UNIT III

Sessions 1-6
Introduction
 Global Financial Market
• 1960s Euro Markets
• 1970s Internationalization of Banking by Euro
Markets
• 1980s Integration of Global Financial Markets
Geographic-Liberlisation & deregulation by developed
countries(UK Japan France etc)
Functional- Spread on loans etc decreased due to competition
Growing Imbalances between savings & Investments within
individual countries
1970s-Petro Dollars 1980s Asian Dollars
Increasing International Diversification of portfolio by investors
Highly innovative Financial Markets
 Euro Currency Markets?

• A Euro Currency is any currency banked

outside its country of origin.
• Transctions in a currency deposited outside
the country of its issue-Euro Market.
• International market & no national control
• Short term money market
• Wholesale market
• Highly competitive.
 Why Euro Markets?

• Cold War
• Banking Regulations in USA
• Supply of Petro Dollars in 1970s
• Supply of Asian Dollars in 1980s
 Impact of Euro Markets
• Increased International Liquidity
• Integration of International Financial
Markets
• Help in BoP Crisis
• Help in Economic Development
• Better Rates
• Increased Speculation
• Difficulties in Country policies of exchange
rate etc.
 Global Banking Products
• Syndicated Bank Loans (1970-1980s used by
developing countries)

• Bonds – Eurobonds & Foreign Bonds

• Currency Futures

• Currency Options
 Session 5-6

Bodies and Institutions Assisting

in International Business.
 Bodies and Institutions Assisting in IB.
• International Bodies/Institutions :
International Monetary Fund
World Bank
World Trade Organization

• Indian Bodies/Institutions:
Export Import Bank of India
Export Credit Guarantee Corporation of India
Indian Institute of Foreign Trade
Federation of Indian Export Organization
Export Promotion Councils
Commodity Boards
APEDA/MPEDA
Export Import Bank of India
 EXPORT-IMPORT BANK OF INDIA
• Export-Import Bank of India is the premier export finance
institution of the country, set up in 1982 under the Export-
Import Bank of India Act 1981.
• Government of India launched the institution with a mandate,
not just to enhance exports from India, but to integrate the
country’s foreign trade and investment with the overall
economic growth.
• Since its inception, Exim Bank of India has been both a
catalyst and a key player in the promotion of cross border
trade and investment. Commencing operations as a purveyor
of export credit, like other Export Credit Agencies in the world,
Exim Bank of India has, over the period, evolved into an
institution that plays a major role in partnering Indian
industries, particularly the Small and Medium Enterprises, in
their globalisation efforts, through a wide range of products
and services offered at all stages of the business cycle,
starting from import of technology and export product
development to export production, export marketing, pre-
shipment and post-shipment and overseas investment.
 Objectives
• “… for providing financial assistance to
exporters and importers, and for functioning as
the principal financial institution for
coordinating the working of institutions
engaged in financing export and import of
goods and services with a view to promoting the
country’s international trade…”

• “… shall act on business principles with due

regard to public interest”

The Export-Import Bank of India Act, 1981

 Evolving Vision

                                                                                                                                                                                                                          

                           
Services
 Four-pronged Role
• Exim Bank plays four-pronged role with regard to
India's foreign trade: those of a coordinator, a source
of finance, consultant and promoter.
• Exim Bank is the Coordinator of the Working Group
Mechanism for clearance of Project and Services
Exports and Deferred Payment Exports (for amounts
above a certain value currently US$ 100 million). The
Working Group comprises Exim Bank, Government of India representatives
(Ministries of Finance, Commerce, External Affairs), Reserve Bank of India,
Export Credit Guarantee Corporation of India Ltd. and commercial banks
who are authorised foreign exchange dealers. This inter-institutional
Working Group accords clearance to contracts (at the post-award stage)
sponsored by commercial bank or Exim Bank, and operates as a one-
window mechanism for clearance of term export proposals . On its
own, Exim Bank can now accord clearance to project
export proposals up to US$ 100 million in value.
 Export Credit Guarantee
Corporation of India Limited
 What is ECGC?

