and Ecological factors
UNIT-IV: Foreign Exchange Market: Nature of transactions in foreign exchange market and
types of players, Exchange rate determination, Convertibility of rupee – Euro currency market.
Text Books
Daniel, John D and Rdebangh, Lee H. International Business, 6h ed., New York, Addision Wesley, 2007.
Reference Books
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UNIT-I: Globalization – Introduction to the field of Global Business, Significance, Nature and
Scope of Global Business, Modes of Global business – Global Business Environment- Social,
Cultural, Economic, Political and Ecological factors
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Global Links Today
• International business has created a network of global links that bind
countries, institutions, and individuals with trade, financial markets,
technology, and living standards.
– For example, a reduction in coffee production in Brazil would
affect individuals and economies worldwide.
Recent Changes in International Business
• Total world trade declined dramatically after 2000, but is again on the
rise.
• The rate of globalization is accelerating.
• Regionalization is taking place, resulting in trading blocs.
• The participation of countries in world trade is shifting.
The Composition of Trade
• Between the 1960’s and the 1990’s the importance of manufactured
goods increased while the role of primary commodities (i.e. rubber or
mining) had decreased.
• More recently, there has been a shift of manufacturing to countries
with emerging economies.
• There has been an increase in the area of services trade in recent
years.
Globalization
• Because of globalization, for the first time in history, the availability
of international products and services can be accessed by individuals in
many countries, from diverse economic backgrounds.
The Globalization Debate
• Antiglobalization Protest
• Globalization, Jobs and Debate
• Globalization, Labour Policies and the Environment
• Globalization and National Sovereignty
• Globalization and the National Sovereignty
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MODES OF GLOBAL BUSINESS
Learning Objectives
• To learn how firms gradually progress through an internationalization
process.
• To understand the strategic effects of internationalization.
• To study the various modes of entering international markets.
NEED
• Managerial commitment is critical because foreign market penetration
requires a vast amount of market development activity, sensitivity
toward foreign environments, research, and innovation.
The Steps to Developing International Commitment
• Become aware of international business opportunities.
• Determine the degree of the firm’s internationalization.
• Decide the timing of when to start the internationalization process and
how quickly it should progress.
Licensing
• The property licensed may include:
– Patents: A patent is a set of exclusive rights granted by a state
to an inventor or his assignee for a limited period of time in
exchange for a disclosure of an invention.
– Trademarks:
A trademark or trade mark,[1] identified by the symbols ™ (not
yet registered) and ® (registered), is a distinctive sign or
indicator used by an individual, business organization or other
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legal entity to identify that the products and/or services to
consumers with which the trademark appears originate from a
unique source of origin, and to distinguish its products or
services from those of other entities.
A trademark is a type of intellectual property, and typically a
name, word, phrase, logo, symbol, design, image, or a
combination of these elements.[2]
– Copyrights: Copyright is a form of intellectual property which
gives the creator of an original work exclusive rights for a certain
time period in relation to that work, including its publication,
distribution and adaptation; after which time the work is said to
enter the public domain.
– Technology
– Technical know-how
– Specific business skills
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• May be creating own future competitor
Franchising
• The major forms of franchising are:
– Manufacturer-retailer systems such as car dealerships,
– Manufacturer-wholesaler systems such as soft drink, companies
– Service-firm retailer systems such as fast-food outlets.
Key Reasons for Franchising
- Financial Gain
- Market Potential
- Saturated Domestic Markets
Need for Franchising
• Internationally, the firm must be able to offer unique products or
selling propositions
• Must offer a high degree of standardization, but be adaptable to local
circumstances
• Growing fast internationally, but government intervention is a major
problem
• Selection and training of franchisees is also a problem area
Informal Cooperation
It has not binding agreement. It is where one country shows concern
to other country.
Ex.: At the times of Tsunami, countries around the globe helped
Indonesia to overcome that tragedy.
Consortia
It is where the firm shares its opportunities as well as its
competences along with other companies as a result of the inter firm
competition.
There may be new equity sharing or none. There will be more than 2
partners.
Contractual Agreements
Strategic alliance partners may join forces for R&D, marketing,
production, licensing, cross-licensing, cross-market activities, or
outsourcing.
