1.
International Finance (405 B)
Unit 1: Overview of International Business
Mrs. Charu Rastogi

2.
Agenda
 Globalization and its impact.
 WTO and its impact.
 Role of World Bank, IMF, SDR.
 Nature, scope and significance of
international finance.
 Use of IT in international finance.
Mrs. Charu Rastogi, Asst.Professor 2

3.
GLOBALIZATION
Meaning, Dimensions and Impact
Mrs. Charu Rastogi, Asst.Professor 3

4.
Globalization : Meaning
 IMF defines globalization as: ‘the growing economic
interdependence of countries worldwide through
increasing volume and variety of cross-border
transactions in goods and services, freer international
capital flows, and more rapid and widespread diffusion
of technology’
 Globalization is the movement towards the expansion
of economic and social ties between countries through
the spread of corporate institutions and the capitalist
philosophy that leads to the shrinking of the world in
economic terms
 It is characterized by growing economic, financial, trade,
and communications integration.
Mrs. Charu Rastogi, Asst.Professor 4

5.
Integration of Economies
 Made possible by:
◦ Technology
◦ Communication networks
◦ Internet access
◦ Growth of economic cooperation – trading
blocs (EU, NAFTA, etc.)
◦ Movement to free trade
Mrs. Charu Rastogi, Asst.Professor 5

6.
Globalization : Impact
 Rise of Multinational Enterprises – businesses headquartered in
one country but business operations in number of other country.
 Characteristics of MNCs:
◦ Expanding revenue
◦ Lowering costs
◦ Sourcing raw materials
◦ Controlling key supplies
◦ Control of processing
◦ Global economies of scale
 Key Issues:
◦ Damage to the environment
◦ Exploitation of labour
◦ Monopoly power
◦ Economic degradation
◦ Non-renewable resources
◦ Damage to cultures
Mrs. Charu Rastogi, Asst.Professor 6

7.
Globalization : Positive Impact
 Increased choice / alternatives
 Improved quality of products due to competition
 Greater potential for growth
 Increase international economies of scale
 Greater employment opportunities
 Flow of foreign capital
 Impact on culture
Mrs. Charu Rastogi, Asst.Professor 7

8.
Globalization : Negative Impact
 Increased risk of contagion during recessions
 Increase in gap between the rich and the poor
 Dominance of global trade by the rich, northern
hemisphere countries
 Lack of opportunities for the poor to be able to have
access to markets
 Exploitation of workers
 Increased gap between rich and poor fuels potential
terrorist reaction
 Ethical responsibility of business
 Efforts to remove trade barriers through lobbying
Mrs. Charu Rastogi, Asst.Professor 8

9.
WTO AND ITS IMPACT
Mrs. Charu Rastogi, Asst.Professor 9

10.
 Trade agreements are either bilateral, involving two countries, or
multilateral.
 Bilateral Trade is the exchange of goods between two countries.
 Bilateral trade agreements give preference to certain countries in
commercial relationships, facilitating trade and investment
between the home country and the foreign country by reducing or
eliminating tariffs, import quotas, export restraints and other trade
barriers.
 A multilateral trade agreement involves three or more countries
who wish to regulate trade between the nations without
discrimination.
 They are usually intended to lower trade barriers between
participating countries and, as a consequence, increase the degree
of economic integration between the participants.
Trade Agreements
Mrs. Charu Rastogi, Asst.Professor 10

11.
 Although multilateral trade existed earlier, it was only
after World War II that nations recognized the need for
a set of rules with the objective of securing market
access for post-war recovering economies.
 The first such set of rules came in 1947 in the form of
the General Agreement on Tariffs and Trade (GATT).
 GATT was replaced in 1995 by the World Trade
Organization, which has more than 150 members.
MTA to GATT
Mrs. Charu Rastogi, Asst.Professor 11

12.
 The General Agreement on Tariffs and Trade (GATT) is a
multilateral agreement regulating international trade.
 According to its preamble, its purpose is the "substantial reduction
of tariffs and other trade barriers and the elimination of
preferences, on a reciprocal and mutually advantageous basis."
 It was negotiated during the UN Conference on Trade and
Employment and was the outcome of the failure of negotiating
governments to create the International Trade Organization (ITO).
 GATT was signed in 1947 by 23 countries and lasted until 1993,
when it was replaced by the World Trade Organization in 1995. The
original GATT text (GATT 1947) is still in effect under the WTO
framework, subject to the modifications of GATT 1994.
 GATT was a legal agreement. WTO is the watchdog trade in
goods/services, foreign investment, IPR, etc.
GATT
Mrs. Charu Rastogi, Asst.Professor 12

