Importance of Natural Resources

Mod-01 Lec-01 International Financial Environment

Good morning, today we will discuss about
international financial environment, coming forty session will be devoted to international
finance with lesson one we start with international financial environment before that let me give
a outline of the topic. The topic finally, principally devoted to international financial
environment or international financial management. We also call it international capitalist capital,
international capital budgeting, international capital structure, international financial
environment and mainly mainly the international aspect of corporate finance devoted to international
finance. The topic covered primarily in the area of
international financial environment. Session one will be devoted to this area. Here, we
will discuss about how the international financial environment over the year developed, how the
trade liberalization, financial sector liberalization has given a importance to international trade
and investment. Second session will be devoted to international financial transaction, that
is how the international financial corporate corporate sector, primarily the big corporate
MNC, how they prepare their balance sheet where they have exposure to international
different countries. Where we discuss about the current account, capital account, the
current trade deficit and current account deficit, we also discuss about international
financial movement, financial flow movement, how it affect the current account and capital
account, over the year how the international finance MNC moved together through different
countries and established their kingdom there. Here here we will discuss about the international
monetary system that session third will be there. International monetary system that
is a gold standard, paper currency standard, your over a purchasing power parity, the system
we will discuss. We will also discuss the floating and fixed exchanged system, their
positive negative about about the floating in a floating and floating and fixed exchanged
system, we will also discuss the currency basket system.
Few countries in the world they have currency basket system. How it affect that current
account, capital account how the stability they achieve over the year. Then session four
we will discuss about the development of foreign exchange market in India, Indian financial
system over the year developed a lot and since 1991, since 1991 the liberalization of financial
sector primarily primarily in the area of the current account, capital account how it
affects the international trade we will discuss about the same thing. Then we will also discuss
the foreign exchange market in India. Foreign exchange market particularly how the, over
the year we have migrated from the European system to the US dollar system. We also discuss,
we will also discuss the over the year how the current account and capital account developed
in Indian context, the various liberalization measures particularly in the area of FII investment
FDI investment how it affect our current account deficit, capital account deficit, our trade
liberalization system, how in India as a part to the, apart to the WTO agreement we would
also discuss about that. And then most important session is the session eight which cover the
exchange rate arithmetic who are the, how the fund exchange market develop over the
year, who are the participants in the international foreign exchange market.
We will discuss about in the the exchange rate arithmetic, exchange rate arithmetic
and we also discuss how exchange rate are quote over quote with the direct method, indirect
method and we will also we will also take into account that transfer of funds and bills
payment, rate deficit in the exchange rate quotation site. In the international parity
condition one of the important important theories many important theories are there in international
parity condition when in session nine, session your session fifteenth will be devoted in
this area. We will, here we will discuss international fisher effect, international parity theory,
covered interest theory and also we will discuss international purchasing powered, international
uncovered parity parity uncovered parity and and real interest parity. How inflation, inflation affect in the movement
of foreign currency, how international parity condition decides the short term interested
in the world economy, we will discuss in session fifteen entire international parity theory.
Session seventeen and eighteen also also devoted to international parity condition. Here we
will discuss the real effective exchange rate, the nominal effective exchange rate, how the
central bank and in case of India it is RBI they target the real effective and nominal
effective exchange rates for the trade liberalization and in session twenty one we will discuss
about the exchange rate exposure. As you know many MNC have established their established
their establishment particularly company in different part of the part of the world, they
among them that among them trade inflow your foreign currency inflow outflow take place.