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Contract manufacturing allows the corporation to separate the
physical production of goods from the R&D and marketing stages.
Management contracts involve selling one’s expertise in running a
company while avoiding the risk or benefit of ownership.
A turnkey operation is a contractual agreement that permits a
client to acquire a complete system following its completion.
Equity Participation
Some companies have acquired minority ownerships in companies
that have strategic importance for them.
Reasons for engaging in equity participation include:
- It ensures supplier ability
- It builds working relationships
- It creates market entry and support of global operations
FDI
It is of 2 types
- Equity participation
- Non –Equity participation (Portfolio Investment)
Culture Environment
Culture is an integrated system of learned behavior patterns that are characteristic of
the members of any given society.
Elements of Social and Culture
Language (verbal and nonverbal)
Religion
Values and Attitudes
Manners and Customs
Material Elements
Aesthetics
Education
Social Institutions
Political Environment
The Home Country Perspective
Major areas of governmental activity that are of concern to the international business
manager:
– Embargoes and Sanctions
– Export Controls
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– Regulation of International
– Business Behavior
Economic Risk
o Less dangerous, but more common
Economic Environment
• Economic Size
• Economic Systems
• Key Macroeconomic Indicators
• Economies in Transition
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UNIT-II: Theories of International Trade, Trading Environment of International Trade - Free
Trade Vs Protection- Tariff and Non-tariff Barriers –Trade Blocks.
(Refer Michael R. Czinkota, Iikka A. Ronkainen & Michael H. Moffett., International Business,
Cengage Learning, 2008.)
Why do countries produce goods and services that could be more cheaply purchased
from other countries?
Reasons:
• To encourage local production
• To help local firms export
• To protect local jobs
• Protect infant industries
• Reduce dependency
• Encourage local and foreign direct investment
• Reduce balance of payment problems
• Reduce or avoid dumping
Commonly used barriers
• Price based barriers- Ad valorem
• Quantity limits-quotas- embargo
• International price fixing- cartel
• Financial limits- exchange control
• Foreign investment controls-minority stakes, limiting profits etc
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Tariffs
Tariff barriers affect prices; nontariff barriers may affect either price or quantity
directly.
A tariff (sometimes called duty) is the most common type of trade control and is
a tax that governments levy on an official boundary.
Tariffs also serve as a source of government revenue.
• Export tariff
If the tariff collected by the exporting country are called Export tariff
• Import tariff
If the tariff collected by importing country, it is an import tariff.
• Transit tariff
If the tariff collected by a country through which the goods have passed, it is an
transit tariff.
• Specific duty
A government may asses a tariff on a per-unit basis, in which case it is applying
specific duty.
• Ad valorem duty
It may access a tariff as a percentage of the value of the item, in which case it is
an ad valorem duty
• Compound duty
If it accesses both a specific duty & an ad valorem duty on the same product, the
combination is a compound duty.
• Dumping – i.e., selling goods overseas, or both. Dumping ranges from predatory
to unintentional. Predatory dumping is the tactic of a foreign firm that
intentionally sells at a loss in another country to increase market share at the
expense of domestic producers. This amounts to an international price war.
Unintentional dumping is the result of time lags between the date of sales
transactions, shipment & arrival.
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Another form of quantitative trade control is “Buy local” legislation or “buy
national” restrictions.
Government purchases are a large part of total expenditures in many
countries; typically governments favor domestic products.
Sometimes governments specify a domestic content restriction- i.e., a certain
percentage of products must be of local origin. Sometimes they favor
domestic producers by establishing price mechanisms.
• Customs valuation
It is difficult for customs officials to determine if invoice prices are honest
- They may arbitrarily increase value
- Valuation procedures have been developed.
• Technical barriers
• Restriction on services
• Counter trade
It is a sale that encompasses more than an exchange of goods, services or idea
for money.
In International Market, Counter trade Transactions "are those transactions
that have as a basic characteristic - linkage, legal or otherwise between
exports & imports of goods or services in addition to or in places of Financial
settlements”
Trade bloc
• A trade bloc is a type of intergovernmental agreement, often part of a regional
intergovernmental organization, where regional barriers to trade (tariffs and
non-tariff barriers) are reduced or eliminated among the participating states.[1]
• One of the first economic blocs was the German Customs Union (Zollverein)
initiated in 1834, formed on the basis of the German Confederation and
subsequently German Empire from 1871.