13.
 The WTO began life on 1 January 1995, but its trading system is
half a century older. Since 1947, the General Agreement on Tariffs
and Trade (GATT) had provided the rules for the system
 The World Trade Organization (WTO) deals with the rules of trade
between nations at a global or near-global level. But there is more
to it than that.
 There are a number of ways of looking at the WTO. It’s an
organization for liberalizing trade. It’s a forum for governments to
negotiate trade agreements. It’s a place for them to settle trade
disputes. It operates a system of trade rules.
 There are a total of 157 member countries in the WTO, while 26
countries are currently negotiating their membership
 In 2012, the WTO welcomed 4 new members: Montenegro, Samoa,
Russian Federation and Vanuatu
What is the WTO?
Mrs. Charu Rastogi, Asst.Professor 13

14.
 Above all, it’s a negotiating forum
◦ The bulk of the WTO's current work comes from the 1986-94 negotiations called the
Uruguay Round and earlier negotiations under GATT. The WTO is currently the host to new
negotiations, under the “Doha Development Agenda” launched in 2001.
◦ Where countries have faced trade barriers and wanted them lowered, the negotiations
have helped to liberalize trade
 It’s a set of rules
◦ At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s
trading nations. They are essentially contracts, binding governments to keep their trade
policies within agreed limits.
◦ Although negotiated and signed by governments, the goal is to help producers of goods
and services, exporters, and importers conduct their business, while allowing governments
to meet social and environmental objectives.
 And it helps to settle disputes
◦ Trade relations often involve conflicting interests and interpretation of agreements. The
most harmonious way to settle these differences is through some neutral procedure based
on an agreed legal foundation. That is the purpose behind the dispute settlement process
written into the WTO agreements
 Assisting developing countries in trade policy issues, through technical assistance
and training programmes
 Cooperating with other international organizations
 Reviewing national trade policies
What does the WTO do? (Functions)
Mrs. Charu Rastogi, Asst.Professor 14

15.
 Goods and investment — the Multilateral Agreements
on Trade in Goods including the GATT 1994 and the
Trade Related Investment Measures
 Services — the General Agreement on Trade in
Services
 Intellectual property — the Agreement on Trade-
Related Aspects of Intellectual Property Rights (TRIPS)
 Dispute settlement (DSU)
 Reviews of governments' trade policies (TPRM)
The Agreement Establishing the WTO
Mrs. Charu Rastogi, Asst.Professor 15

16.
 Trade without discrimination
◦ Most-favoured-nation (MFN): treating other people equally
◦ National treatment: Treating foreigners and locals equally
 Freer trade: gradually, through negotiation
 Predictability: through binding and transparency
◦ In the WTO, when countries agree to open their markets for
goods or services, they “bind” their commitments.
◦ A country can change its bindings, but only after negotiating
with its trading partners, which could mean compensating them
for loss of trade.
 Promoting fair competition
 Encouraging development and economic reform
Principles of WTO
Mrs. Charu Rastogi, Asst.Professor 16

17.
Name Start Duration Countries
Subjects
covered
Achievements
Geneva April 1946 7 months 23 Tariffs
Signing of GATT, 45,000 tariff
concessions affecting $10 billion of
trade
Annecy April 1949 5 months 13 Tariffs
Countries exchanged some 5,000
tariff concessions
Torquay
September
1950
8 months 38 Tariffs
Countries exchanged some 8,700
tariff concessions, cutting the 1948
tariff levels by 25%
Geneva II
January
1956
5 months 26
Tariffs,
admission of
Japan
$2.5 billion in tariff reductions
Dillon
September
1960
11 months 26 Tariffs
Tariff concessions worth $4.9
billion of world trade
Kennedy May 1964 37 months 62
Tariffs, Anti-
dumping
Tariff concessions worth $40 billion
of world trade
GATT/ WTO Trade Rounds
Mrs. Charu Rastogi, Asst.Professor 17