How how they manage the foreign currency balance sheet and how the risk the movement of foreign
currency created risk and how the MNC absorb their risk or and also take a position in
the financial market we will discuss about that. In the, in the foreign exposure side,
exposure side we will discuss the task transaction exposure, translation exposure and and also
the economy exposure and session, not only we will discuss about the exposures also how
the MNC had managed managed their exposure over the year, different theory, different
way of calculation of exposure and the management of exposure we will discuss in session in
session twenty, twenty two, twenty three, twenty four and twenty five. In twenty six
and twenty seven we will discuss about the movement of, the movement of, the movement
of trade finance. How the get the trade finance, here we will discuss about equity finance,
international equity finance, their JDR ADR, we will also discuss about the international
international cross listing of shares, the equity are the of the MNC listed in different
stock exchange of the world. We will discuss about the international equity
market and cross listing of share. We will also discuss about international bond market,
many MNC are raising the funds from the abroad market because abroad market are cheaper,
bit cheaper in terms of interest rate and many MNC particularly developing country MNC
are raising funds from the international bond market. We will discuss about the convertibility
bond, floating zero coupon bond. We will also discuss about, we will also discuss of floating
rates, live wire floating rate, your how international rating rating affect the bond inflow and bond
outflow, the rating of sovereign rating, your international MNC rating also affected the
bond market, we will also discuss about the same thing.
Chapter in our session thirty six we will discuss about international international
capital structure because MNC are spread their spread their wings all over the world, it
is not the domestic domestic bond market or domestic equity market important for them,
international equity market, international bond market very important for them. Here,
the capital structure which is earlier domestic in nature become international aspect because
in their balance sheet they have many many foreign currency assets and liability which
affect their, which affect their capital structure. We will discuss about the international capital
structure and also how the domestic capital structure CAPA model is irrelevant when the
MNC have international borrowings and lending, right. In other aspect like in the international
capital budgeting is very important. Earlier the international capital budgeting
was not so important as compared to as compared to the domestic capital budgeting because
MNC where compare domestic companies were primarily raising their funds from the domestic
market, however, over the year when they raised their funds from the different different parts
of the world, it is not that domestic domestic capital budgeting is irrelevant, we will discuss
about, we will discuss about foreign direct investment foreign and how foreign direct
investment you can evaluate in the context of a, in the context of a capital budgeting.
This forty sessions are devoted to international capital budgeting capital finance international
financial management and we try to cover this, try to cover all the forty sessions in different
say different plan way. I have designed today today we will discuss
session session one which primarily in the area of primarily in the area of international
financial environment. You know the over the year the globalization globalization may be
a new term, may be new term in early nineteenth and twentieth century. However, the globalization
over the year has affected the movement of capital, movement of human being and established
what is called what is called international capital environment.
We will discuss about globalization which we consider as a new phenomenon is not, it
is not new. The human civilization, human civilization started with a globalization
environment. If you see the the largest migration was the migration of human being in early
seventeenth and the eighteenth century hence the globalization it is not a new phenomenon
at present. Through the instrument of colonial expansion the britishers established the global
capitalism all over the world and western europe european country with their with their
massive massive massive funds, technology they established their kingdom all over the
world, this leads to what is called movement of capital, movement of human being and movement
of technology all over the world. The globalization if you see at present is
not so much as compared to nineteenth and twentieth century because over the year after
the second world war many country, many country what is called they established what is called
the trade barrier in the movement of goods and services. This affect the movements of
capital over the country over the world and this leads to what is called the a trade regime.