• Surges of trade bloc formation were seen in the 1960s and 1970s, as well as in the
1990s after the collapse of Communism.
• By 1997, more than 50% of all world commerce was conducted under the
auspices of regional trade blocs.[2]
• Economist Jeffrey J. Scott of the Peterson Institute for International Economics
notes that members of successful trade blocs usually share four common traits:
similar levels of per capita GNP, geographic proximity, similar or compatible
trading regimes, and political commitment to regional organization.[3]
• Advocates of worldwide free trade are generally opposed to trading blocs,
which, they argue, encourage regional as opposed to global free trade.[4]
• Scholars and economists continue to debate whether regional trade blocs are
leading to a more fragmented world economy or encouraging the extension of
the existing global multilateral trading system.
• Trade blocs can be stand-alone agreements between several states (such as
NAFTA) or part of a regional organization (such as the European Union).
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• Depending on the level of economic integration, trade blocs can fall into different
categories, such as:[7] preferential trading areas, free trade areas, customs
unions, common markets and economic and monetary unions.
Introduction
(Refer Page no. 182, Michael R. Czinkota, Iikka A. Ronkainen & Michael H. Moffett.,
International Business, Cengage Learning, 2008.)
– Current account
– Capital account
– Reserves
Current Account
(Refer Page no. 184, Michael R. Czinkota, Iikka A. Ronkainen & Michael H. Moffett.,
International Business, Cengage Learning, 2008.)
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• I.A. goods, services, and income: 1.Merchandise
• 3. Travel
• 4. Investment income
• 5. Other official
• 6. Other private
• B. Unrequited transfers:
• 1. Private
• 2. Officials
Capital Account
(Refer Page no. 187, Michael R. Czinkota, Iikka A. Ronkainen & Michael H. Moffett.,
International Business, Cengage Learning, 2008.)
• 1. Direct investment
• 2. Portfolio investment
Reserves
• III. D. Reserves
• 1. Monetary gold
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• Reserve assets consist of those external assets that are readily available to and
controlled by monetary authorities for direct financing of payments imbalances, for
indirectly regulating the magnitude of such imbalances through intervention in
exchange markets to affect the currency exchange rate and/or for other purposes.
• The category of reserve assets in the IMF's Balance of Payments Manual, Fifth
Edition (BPM5) comprises:
- Monetary gold;
- Special drawing rights (SDRs);
- reserve position in the Fund;
- Foreign exchange assets (consisting of currency and deposits and securities);
and
- Other claims.
• 2. Money supply
• 3. Exchange Rate
• 4. Interest rate
(b) Dynamic Equilibrium: The condition of dynamic equilibrium for short periods of
time is that exports and imports differ by the amount of short-term capital movements
and gold (net) and there are no large destabilising short-term capital movements.
Additional
The condition for dynamic equilibrium in the long run is that exports and imports
differ by the amount of long term autonomous capital movements made in a normal
direction, i.e. from the low-interest rate country to those with high rates. When the BOP
of a country is in equilibrium, the demand for domestic currency is equal to its supply.
The demand and supply situation is thus neither favourable nor unfavourable. If the
BOP moves against a country, adjustments must be made by encouraging exports of
goods, services or other forms of exports or by discouraging imports of all kinds. No
country can have a permanently unfavourable BOP, though it is possible – and is quite
common for some countries – to have a permanently unfavourable balance of trade.
Total liabilities and total assets of nations, as of individuals, must balance in the long-
run.
(Needed)
Types and Causes of BOP Disequilibrium:
There are three main types of BOP Disequilibrium which are discussed below:
(a) Cyclical disequilibrium,
(b) Secular disequilibrium, and
(c) Structural Disequilibrium.
(a) Cyclical Disequilibrium: Cyclical disequilibrium occurs because of two reasons.