18.
Name Start Duration Countries Subjects covered Achievements
Tokyo
Sept’
1973
74 months 102
Tariffs, non-tariff
measures,
"framework"
agreements
Tariff reductions worth more than
$300 billion dollars achieved
Uruguay
Sept’
1986
87 months 123
Tariffs, non-tariff
measures, rules,
services, intellectual
property, dispute
settlement, textiles,
agriculture, creation
of WTO, etc
The round led to the creation of
WTO, and extended the range of
trade negotiations, leading to
major reductions in tariffs (about
40%) and agricultural subsidies,
an agreement to allow full access
for textiles and clothing from
developing countries, and an
extension of intellectual property
rights.
Doha
Nov’
2001
- 141
Tariffs, non-tariff
measures,
agriculture, labor
standards,
environment,
competition,
investment,
transparency, patents
etc
The round is not yet concluded.
Mrs. Charu Rastogi, Asst.Professor 18

19.
Mrs. Charu Rastogi, Asst.Professor 19

20.
WTO backs S.Korea in dispute, U.S.
does not defend
 A World Trade Organization panel backedSouth Korea on Tuesday in a
challenge to a controversial U.S. method for calculating duties on unfairly
priced imports, after the United States offered no defense in the dispute.
 The ruling is the latest in a series of defeats for the United States over
zeroing, a method of calculating anti-dumping duties that is opposed by all
other WTO members.
 The consistent approach by WTO dispute panels and WHO's appellate
body made the U.S. Department of Commerce discontinue zeroing last
month in order to comply with the rulings.
 But U.S. officials say they believe the appellate body has overstepped its
powers in condemning zeroing, and are pushing in the current Doha round
of trade negotiations for zeroing to be formally recognized. Doha will
replace existing rules deriving from the previous Uruguay round
negotiations.
 "The United States considers that the Uruguay Round Antidumping
Agreement permitted zeroing, and we will work hard to reaffirm the ability
to use this practice through the negotiations," Carol Guthrie,
spokeswoman for the U.S. Trade Representative, told Reuters in a recent
comment.
Mrs. Charu Rastogi, Asst.Professor 20

21.
 In the ruling published on Tuesday, the dispute panel backed the U.S. contention
that previous WTO panel and appellate ruling did not form binding precedents, but
still concluded that the United States had broken trade rules.
 The South Korean case, launched in 2009, involved duties imposed on
stainless steel coils, sheets and strip.
 Argentina, Brazil, Canada, Ecuador, the European
Union, Japan, Mexico and Thailand have also won WTO disputes over zeroing with
the United States.
 WTO rules allow members to impose duties on goods that are dumped -- sold for
less than they cost at home, if that damages businesses in the importing country.
 Setting anti-dumping duties often involves comparing batches of goods. In zeroing,
the authorities ignore examples where the imported goods actually cost more than
they do at home, which critics say unfairly inflates the duties.
 Zeroing is controversial even within the United States, as importers of consumer
goods and components say it drives up the cost of their purchases, while exporters
fear they could suffer retaliation if the United States pursues the policy.
 Source: http://www.reuters.com/article/2011/01/18/us-trade-zeroing-
idUSTRE70H4M720110118
Mrs. Charu Rastogi, Asst.Professor 21

22.
IMPACT OF WTO ON THE INDIAN
ECONOMY
 The world trade organization was
established to deal with all the major
aspects of international trade and it had
far reaching effects not only on India's
foreign trade but also on its internal
economy. The impact of WTO on the
Indian economy can be analyzed on the
basis and general concepts.
Mrs. Charu Rastogi, Asst.Professor 22

23.
IMPACT
The WTO has both favourable and unfavourable
impact on the Indian economy.
 FAVOURABLE IMPACT
1. Increase in export earnings:
Increase in export earnings can be viewed from
growth in merchandise export and growth in
service exports
Mrs. Charu Rastogi, Asst.Professor 23

24.
 Growth in merchandise exports :
The establishment of the WTO has increased
the exports of developing countries because of
reduction in tariff and non-tariff trade barriers .
India’s merchandise exports have increased
from 32 billion us $(1995) to185 billion us
$(2008-09)
 Growth in service exports:
The WTO introduced the GATS (General
Agreement on Trade in Services )that proved
beneficial for countries like India . India’s service
exports increased from 5 billion us $(1995)to
102 billion us $(2008-09) for 45% of India’s
service exports) Mrs. Charu Rastogi, Asst.Professor 24