• Export Credit Guarantee Corporation of India Limited,

was established in the year 1957 by the Government
of India to strengthen the export promotion drive by
covering the risk of exporting on credit.
• Being essentially an export promotion organization, it
functions under the administrative control of the
Ministry of Commerce & Industry, Department of
Commerce, Government of India.
• It is managed by a Board of Directors comprising
representatives of the Government, Reserve Bank of
India, banking, insurance and exporting community.
• ECGC is the fifth largest credit insurer of the world in
terms of coverage of national exports. The present
paid-up capital of the company is Rs.800 crores and
authorized capital Rs.1000 crores.
 What Does ECGC Do?
• Provides a range of credit risk insurance covers
to exporters against loss in export of goods and
services
• Offers guarantees to banks and financial
institutions to enable exporters to obtain better
facilities from them
• Provides Overseas Investment Insurance to
Indian companies investing in joint ventures
abroad in the form of equity or loan
 How does ECGC Help Exporters?
• Offers insurance protection to exporters against
payment risks
• Provides guidance in export-related activities
• Makes available information on different
countries with its own credit ratings
• Makes it easy to obtain export finance from
banks/financial institutions
• Assists exporters in recovering bad debts
• Provides information on credit-worthiness of
overseas buyers
 Need for Export Credit Insurance
• Payments for exports are open to risks even at the best of
times. The risks have assumed large proportions today due to
the far-reaching political and economic changes that are
sweeping the world. An outbreak of war or civil war may
block or delay payment for goods exported. A coup or an
insurrection may also bring about the same result.
• Economic difficulties or balance of payment problems may
lead a country to impose restrictions on either import of
certain goods or on transfer of payments for goods imported.
• In addition, the exporters have to face commercial risks of
insolvency or protracted default of buyers. The commercial
risks of a foreign buyer going bankrupt or losing his capacity
to pay are aggravated due to the political and economic
uncertainties.
• Export credit insurance is designed to protect exporters from
the consequences of the payment risks, both political and
commercial, and to enable them to expand their overseas
business without fear of loss.
World Trade Organization (WTO)
International Financial
Institutions

International Monetary
Fund (IMF)
 What IMF Does
• The IMF supports its membership by providing:
• Policy advice to governments and central banks based
on analysis of economic trends and cross-country
experiences;
• Research, statistics, forecasts, and analysis based on
tracking of global, regional, and individual economies
and markets;
• Loans to help countries overcome economic
difficulties;
• Concessional loans to fight poverty in developing
countries; and
• Technical assistance and training to help countries
improve the management of their economies
 Original Aims of IMF
• The IMF was founded more than 60 years ago toward the end of World War II (see
History). The founders aimed to build a framework for economic cooperation that
would avoid a repetition of the disastrous economic policies that had contributed
to the Great Depression of the 1930s and the global conflict that followed.
• Since then the world has changed dramatically, bringing extensive prosperity and
lifting millions out of poverty, especially in Asia. In many ways the IMF's main
purpose—to provide the global public good of financial stability—is the same
today as it was when the organization was established. More specifically, the Fund
continues to
---provide a forum for cooperation on international monetary problems
---facilitate the growth of international trade, thus promoting job creation, economic
growth, and poverty reduction;
---promote exchange rate stability and an open system of international payments; and
---lend countries foreign exchange when needed, on a temporary basis and under
adequate safeguards, to help them address balance of payments problems.
• This is not to say that the IMF has remained static. In fact, the IMF's way of
operating has been undergoing rapid change at least since the beginning of the
1990s as it has sought to adapt to the changing needs of its expanding
membership in an globalized world economy. Most recently, the IMF's new
Managing Director, Dominique Strauss-Kahn, has launched an ambitious
reform agenda, aimed at making sure the IMF continues to deliver the economic
analysis and multilateral consultation that is at the core of its mission—ensuring
the stability of the global monetary system.
 An Adapting IMF
With cross-border financial flows increasing sharply in recent decades, the
interdependence of countries has deepened (see slideshow on capital inflows).
The turbulence in advanced economy credit markets in 2007-08 has
demonstrated that domestic and international financial stability cannot be taken for
granted, even in the world's most wealthy countries. The spike in food and fuel
prices, which has hit import-dependent poor and middle-income countries
particularly hard, is another aspect of the globalized economy we all are part of.
In response, the IMF has rethought its operations in several ways:
• Enhancing IMF lending facilities. The IMF is upgrading its lending facilities to
enable it to better its serve members. It has created a new
Short-Term Liquidity Facility designed to help emerging market countries with a
track record of sound policies address fallout from the current financial crisis. It
has also revamped its Exogenous Shocks Facility to facilitate the disbursement of
aid to countries hit by the fuel and food crisis. The institution has launched a
review of its financing role in member countries, to make sure it has the right
instruments to meet countries' needs in a world characterized by growing—and
increasingly complex—cross-border financial flows. (See Lending).
• Strengthening the monitoring of global, regional, and country economies.
The IMF has taken several steps to improve economic surveillance, its framework
for providing advice to member countries on macroeconomic policies (see
Our Work). It is emphasizing research into the links between the financial sector
and the real economy and the sharing of cross-country experiences. It has
published new guidance on how to analyze and advise on exchange rates, and is
paying more attention to the impact of the world's most important economies on
other countries' economies. And it is improving its ability to warn member
countries of risks and vulnerabilities in their economies.
• Helping resolve global economic imbalances. The IMF's analysis of global economic developments,
contained in its World Economic Outlook, provide finance ministers and central banks governors with a
common framework for discussing the global economy. The IMF now also has the ability to call for
multilateral consultations to discuss specific problems facing the global economy with a select group of
countries—an innovative way of facilitating collective action among key players in the global economy. The
first such consultation took place in 2006. It sought to reduce global payments imbalances and involved
China, the euro area, Japan, Saudi Arabia, and the United States (see Tackling Current Challenges).
• Analyzing capital market developments. The IMF is devoting more resources to the analysis of global
financial markets and their linkages with macroeconomic policy. Twice a year, it publishes the
Global Financial Stability Report, which provides up-to-date analysis of developments in global financial
markets. IMF staff also work with member countries to help them identify potential risks to financial stability,
including through the Financial Sector Assessment Program (described in more detail below). The IMF also
offers training to country officials on how to manage their financial systems, monetary and exchange
regimes, and capital markets. The IMF is currently facilitating the drafting of voluntary guidelines for
Sovereign Wealth Funds and works closely with the Financial Stability Forum to promote international
financial stability.
• Assessing financial sector vulnerabilities. Resilient, well-regulated financial systems are essential for
macroeconomic stability in a world of ever-growing capital flows. The IMF and the World Bank jointly run the
Financial Sector Assessment Program (FSAP), aimed at alerting countries to vulnerabilities and risks in their
financial sectors. IMF and World Bank staff also advise on how to strengthen oversight and supervision of
banks and other financial institutions.
• Working to cut poverty. At present, more than a billion people are living on less than $1 a day, and more
than three-quarters of a billion people are malnourished. The IMF's role in low-income countries is changing
as these countries grow and mature. But its central goal remains the same: to help promote economic
stability and growth, laying the ground for deep and lasting poverty reduction. Its current main priority is to
help low- and middle-income countries cope with the food and fuel price shock.
• Improving IMF governance. In May 2008, the IMF's membership approved a two-year package of reforms
to improve representation of members at the Fund. The IMF is also becoming leaner and more efficient. It is
trimming expenditure and reorganizing the way it earns revenue to pay for its operations (See Governance).
• Greater accountability and transparency. The IMF publishes almost all of its annual economic health
checks of member countries, updates about its lending programs, and a wealth of other information on its
website. The IMF's performance is assessed on a regular basis by an Independent Evaluation Office.
International Financial
Institutions