First, two countries may be passing through different paths of business cycle. Second, the
countries may be following the same path but the income elasticities of demand or price
elasticities of demand are different. If prices rise in prosperity and decline in depression, a
country with a price elasticity for imports greater than unity will experience a tendency
for decline in the value of imports in prosperity; while those for which import price
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elasticity is less than one will experience a tendency for increase. (These tendencies may
be overshadowed by the effects of income changes, of course. Conversely, as prices
decline in depression, the elastic demand will bring about an increase in imports, the
inelastic demand a decrease. )
(b) Secular Disequilibrium: The secular or long-run disequilibrium in BOP occur because of
long-run and deep seated changes in an economy as it advances from one stage of growth to
another. (The current account follows a varying pattern from one state to another. In the
initial stages of development, domestic investment exceeds domestic savings and
imports exceed exports.
Disequilibrium arises owing to lack of sufficient funds available to finance the import
surplus, or the import surplus is not covered by available capital from abroad. Then
comes a stage when domestic savings tend to exceed domestic investment and exports
outrun imports. Disequilibrium may result, because the long-term capital outflow falls
short of the surplus savings or because surplus savings exceed the amount of
investment opportunities abroad. At a still later stage, domestic savings tend to equal
domestic investment and long term capital movements are on balance, zero. )
(c) Structural Disequilibrium: Structural disequilibrium can be further bifurcated into:
(i) Structural Disequilibrium at Goods Level: Structural disequilibrium at goods level
occurs when a change in demand or supply of exports or imports alters
a previously existing equilibrium, or when a change occurs in the basic circumstances under
which income is earned or spent abroad, in both cases without the requisite parallel changes
elsewhere in the economy. (Suppose the demand for Pakistani handicrafts falls off.
The resources engaged in the production of these handicrafts must shift to some
other line or the country must restrict imports, otherwise the country will experience
a structural disequilibrium.
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To correct the different types of disequilibrium in BOP the following general measures
are used:
(a) Exchange depreciation (price effect) or devaluation (by government),
(b) Deflate the currency,
(c) Tariffs,
(d) Import quotas, and
(e) Export duties.
(a) Exchange Depreciation (Price Effect) or Devaluation (by Government): Exchange
depreciation means a reduction in the value of a currency in terms of gold or other currencies
under ‘free market’ conditions and coming about through a decline in the demand for that
currency in relation to the supply. This is usually applied to ‘floating exchange rates’.
The purpose of this method is to depreciate the external exchange value of the home
currency, thus cheapening the domestic goods for the foreigner. Whereas, under ‘fixed-
parity system’ or ‘fixed exchange rate’, the reduction of currency value in against the gold or
other currencies is official and not market based. This official reduction of exchange rate is called
‘devaluation’. The purpose of both ‘depreciation’ and ‘devaluation’ is to cheapen the
domestic goods and boost up the exports. (But the governments regarded devaluation
as a means of correcting a balance of payments deficit only as a measure of last resort.
They predominantly relied on deflation of the home market and international
borrowing. Devaluation or depreciation of the exchange rate can correct a balance of
payment deficit because it lowers the price of exports in terms of foreign currencies and
raises the price of imports on the home market. This does not necessarily succeed in its
purpose. The immediate effect is similar to an unfavourable change in the TOT. For the
resources devoted to the production of exports, less foreign exchange is earned with
which to pay for imports. If the level of imports remained the same, more output
would have to be diverted to exports and away from home consumption and
investment simply to maintain the status quo. Devaluation or depreciation could lead
to a loss of real income without any benefit to the balance of payments. )
Pakistan has always faced negative BOT except for three years, i.e. 1947-48, 1950-51 and
1972-73. The newly born Pakistan had a quite high exports and a handsome balance of
trade (US $ 42 million). With the Korean War boom in 1950-51, once again Pakistan
gained a surplus in BOT (US $ 53 million). However, the reason for 1972-73’s positive
BOT ($ 20 million) was the massive currency devaluation in 1972 when the rupee was
devalued from Rs. 4.76 to 2.3 times higher level of Rs. 11 per US dollar. The exports
increased significantly and the share of exports in GDP rose to 14.9%.