25.
2. Agricultural exports:
Reduction of trade barriers and domestic
subsidies raise the price of agricultural products
in international markets, India hopes to benefit
from this in the form of higher export earnings
from agriculture.
3. Textiles and clothing :
The phasing out of MFA will largely benefit the
textiles sector. It will help the developing
countries like India to increase the export of
textiles and clothing.
Mrs. Charu Rastogi, Asst.Professor 25

26.
4. Foreign direct investment:
As per the TRIMS agreement ,restrictions on foreign
investment have been withdrawn by the member nations
of WTO .This has benefited developing countries by way of
foreign direct investment ,euro equities and portfolio
investment .In 2008-09 the net foreign direct investment in
India was 35 billion us $
5. Multi lateral rules and discipline:
It is expected that fair trade conditions will be created, due
to rules and discipline related to practices like anti-
dumping, subsidies and countervailing measures,
safeguards and dispute settlements .such conditions will
benefit India in its attempt to globalise its economy.
Mrs. Charu Rastogi, Asst.Professor 26

27.
 UNFAVOURABLE IMPACT
1) TRIPs:- (Trade Related Intellectual Property)
Protection of the Intellectual property has
been a major concern of the WTO. As a
Member of WTO, India has to comply with
the TRIPs standard. However the agreement
of TRIPs Goes against the Indian Patent Act
1970, in the following ways.
◦ Pharmaceutical Sector:- Under the Indian Patent
Act only process patent are granted to chemicals,
drugs and medicines. Thus the company can
legally manufacture once it has the product
patent. So Indian Pharmaceutical companies could
sell good quality products at lower prices.
However under TRIPs agreement
Mrs. Charu Rastogi, Asst.Professor 27

28.
COMPARISON OF INDIA'S PATENT ACT AND TRIPS
Indian Patent Act of 1970 TRIPs
Only process not product patents
in food, medicines, chemicals
Process and product patents in
almost all fields of technology
Term of patents 14 years; 5-7 in
chemicals, drugs
Term of patents 20 years
Compulsory licensing and license
of right
Limited compulsory licensing, no
license of right
Several areas excluded from
patents (method of agriculture, any
process for medicinal surgical or
other treatment of humans, or
similar treatment of animals and
plants to render them free of
disease or increase economic value
of products)
Almost all fields of technology
patentable. Only area conclusively
excluded from patentability is plant
varieties; debate regarding some
areas in agriculture and
biotechnology
Government allowed to use
patented invention to prevent
scarcity
Very limited scope for
governments to use patented
inventions
Mrs. Charu Rastogi, Asst.Professor 28

29.
◦ Agriculture:- The TRIPS Agreement of the WTO includes
three items related to agriculture: Geographical
indications (Art 22-24); Patent protection of agricultural
chemical products (Arts. 70.8 and 70.9); Plant Variety
Protection (Art 27.3(b)). Out of which the plant variety
protection is of great importance for the current
scenario.
TRIPS is a clearly anti-developing country agreement
contend the critics. Its provisions seriously threaten self
reliance in agriculture and the livelihoods of farmers, by
seeking to establish a monopoly because it embodies
the philosophy of the industrialized nations where it
was developed and where the primary goal is to protect
their interests.
◦ Micro-organisms : Under TRIPs Agreement, patenting
has been extended to micro-organisms as well. This will
largely benefit MNCs and not developing countries like
India.
Mrs. Charu Rastogi, Asst.Professor 29

30.
2) TRIMS : (Trade Related Investment Measures)
The Agreement on TRIMs also favours developed
nations as there are no rules in the agreement to
formulate international rules for controlling business
practices of foreign investors. Also, complying with the
TRIMs agreement will contradict our objective of self –
reliant growth based on locally available technology
and resources.
3) GATS: (General Agreement on Trade In services)
The Agreement on GATS will also favour the developed
nations more. Thus, the rapidly growing service sector
in India will now have to compete with giant foreign
firms.
Moreover, since foreign firms are allowed to remit their
profits, dividends and royalties to their parent company,
it will cause foreign exchange burden for India.
Mrs. Charu Rastogi, Asst.Professor 30