We have different we had different trade regime in early in early early part of the twentieth
century, but trade regime over the year reduces reduces because of the establishment of the
international financial institution and international financial financial organization particularly
if you see, particularly if you see the after the second world war the great depression
affected the monetary system, monetary system and world political political system. The economist economist economist came to
know that we have to remove this trade barrier for the stability of the world economy and
this leads to establishment of the world level financial institution. What is called IMF IMF, what is called IMF
and other other institutions like that general agreement on tariff and trade, world trade
finance world trade finance and these are the nation help in establishing the establishing
the world financial system and after the second world war many countries demolished demolished
or abolished their what is called the gold standard or the metallic standard and they
established, the established the paper currency standard. Paper currency standard lead to,
lead to, lead to some kind of some kind of purchasing power parity and this purchasing
power parity depends upon the individual country inflation and the wage payment, taxation,
political system and this purchasing of parity lead many difficult to create a currency environment
where each and every currency can be exchanged to each other. And this problem lead, this
problem taken care of by the IMF which establish the convertibility of purchasing power parity. And this help in creating a world in a foreign
exchange market, different currency different foreign currency of the world established
foreign currency, foreign currency which came through either the trade very trade or through
the international financial flow lead exchange among themselves through in the international
foreign currency market and it is the IMF and the all other international financial
organization they they they they establish the international international foreign currency
market and this help in in in the smooth flow of international trade and international flow,
international capital flow. The decade of 80, this process continue till
1980, a decade of 80 witnessed more liberalization in the world financial system, they witnessed
in this decade of 80 also also known as the open economy micro economy policy of developing
country. Developing country, developing country they came to know that they cannot function
in a, in a environment of trade, in a environment of close economy, they open their economy,
they liberalized, they liberalize their interest rate, exchange rate and try to integrate with
the world financial system and this lead to the, this lead to the liberalization of Latin-American
country, many Asian country also adopt the liberalized liberalized financial system and
this help in establishing a more, a more global economy. Similarly we can see that several
Latin American country, Asian country implemented the financial reform policy or the eliminated
the government control of domestic interest rate, exchange rate and credit allocation.
This help in establishing the world financial system. The decade of 90s is generally considered,
generally considered as the reunification of global economy. The world reached a climax
in the process of integration of developed and developing world, the disintegration of
Soviet Union, Soviet Union also also helped in establishing a larger world kingdom. The
emergence of market oriented economy in Asia, the creation of single European market, the
formation of a new era of trade liberalization through world trade organization and development
of IT based communication system and services have significant contribution, significantly
contribute in the further expansion of the global financial system. But however, the world economy at present
is not as smooth as it was earlier. The movement of the large capital inflow with the, large
capital inflow, the movement of large capital inflow also help also created a more risk
in the world financial system. The more risk in the form of form of risk capital we generally
call hedge fund of different companies move one one aspect one country to another country
and create create international offerable or offerables in the financial environment.
The movement of movement of capital also also leads to the risk flow which affected the
flow of, flow of what is called riskless capital or the bonds, international bond market. Many
m n c many financial foreign institutional investor they move their funds from one country
to another country for the sake of getting more profit.
They used this F I investment in stock market and create create more offerables or volatility
in the domestic stock, domestic capital market. This affected, this affected and created more
risk in the international financial environment. That is this is a problematic aspects of world
economy and so, this has lead to the what is called as a subprime crisis which now onwards
now 2006 onwards we have been witnessing all over the world, the subprime crisis has has
lead to recession in the world economy and weakening the balance sheet of the many financial
institutions. The global financial system has proved to
be inadequate inadequate in the form of, in the form of absorbing this kind of risks or
creating a regulatory framework to minimize the risk of capital inflow, that is there
is a need to need for establishing a world level financial institution, more more regulatory
power. So, that they can manage or they can monitor monitor the risk movement of risk
capital all over the country all over the world, this has called for establishing what
is called a global monitoring authority because for the smooth flow of international finance,
international finance you need a regulatory framework. The regulatory framework should
should be in a such, should be in a position that it can keep a whistle in the movement
of a risk capital all over the, all over the world. For this reason we we required at present
a smooth functioning of the world financial system is this has called for, this has called
for reducing the stress, constress stress in the form of the movement of risk capital
and this has, this has called for reinventing reinventing the international financial institution.
We have to give more power to international financial institution particularly the IMF
other other world body. So, that they can put a whistle in the movement of the risk
capital. In this session we came in this session we
primarily focus on the establishment of the, what is called a international financial environment.
This international financial environment requires that for the smooth functioning of the world
capital, world financial financial institution many countries have established have liberalized
their trade barrier, established a integrating path, integrating path for the, for the integrating
path to to link to the world economy and world economy at present though it is, though it
is at at a recession phase. However, world definitely over the two coming two three years
the world economy will revive its trend and we need the further establishment of a world
level organization which can prevent this kind of sub-prime crisis.