(b) Deflate the Currency: According to this method, the currency is deflated. As the
currency contracts, prices will fall, which will stimulate exports and check imports. But the
method of deflation is also full of dangers. If prices are forced down while costs, which are
proverbially rigid (especially as regards wages in countries where trade unions are well
organised), do not follow suit, the country may face a serious depression and unemployment.
Correcting the balance of payments, therefore, once a disequilibrium has arisen is not an
easy matter.
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(c) Tariffs: Tariff is a tax levied on imports. It is synonymous with import duties or
custom duties. Tariffs are used for two different purposes;
- for revenue and
- for protection.
‘Revenue Tariffs’ are a source of government revenue and ‘Protective Tariffs’ are
meant to maintain and encourage those branches of home industry protected by
the duties.
Tariff duties are of four types:
(i) Ad Valorem Tariff: It is levied as a percentage of the total value of the
imported commodity.
(ii) Specific Duties: These are levied per unit of the imported commodity.
(iii) Compound Duties: These are a mixture of above two.
(iv) Sliding Scale Duties: These vary with the prices of commodities imported.
(d) Import Quotas: As a protective device, import quotas are alternative to tariffs.
Under an import quota, fixed amount of a commodity in volume or value is allowed to
be imported into the country during a specified period of time. The major objectives of
import quotas are:
(i) to avoid foreign competition,
(ii) to provide greater administrative flexibility,
(iii) to solve the problem of BOP and BOT.
(e) Export Duties: When world prices are higher than domestic prices, there is an
incentive to export. In such a situation, a government may levy export duties. Export
duties are used to prevent exports. The reason may be that exported commodities are
required domestically.
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UNIT-IV: Foreign Exchange Market: Nature of transactions in foreign exchange market and
types of players, Exchange rate determination, Convertibility of rupee – Euro currency market.
Exchange control
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• The best-known and most-used purchasing power parity exchange rate is the
Geary-Khamis dollar (the "international dollar").
• PPP exchange rates (the "real exchange rate") fluctuations are mostly due to
market exchange rates movements.
• Free convertible-
• Partial convertibility -1992-93 in current account
• LERMS- Market rate and Official rate
Free convertible
• Free convertibility of a currency means that the currency can be exchanged
for any other convertible currency, without any restriction, at the market
determined exchange rates.
• Convertibility of the rupee, thus means that the rupee can be freely converted
into dollar, pound sterling', yen, Deutsche mark, etc. and vice versa at the
rates of exchange determined by the demand and supply forces.
LERMS
• According the Liberalized Exchange Rate Management System
(LERMS) introduced in March 1992, 60 per cent of all receipts under
current transactions (merchandise exports and invisible receipts)
could be converted at the free market exchange rate quoted by the
authorized dealers.
• The rate applicable for the remaining 40 per cent was the official rate
fixed by the Reserve. Bank.
• This 40 per cent of the total foreign exchange receipts under the
current account was exclusively meant to cover government needs
and to import essential commodities.
• In addition, foreign exchange at official rate was to be made
available to meet 40 percent of the value of the advance licenses and
special import licenses.
• In short, it was a dual exchange rate system.
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Why partial convertibility?
Merits of convertibility
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Eurocurrency market
• The money market in which Eurocurrency, currency held in banks outside of the
country where it is legal tender, is borrowed and lent .
By using Euromarkets, banks and financiers are able to circumvent / avoid certain
regulatory costs and restrictions. Some examples are:
a) Reserve requirements
b) Requirement to pay FDIC fees
c) Rules or regulations that restrict competition among banks
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UNIT-V: World Trade Organization – Objectives, Organization Structure and Functioning,
WTO and India, International liquidity: Problems of liquidity; International Financial institutions
- IMF, IBRD, IFC, ADB – Their role in managing international liquidity problems
• WTO is the international organization dealing with the global rules of trade
between nations.
• Its main function is to ensure trade flows as smoothly, predictably & freely as
possible
• Heart of the system – known as the multilateral trading system – is
the WTO’s
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• Agreements, negotiated and signed by a large majority of the world’s
trading nations, and ratified in their parliaments.
• Goal is to improve the welfare of the peoples of the member
countries.