World Bank
 The World Bank
• The World Bank is a vital source of financial and technical
assistance to developing countries around the world. It is not a
bank in the common sense. It is made up of two unique
development institutions owned by 185 member countries—the
International Bank for Reconstruction and Development (IBRD)
 and the International Development Association (IDA).
• Each institution plays a different but collaborative role to
advance the vision of an inclusive and sustainable globalization.
• IBRD focuses on middle income and creditworthy poor
countries
• IDA focuses on the poorest countries in the world.
• Together they provide low-interest loans, interest-free credits
and grants to developing countries for a wide array of purposes
that include investments in education, health, public
administration, infrastructure, financial and private sector
development, agriculture, and environmental and natural
resource management.
 Original Aims of IBRD
• Since inception in 1944, the World Bank has expanded
from a single institution to a closely associated group of
five development institutions. The mission evolved from
the International Bank for Reconstruction and
Development (IBRD) as facilitator of post-war
reconstruction and development to the present day
mandate of worldwide poverty alleviation in close
coordination with its affiliate, the International
Development Association, and other members of the
World Bank Group, the
International Finance Corporation (IFC), the
Multilateral Guarantee Agency (MIGA), and the
International Centre for the Settlement of Investment Dis
putes (ICSID
)..
 An Adaptive IBRD

Reconstruction remains an important part of its work. However, the global

challenges in the world compel IBRD to focus on:

• poverty reduction and the sustainable growth in the poorest countries,

especially in Africa;
• solutions to the special challenges of
post-conflict countries and fragile states;
• development solutions with customized services as well as financing for
middle-income countries;
• regional and global issues that cross national borders--climate change,
infectious diseases, and trade;
• greater development and opportunity in the Arab world;
• pulling together the best global knowledge to support development.

At today's World Bank, poverty reduction through an inclusive and

sustainable globalization remains the overarching goal of our work.
 World Trade Organization (WTO)
• the World Trade Organization (WTO) is
the only international organization dealing
with the global rules of trade between
nations. Its main function is to ensure that
trade flows as smoothly, predictably and
freely as possible.
• Location: Geneva, Switzerland
Established: 1 January 1995
Created by: Uruguay Round negotiations (1986-94)  
Membership: 153 countries on 23 July 2008
Budget: 185 million Swiss francs for 2008
Secretariat staff: 625
Head: Pascal Lamy (Director-General)
• Functions:
• Administering WTO trade agreements
• Forum for trade negotiations
• Handling trade disputes
• Monitoring national trade policies
• Technical assistance and training for developing countries
• Cooperation with other international organizations