31.
4) TRADE AND NON – TARIFF BARRIERS :
Reduction of trade and non-tariff barriers has adversely affected the
exports of various developing nations.
Various Indian products have been hit by. Non- tariff barriers. These
include textiles, marine products, floriculture, pharmaceuticals,
basmati rice, carpets, leather goods etc.
5) LDC exports :
Many member nations have agreed to provide duty – free and quota
– free market access to all products originating from least developed
countries.
India will have to now bear the adverse effect of competing with
cheap LDC exports internationally. Moreover, LDC exports will also
come to the Indian market and thus compete with domestically
produced goods.
Mrs. Charu Rastogi, Asst.Professor 31

32.
CONCLUSION
 Thus the WTO is a powerful body that will enact
international laws on various matters. It will also
globalise many countries and help them to develop
their competitive advantage and seek benefits from
advanced technology of other nations.
 Though countries like India will face serious
problems by complying to the WTO agreements it
can also benefit from it by taking advantage of the
changing international environment .
Mrs. Charu Rastogi, Asst.Professor 32

33.
ROLE OF WORLD BANK, IMF
AND SDR
Mrs. Charu Rastogi, Asst.Professor 33

34.
World Bank
 The World Bank is an international financial institution that
provides loans to developing countries for capital programs
 The World Bank's official goal is the reduction of poverty.
 According to the World Bank's Articles of Agreement (as
amended effective 16 February 1989), all of its decisions
must be guided by a commitment to promote foreign
investment, international trade, and facilitate capital
investment
 The World Bank comprises two institutions:
◦ The International Bank for Reconstruction and Development
(IBRD) lends to governments of middle-income and creditworthy
low-income countries.
◦ The International Development Association (IDA) provides
interest-free loans—called credits— and grants to governments
of the poorest countries.
Mrs. Charu Rastogi, Asst.Professor 34

35.
 The World Bank differs from the World Bank Group, in
that the World Bank comprises only two institutions:
the International Bank for Reconstruction and
Development (IBRD) and the International Development
Association (IDA), whereas the latter incorporates these
two in addition to three more: International Finance
Corporation (IFC), Multilateral Investment Guarantee
Agency (MIGA), and International Centre for Settlement
of Investment Disputes (ICSID)
Mrs. Charu Rastogi, Asst.Professor 35

36.
Role of World Bank
 Loans and Advances
 The main function of the bank is to give loans to
member country or to private entrepreneurs on the
guarantee of their government for productive
purpose
 These loans are given through the medium of central
bank of the country
 The Bank collects progress report on those projects of
the member country for which loans are advanced to
them
 Providing Technical Assistance
 Technical guidance is of two kinds, one relates to
development plan & the other to the study of
economies, analysis and improvement of key metrics
Mrs. Charu Rastogi, Asst.Professor 36

37.
Role of World Bank
 Training programs
 The Bank arranges to imparts training to the officials of the
member countries in matter relating to planning ,economic
development, public finance & other economic activities
 Coordinating development assistance
 The bank also coordinates assistance given to member country
from various agencies /countries
 Settlement of international disputes
 World bank also acts as a mediator to settle international
dispute
 In 1960 Indo-Pakistan River Water Dispute & Suez Canal Dispute
could be settled only by the efforts of the world bank
 For disputes regarding foreign investment ,recently a Centre for
Settlement Of Investment Disputes (ICSID)has been set up
Mrs. Charu Rastogi, Asst.Professor 37

38.
Role of World Bank
 Provide financial assistance to world welfare institutions
 World bank provide financial assistance to United Nations
Educational, Scientific and Cultural Organization(UNESCO
)United Nations Children's Fund(UNICEF), World Health
Organization (WHO), International Labor Organization (ILO).Food
& Agricultural Organization (FAO), etc.
 Conducts economic research
 World Bank has established subsidiary institutions like
International development Association (IDA), International
Finance Corporation (IFC) and Multinational Investment
Guarantee Agency (MIGA)
 To provide capital to developing countries for reconstruction &
development of their economies
 To promote growth of international trade & help maintain BOP
equilibrium of the member countries
Mrs. Charu Rastogi, Asst.Professor 38

39.
IMF
 The International Monetary Fund (IMF) is an organization of
188 countries, working to foster global monetary
cooperation, secure financial stability, facilitate international
trade, promote high employment and sustainable economic
growth, and reduce poverty around the world.
 Goals of IMF:
◦ promoting international monetary cooperation;
◦ facilitating the expansion and balanced growth of international
trade;
◦ promoting exchange stability;
◦ assisting in the establishment of a multilateral system of
payments; and
◦ making resources available (with adequate safeguards) to
members experiencing balance of payments difficulties
 More Details: IMF at a Glance
Mrs. Charu Rastogi, Asst.Professor 39