And world financial system particularly particularly the particularly the movement of the short
term capital, short term capital which affect, we generally invest in stock market in the
foreign exchange market need to be controlled and for the smooth flow of international trade,
international trade we have to differentiate between the international trade and international
financial flow, international trade needs there should be a, there should be a proper
banking system, there should be a proper payment system. However, for the smooth transaction
of export import and invisible and invisible at the same time international finance, international
financial flow needs the linkages of different different different banking institution, financial
institution. So, that there should be flow of flow, financial flow from one country to
another country. Financial flow primarily move from to take into account to take the
arbitrage opportunity. Generally developed developing country and
developed country the interested differential and leads to the flow of funds from one from
developing developed country to developing country. However, however, this this flow
is short term in nature and very and create a, create more risk in the international financial
environment. International financial environment needs a stability of the capital flow, stability
of the funds flow and in this context you have to, you have to give more importance
to the trade finance, rather than the finance movement to the risk capital, but risk capital
generally affect the financial institution balance sheet because the once the flow, once
the economy in a down turn or economy some kind of volatilities are there the risk capital
never say stay in the country, they migrate from one country to another country to take
into account the arbitrage opportunity. Arbitrage opportunities are there because
there is a differential in interest rate, differential in the return in the stock market.
This arbitrage arbitrage opportunity lead to the movement of hard money. We call the
short term movement of foreign currency or the hard money movement. The hard money movement
create volatility in the stock market, volatility in the domestic environment and also affect
the smooth flow of the world trade organization or the smooth flow of the international trade.
International trade and the trade and the and international financial movement need
to be differentiated. There should be some kind of regulatory environment
to keep whistle on the movement of the trade international short term capital for the establishment
for the smooth smooth establishment of world trade finance. On this background we need
to, need to outline what are the characteristics of the, what are the characteristics of the,
characteristic of a international financial environment. The basic characteristic of the
world international financial environment that depends upon the movements of capital
flow or short term capital and this this lead to that the exchange of different currency,
international foreign exchange market we take in we generally generally generally consider
the exchange of one currency to another currency or exchange of many currency among each other
is a largest market in the world and trillions of transaction takes place in a few seconds.
This largest market need to be tabbed, need to be monitored in such a way that there should
not be any volatile, high volatility in such market. The market market have a own potential
and market has a own own volume. The volume are so much that, so much that you can when
in a few seconds it may create havoc in the finance, in a, in a any country domestic domestic
market. So, when the country try to integrate to the
world financial system they should be aware of the the volumes and volumes and movement
of this foreign currency and on this basis they should liberalize their capital account
and current account because the international balance sheet of a country is primarily composed
of the capital account and current account. The current account taken into account the
export import a trade and capital account taken into account the movement of foreign
foreign capital which are long term in nature. So, in foreign capital account we have FID
investment, we export import, we have a trade, we have interest payment, we have other short
term short term payments and receivables, payables and receivables which are very volatile
in nature and this may lead to what is called movement of funds from one country to another
in a few seconds. On the other hand capital account take into
account primarily the large borrowings, FDI foreign direct investment and also the government
government and the government and the country’s MNC which they generally borrow from their
abroad market, they take into account in the capital side. A capital are most capital account
is most stable in nature. However, current account is more volatile in nature, but current
account, current account primarily composed of export import which are the which are generally
called a trade finance or trade raise, marketed trade and in a developing country like India
the export export and import, the trade deficit is quite high.
So, because our imports are more than our exports and in this context we will have to
liberalize the capital account to in to allow more capital inflow to the country, but in
the current account we have more, we have more invisible in the form of the receivable
from abroad, receivable from abroad which is which is generally called called our called
generally called income inflow. Our our peoples are working abroad, they send their fund to
domestic country and this this we call NRI deposit, NRI receivables which are part of
the current account and which generally breach our deficit in the current account.