• The basic purpose of the WTO is to promote international trade without any
discrimination-1st Jan, 1995
• The World Trade Organization came into being in 1995. One of the
youngest of the international organizations, the WTO is the successor
to the General Agreement on Tariffs and Trade (GATT) established in
the wake of the Second World War.
Functions of WTO
• WTO shall provide a forum for the negotiation among its members
concerning their multilateral trade relations
• WTO shall co operate as appropriate with IMF AND IBRD and with the
affiliated agencies
• WTO administers the 28 agreements contained in the final act and the
no of plurilateral agreements and the government procurement
through various councils and committees
• It oversees the implementations of issues related to tariff cut an non
tariff measures agreed to in the trade negotiations
• It examines the trade regimes of the individual member countries
• WTO provides dispute settlement courts and panel
• It acts as a management consultant for world trade
• It provides technical co-operations and training
• It can be used as a forum for continuous negotiations
• It co-opts with the international institutions like IMF,IBRD etc for
making global economic policy
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• And it oversees the national trade policies of member governments.
• The WTO has 153 members, accounting for over 97% of world trade.
Around 30 others are negotiating membership.
• The WTO’s top level decision-making body is the Ministerial Conference
which meets at least once every two years.
• Below this is the General Council (normally ambassadors and heads
of delegation in Geneva, but sometimes officials sent from members’
capitals) which meets several times a year in the Geneva
headquarters. The General Council also meets as the Trade Policy
Review Body and the Dispute Settlement Body.
• At the next level, the GOODS COUNCIL, SERVICES COUNCIL, &
INTELLECTUAL PROPERTY (TRIPS) COUNCIL report to the
General Council.
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WTO AND INDIA
India
• While import tariffs have declined, the export regime remains highly
complex, partly as a consequence of various measures to neutralize
duties levied on imported inputs used in exports; export processing
zones and special economic zones also offer tax holidays to investors.
• India’s active role in the multilateral trading system was commended,
and members encouraged it to continue to show leadership in bringing
the Doha Round to a successful conclusion.
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• India remains a major user of anti-dumping measures, although the
number of investigations and measures in force has been declining.
Members urged India to exercise maximum restraint in initiating anti-
dumping and safeguard actions and in imposing such measures.
• Members commended India for taking steps to align its national
standards with international norms. They expressed concerns on SPS
(sanitary and phytosanitary measures), but welcomed measures
adopted to streamline SPS procedures.
• Members noted continued government intervention in agriculture
through; inter alia, high tariffs, price support, and direct subsidies to
inputs. Moreover, agricultural growth remains slow and erratic, causing
considerable distress, especially among small and marginal farmers.
Some concerns were expressed about the development of the
manufacturing sector, which is being held back by the complex
customs duty structure, as well as the relatively high tariffs in textiles
and clothing, and automobiles.
• This Review has been very informative and has given a useful overview
of India’s trade policies and practices and the challenges it faces.
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policies of its member countries, in particular those with an impact on
exchange rates and the balance of payments.
• It is an organization formed to stabilize international exchange rates and
facilitate development.[2]
• It also offers financial and technical assistance to its members, making it an
international lender of last resort.
• Its headquarters are located in Washington, D.C., USA.
• The International Monetary Fund was created in 1944 [1], with a goal
to stabilize exchange rates and assist the reconstruction of the world's
international payment system.
• Countries contributed to a pool which could be borrowed from, on a
temporary basis, by countries with payment imbalances. (Condon,
2007)
• The IMF describes itself as "an organization of 185 countries
(Montenegro being the 185th, as of January 18, 2007), working to
foster global monetary cooperation, secure financial stability, facilitate
international trade, promote high employment and sustainable
economic growth, and reduce poverty".
Objectives of IMF
Additional
Today
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• In 2008, faced with a shortfall in revenue, the International Monetary Fund's
executive board agreed to sell part of the IMF's gold reserves. On April 27,
2008, IMF Managing Director Dominique Strauss-Kahn welcomed the board's
decision April 7, 2008 to propose a new framework for the fund, designed to
close a projected $400 million budget deficit over the next few years. The
budget proposal includes sharp spending cuts of $100 million until 2011 that
will include up to 380 staff dismissals.[5]
• At the 2009 G-20 London summit, it was decided that the IMF budget will be
tripled to $1 trillion, to better meet the needs of the global community
amidst the late 2000s recession.[6][7]
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authority, for countries that manage exchange rates and exercise
various degrees of direct control over international transactions of
residents.