40.
Role of IMF in current economic
Scenario
 The global economic crisis created the worst recession since the
Great Depression of the 1930s. The crisis began in the mortgage
markets in the United States in 2007 and swiftly escalated into a
crisis that affected activity and institutions worldwide.
 The IMF mobilized on many fronts to support its member
countries, increasing its lending, using its cross-country experience
to advise on policy solutions, and introducing reforms to
modernize its operations and become more responsive to member
countries’ needs.
 As the apex of the crisis shifted to Europe, the Fund has become
actively engaged in the region and is also working with the G-20 to
support a multilateral approach
Mrs. Charu Rastogi, Asst.Professor 40

41.
Role of IMF in current economic
Scenario
 A partner in Europe: The IMF is actively engaged in Europe as a provider of policy
advice, financing, and technical assistance
 Reinforcing multilateralism: The crisis highlighted the tremendous benefits from
international cooperation. Without the cooperation spearheaded by the Group of
Twenty industrialized and emerging market economies (G-20) the crisis could have been
much worse.
 At the request of the G-20, the IMF provides the technical analysis needed to evaluate
how members’ policies fit together—and whether, collectively, they can achieve the G-
20’s goals.
 Rethinking macroeconomic principles: In this context, the IMF is encouraging a
wholesale re-examination of macroeconomic policy principles in the wake of the global
economic crisis.
 Stepping up crisis lending: IMF has approved a major overhaul of how it lends money
by offering higher amounts and tailoring loan terms to countries’ varying strengths and
circumstances.
 Strengthening the international monetary system
 Supporting low-income countries: The IMF has upgraded its support for low-income
countries, reflecting the changing nature of economic conditions in these countries and
their increased vulnerabilities due to the effects of the global economic crisis.
Mrs. Charu Rastogi, Asst.Professor 41

42.
Functions of IMF
 Providing short terms credit to member countries for
meeting temporary difficulties due to adverse balance
of payments.
 Reconciling conflicting claims of member countries.
 Providing a reservoir of currencies of member-countries
and enabling members to bor-row on another's
currency.
 Promoting orderly adjustment of exchange rates.
 Advising member countries on economic, monetary and
technical matters.
Mrs. Charu Rastogi, Asst.Professor 42

43.
Introduction of SDR
 The SDR was created by the IMF in 1969 to support the Bretton
Woods fixed exchange rate system. A country participating in this
system needed official reserves—government or central bank
holdings of gold and widely accepted foreign currencies—that
could be used to purchase the domestic currency in foreign
exchange markets, as required to maintain its exchange rate.
 But the international supply of two key reserve assets—gold and
the U.S. dollar—proved inadequate for supporting the expansion of
world trade and financial development that was taking place.
Therefore, the international community decided to create a new
international reserve asset under the auspices of the IMF.
 However, only a few years later, the Bretton Woods system
collapsed and the major currencies shifted to a floating exchange
rate regime. In addition, the growth in international capital
markets facilitated borrowing by creditworthy governments. Both
of these developments lessened the need for SDRs.
Mrs. Charu Rastogi, Asst.Professor 43

44.
Special Drawing Rights
 The SDR is an international reserve asset, created by the IMF in 1969 to
supplement its member countries' official reserves.
 Its value is based on a basket of four key international currencies (yen,
dollars, pounds and euros), and SDRs can be exchanged for freely usable
currencies.
 The value of an SDR is defined as the value of a fixed amount of yen,
dollars, pounds and euros, expressed in dollars at the current exchange
rate. The composition of the basket is altered every five years to reflect
changes in the importance of different currencies in the world's trading
system.
 With a general SDR allocation that took effect on August 28 and a special
allocation on September 9, 2009, the amount of SDRs increased from SDR
21.4 billion to around SDR 204 billion (equivalent to about $310 billion,
converted using the rate of August 20, 2012).
 The main function of the SDR is to supplement a shortfall of preferred
foreign exchange reserve assets, namely gold and the US dollar
 For more information, click here
Mrs. Charu Rastogi, Asst.Professor 44