However our trades are more more in nature of inelastic because our export imports are
inelastic in nature with a primarily primarily in the form of oil imports, primarily in the
form of, form of technology imports, primarily in the form of some kind of raw material import
or some kind of capital goods inflow which affect, we generally we use it for the export
export side, our trade our import side import primarily the oil import are inelastic in
nature because it is a essential commodity. On the other hand our exports are non traditional
in nature which may not be in a position to take advantage of the movement of foreign
currency and trade regime need to be further liberalized on give boost to the our value
added trade which we take into account the export side.
Value added trade may allow us to give and more foreign exchange and in this will breach
our trade deficit, at that same time you should take into account more, we should take into
account more more liberalization on current account by allowing more capital more inflow
to the more inflow of dollars or foreign currency to the India. On the other hand capital account,
capital account take into account primarily that foreign currency borrowing, FDI, that
we have to liberalize the capital account in such a way it should not affect over the
international capital movement. However, on the other hand you should take into you should
give more more importance to the our international balance sheet which which is more current
account deficit. Current account deficit create create more volatility in the financial market
and the volatility can be arrested or can be reduced by allowing the more liberalization
in current and capital account. We in that, this one this session primarily
devoted to international environment international environment I have, as I have told you the
foreign exchange market primarily, but on the other hand international environment also
have, also have what is called the domestic environment. Domestic environment is more
in our financial financial institution, our financial market because there is a integration
of domestic financial market and international financial market. We have to liberalize our
interest rate, you have to liberalize our give more importance to the, our domestic
financial institutions. They should, they should practice their domestic
they should practice their banking in financial sector in a more liberalized environment environment
because the freedom require for them to take decision rather than the compulsion, the freedom
in the form of interest rate liberalization, freedom in the form of liberalization of liberalization
in capital movement, freedom in the form of allowing their domestic MNC, domestic financial
institution to borrow from abroad market because this allow them to bring technology, this
allow allow them to bring capital capital to the domestic environment. Only the capital
and capital and technology can give boost to our exports side which is actually essential
for the bridging that trade deficit. Our interest rate scenario if you see, if
you see, if you see our interest rate scenario at present, at present more liberalized in
nature, the interested help in, help in bridging that bridging the gap between domestic and
domestic and interested environment and abroad interested environment because this is essential,
this is essential for integrating the domestic economy at through the world economy. However
the integration leads to what is called, what is call more problem in nature, problematic
aspect is in the form of the international instability instability or the global level
instability may come to the domestic environment. You have to, you have to take sufficient protection
protection in the form of, in the form of more not allowing the capital account in a
in a drastic change in drastic liberalization because the international financial environment
at present is highly unstable, the unstable instability may come to the domestic environment
domestic domestic market and it create more problem to domestic financial institution.
So, international international liberalization essential essential for the success of the
domestic financial market, domestic economy at the same time it should get it, should
create sufficient sufficient protectionist measure. So, that the international capital
move, international political, international instability should not come to the domestic
environment. There are many such kind of what is called problematic aspect of the world
economy. The capital flow as I mentioned earlier is linked linked to or hard money movement
this may affect our domestic financial environment. Similarly at present the economy is in a sub-prime
crisis economic world economy in recession recession, the recession on the world economy
also world economy downturned has also affected us. We have to take our domestic economy by
by boosting the domestic domestic by boosting our domestic requirement in the form of our
allowing the our domestic domestic financial organization domestic I mean domestic company
to get fund from the domestic financial market. Similarly, the our financial market, the financial
market and many other domestic financial companies the balance sheet is a very stress in nature
because the earlier they were part of the international financial market and international
financial market at present in a stressed environment. We have to protect this stress
protect this from domestic company by by giving some kind of reformatory measure in the form
of low low cost fund, in the form of reducing the tariff barrier, in the form of reducing
the taxation side at the same time in the present day international regulatory system
is not sufficient to protect the domestic economy.