•
• However, for countries with free trading regimes and floating exchange
rates, ‘international liquidity’ may more properly be thought of as the
foreign exchange assets and credit available to residents of a country
that would allow them to import from abroad at their discretion.
•
• Today’s international economy is supported by monetary authorities
with varying degree of control over their nation’s balance of payments
and foreign currency reserves.
•
• Consequently, the meaning of ‘international liquidity’ is somewhat
vague, relative to the particular foreign exchange policies of a specific
country.
Functions of IBRD
Additional
• The funds for this lending come primarily from the issuing of World Bank
bonds on the global capital markets—typically $12–15 billion per year.
• These bonds are rated AAA (the highest possible) because they are backed
by member states' share capital, as well as by borrowers' sovereign
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guarantees. (In addition, loans that are repaid are recycled, or relent.)
Because of the IBRD's credit rating, it is able to borrow at relatively low
interest rates. As most developing countries have considerably lower credit
ratings, the IBRD can lend to countries at interest rates that are usually quite
attractive to them, even after adding a small margin (about 1%) to cover
administrative overheads.
• As Japan and its European client countries "graduated" (achieved certain
levels of income per capita), the IBRD became focused entirely on developing
countries. Since the early 1990s the IBRD has also provided financing to the
post-Socialist states of Eastern Europe and the republics of the former Soviet
Union.
• Objectives –
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International Finance Corporation (IFC)
IFC has 181 member countries , which collectively determine its policies and
approve investments.
To join IFC, a country must first be a member of the International Bank for
Reconstruction and Development (IBRD).
ADDITIONAL
IFC's corporate powers are vested in its Board of Governors, to which member
countries appoint representatives.
IFC's share capital, which is paid in, is provided by its member countries, and
voting is in proportion to the number of shares held.
IFC's authorized capital (the sums contributed by its members over the years)
is $2.45 billion; IFC's net worth (which includes authorized capital and retained
earnings) was $9.8 billion as of June 2005. [2]
[edit] Funding
The IFC's equity and quasi-equity investments are funded out of its paid-in
capital and retained earnings (which comprise its net worth).
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Strong shareholder support, triple-A ratings and a substantial capital base allow
the IFC to raise funds on favorable terms in international capital markets.
As of June 30, 2006, retained earnings represented almost three-quarters of the
IFC's $9.8 billion net worth.
Activities
Private sector financing is IFC's main activity, and in this respect is a profit-
oriented financial institution (and has never had an annual loss in its 50-year
history). Like a bank, IFC lends or invests its own funds and borrowed funds to its
customers and expects to make a sufficient risk-adjusted return on its global
portfolio of projects.
In practice, this is broadly interpreted, but considerable time and effort is devoted
to both (i) selecting projects with positive developmental outcomes,
Apart from its core investment activities, IFC also carries out technical cooperation
projects in many countries to improve the investment climate.
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Asian Development Bank
• The Asian Development Bank (ADB) is a regional development bank
established in 1966 to promote economic and social development in
Asian and Pacific countries through loans and technical assistance.
• It is a multilateral development financial institution owned by 67
members (as of 2nd February 2007)[1], 48 from the region and 19
from other parts of the globe. ADB's vision is a region free of poverty.
• Its mission is to help its developing member countries reduce
poverty and improve the quality of life of their citizens.
• The work of the Asian Development Bank (ADB) is aimed at improving
the welfare of the people in Asia and the Pacific, particularly the 1.9
billion who live on less than $2 a day. Despite many success stories,
Asia and the Pacific remains home to two thirds of the world are poor.
• The bank was conceived with the vision of creating a financial
institution that would be "Asian in character" to foster growth and
cooperation in a region that back then was one of the world’s poorest.
• ADB raises funds through bond issues on the world's capital markets,
while also utilizing its members' contributions and earnings from
lending. These sources account for almost three quarters of its lending
operations.
Organization
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• The president has a term of office lasting five years, and may be
reelected.
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