45.
Role of SDR
 The SDR is neither a currency, nor a claim on the IMF.
Rather, it is a potential claim on the freely usable
currencies of IMF members.
 Holders of SDRs can obtain these currencies in exchange
for their SDRs in two ways: first, through the
arrangement of voluntary exchanges between
members; and second, by the IMF designating members
with strong external positions to purchase SDRs from
members with weak external positions.
 In addition to its role as a supplementary reserve asset,
the SDR serves as the unit of account of the IMF and
some other international organizations.
 Watch this video on SDRs
Mrs. Charu Rastogi, Asst.Professor 45

46.
International Finance
 The economic interaction among different
nations involving the monetary payments and
the exchange of currency.
 The cornerstone of international finance is
foreign exchange, including foreign exchange
markets and exchange rates.
 International trade, the study of trade between
nations, is a related area of international
finance.
Mrs. Charu Rastogi, Asst.Professor 46

47.
International Finance
 International finance examines the dynamics of the
global financial system, international monetary systems,
balance of payments, exchange rates,, and how these
topics relate to international trade.
 Sometimes referred to as multinational finance,
international finance is additionally concerned with
matters of international financial management.
Mrs. Charu Rastogi, Asst.Professor 47

48.
Scope of International Finance
 Knowledge of international finance is crucial for MNCs in two
important ways:
 It help the companies & financial managers to decide how
international events will affects the firm & what steps can be
taken to gain from positive developments & insulate from
harmful ones
 It helps companies to recognize how the firm will be affected by
movement in exchange rate, interest rate & asset rates
 The consequences of events affecting the stock markets &
interest rate of one country immediately show up around the
world this is due to the integral & independent financial
environment which exist around the world
 They have been close link between money & capital market
 All this makes it necessary for every MNC & aspiring manager
to take a close look at the ever changing & dynamic field of
international finance
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49.
Scope of International Finance
 Three interrelated parts of international finance -
 International Financial Economics:
◦ Concerned with causes and effects of financial flows among
nations -application of macroeconomic theory and policy to the
global economy.
 International Financial Management:
◦ Concerned with how individual economic units, especially
MNCs, cope with the complex financial environment of
international business. Focuses on issues most relevant for
making sound business decision in a global economy
 International Financial Markets:
◦ Concerned with international financial/investment instruments,
foreign exchange markets, international banking, international
securities markets, financial derivatives, etc
Mrs. Charu Rastogi, Asst.Professor 49

50.
Significance of International Finance
 Access to capital market across the world enables a country to
borrow during tough times & lend during good times
 IF promotes domestic investment & growth through capital import
 Worldwide cash flows can exerts a corrective force against bad
government policies
 IF prevent excessive domestic regulation through global financial
institutions
 IF leads to healthy competition & hence more effective banking
system
 IF promotes the integration of economies ,facilitating the easy flow
of capital. The free transfer of funds would eventually result in
more equality among countries that are a part of the global
financial system
 It provides information on vital areas of investment & leads to
effective capital allocation
Mrs. Charu Rastogi, Asst.Professor 50

51.
Use of IT in International Finance
 Information technology has many uses in finance. From
trading financial instruments to keeping records of
personal budgets to reporting the earnings of a
business, computer technology is used by financial
companies daily. Information technology allows the
rapid calculation of financial statistics, as well as
electronic transfers of money.
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52.
Use of IT in International Finance
 Trading
◦ Financial trading is enhanced with information technology. Some
computer systems even trade for the users. A system is
programmed to enter buy and sell orders when the price of a
stock or bond reaches a certain level, and automatically closes
the order when the target price or the stop-loss is reached.
Computer based trading is useful when a trader has a system
that allows profitable trading and does not want to enter each
order individually. Information technology provides instant
information for stock traders to make decisions, and allows
them to enter orders that are immediately executed.
Mrs. Charu Rastogi, Asst.Professor 52

53.
Use of IT in International Finance
 Financial Markets
◦ Financial markets are markets for information. As such, they are
directly influenced by advances in information dissemination,
storage and processing associated with the commercial
development of internet
Mrs. Charu Rastogi, Asst.Professor 53

54.
Use of IT in International Finance
 Financial transfers
 Trade settlement methods
 Forex risk management
Mrs. Charu Rastogi, Asst.Professor 54

55.
Mrs. Charu Rastogi, Asst.Professor 55