So, in this process we have to we have to negotiate with the world financial organization
of other country and establish at world level monitoring organization. The monitoring organization
should be, should be in a position should have sufficient power to to, should have sufficient
power to protect the individual domestic individual economy to protect the individual economy
in the form of, in the form of movement of hard money, movement of, movement of short
term capital, movement of risk capital and this risk capital as I mentioned earlier also
create more instability in the domestic sector. So, the world economy need to be reconstituted
in the form of a new financial architecture. The new financial architecture should take
into account, should take into account the movement of financial movement of foreign
currency, movement of short term capital, movement of hard money and also also create
such kind of regulatory framework which can protect the domestic economy. The world international
financial architecture should also take into account the integrating the world economy
in a more in a, in a smooth manner. So, that the world trade finance on one level export
import should not be affected, at the same time the international financial financial
architecture should take into account the WTO and WTO side. The WTO or the world trade
organization should be should be given sufficient power to create a smooth international trade.
In this context the requirement of the developing country should also be protected, domestic
world trade organization over the year has liberalized the world trade in significantly,
the tariff which affected the movement of the goods and services, goods and services
also have have been reduced over the year. The world trade organization has been considering
over the year the movement of labour forces, the the movement of agricultural goods, movement
of services, movement of technology, movement of intellectual capitals and this need further
need further in negotiation because these are the very sensitive issues in international
financial environment. The agricultural side, movement of movement of labour, movement of
movement of short term capital, movement of intellectual property these are the very sensitive
issue in in sensitive issue to world trade and this need further negotiation and negotiations
would take into account the take into account the requirement of developing country because
developing country at present in the transition phase.
The transition they need more capital, they need new technology, they need protectionist
environment and and for them the world trade organization should also consider and should
also consider how to develop these developing country. In this context the environment issue,
the issue of intellectual intellectual property, the issue of world level technology is very
sensitive in nature and this sensitivity should be, should be, should be discussed should
be discussed in world trade organization and try to give more important to developing country
where developing sizeable section of the society, sizeable section of the population are poorer
in nature. Developed country over the year, over the year, over the year they they established
their economy, they established their established their market and they need less protection
as compared to developing country. So, in this context we come to the come to a a a
come to such the environment side where international capital structure, international property,
international financial movement and international market foreign currency market need to be
discussed in a, in a, in a more detailed manner. And for this we have designed the international
financial finance topic financial topic in such a way that this issue need to be addressed,
this issue need to be addressed more more detailed manner because the movement of foreign
currency affect the world or the world trade and finance and this foreign currency are
very short term in nature they move from one market to another market, one economy to another
another economy in a very few very few second and this this foreign foreign currency movement
create more risks in the domestic financial market.
And domestic financial domestic MNC and domestic MNC and domestic and domestic economy affected
because of this movement of foreign currency, over now a days if you see the if you see
the there is hardly any difference between domestic company and MNC because many such
companies are sourcing their export import from the, from the world financial market
and in the movement of foreign currency affects their balance sheet. We generally generally
call, generally mention that if you have exposure if a company has exposure in foreign currency
either in the form of payment of interests, in the form of export, in the form of import
or any other format, any other format which is linked to foreign currency, their balance
sheet is never closed because their balance sheet anywhere in the world, the foreign currency
market is open, it is a 24 hours market. The market start from the Tokyo early morning
and end at Tokyo again at the early morning and in this process, in this process the even
though the world financial systems are closed the domestic the international financial environment
which is primarily foreign currency oriented never close, it is a 24 hour market in our
balance sheet of MNC company are open. Because the movement of foreign currency lead to the
change of exchange rate, exchange rate which have change its value every second, affect
the asset liability of the foreign MNC, the asset liability continuously changing, continuously
changing with the movement of foreign currency. Hence, the foreign currency exposure of MNC
MNC is a since foreign currency exposure of MNC is lead to be studied in a detailed manner.
At the same time we also take into account how are the MNC’s are borrowing from the world
financial system. In this context we have to discuss you have to study the entire you
have to study the entire international financial market. International financial market are
short term in nature which which fulfil the requirement of working capital borrowing,
at the same time international financial market also long term in nature which fulfil the
requirement of capital borrowing, a long term borrowing, a technology finance technology
finance, also finance of long term project. So, you have to study in detail the international
financial international trade trade finance in a significant way. Also there are movement
of foreign currency from one country to another, how the payment system take payment system
take care the movement of foreign currency, in this context we have to study the international
payment system. How the different currency different bodies are there, different organizations
are there, they take into account the international payment system. In this context we should
study the euro euro zone, we want to study the US US zone and how and also at the same
time we have to study the Asian currency union, the currency union how the international settlement
take place in this market. At the same time you have to study the international
equity market. International equity market because many MNC’s are borrowing from abroad
in the form of diluting their equity in Indian in Indian context we have JDR ADR many companies
like Infosys, TCS many other other manufacturing company they have the they have raised their
money from abroad by directing their equity. In this context you should study the J J D
R and A D R and their Global depositary receipt and also American depositary receipt we have
also Indian depositary receipt. We will study in detail with the depositary
receipt side also. International International capital structure as you as I mentioned earlier
over the, in my lecture that many such country, many such country have, many such country
MNC have borrowed from the borrowed from different financial market and their balance sheet compose
of not only the domestic capital, but also, but also that international capital. When
international exposures are there in the capital structure the domestic capital market the
domestic capital structure is not valid. In this context you should study what is called
the the market segmentation and market integration and the world markets have segmented, there
is arbitrage opportunity available, world markets have integrated the arbitrage arbitrage
opportunity will not be available, arbitrage opportunity provide some kind of some kind
of windows in form of in in the form of, in the form of its called the differential interests
rate and which will, which will lead to reduction of capital, reduction of the cost of capital,
but as the world economy is moving towards more integrated manner the arbitrage opportunity
over the year do you think and in this context we will see how the capital structure is affected
because of segmentation, market segmentation and market integration. And as you know the
foreign direct investment, foreign directs its investment many developing country they
are inviting the MNC to invest in their domestic market. In this context the foreign direct
investment are coming from from different countries. We have to understand how the foreign
MNC’s are evaluating the foreign direct investment before they before they try to invest in a
domestic economy. Though in this context we will study that how the domestic financial
environment allow the foreign direct investment, what are the political risks are there. So,
many risks are there, how the financial market allowing that foreign direct investment, what
are the liberalization measures of domestic economies have done, in this context you try
to, try to study the international financial domestic financial environment for the MNC
in the Indian context. The liberalization measure 1991 onwards what
we have achieved we have, we have done the how the liberalization measure allow the domestic
foreign company to invest in Indian context and how the foreign company take into account
the project finance, project side and try to project side and evaluate the project project
in the light of foreign currency movement. So, international financial environment before
coming to end I have to mention here that it is a very difficult, very difficult to
analyze the international financial environment primarily because all it is a very dynamic
world where foreign currency movement take place.
We are in a dynamic world when policy changes are taking place every moment this this international
finance and environment is evolving in nature. No country in the world has established full
convertability, no country in the world have stopped stopped the movement of foreign currency.
So, so, in a international environment at present it is evolving in nature. So, we have
to continuously and monitor the international environment to protect the domestic economy.
So, in this context we have to, we have to establish we have to see how the how the Indian
Indian financial sector even particularly the foreign exchange market develop develops
since 1980 65 67 onwards and still now the which is the phase we are passing through
and we we will analyze the domestic environment domestic domestic liberalization and try to
find how it affect the in movement of foreign currency in India. The liberalization of liberalization
capitalists capital, liberalization by investment, liberalization of domesic financial sector
librealization financial sector, interested liberalization, extended liberalization, how
it affect the movement of foreign currency, how it affect the international financial
environment and we try to study the different aspect to the financial environment in subsequent
session. Before coming to end let me give you the references
here. There finally, I follow the references of the world trade organization. Now, if you
see the world website of the world trade organization, the world trade prior earlier it was known
as GATT general agreement of trade and tariff, in 92 93 onwards they have changed their name
to world trade organization. The world trade organization is the organization of the organization
the world world level where member countries agree to liberalize the international trade
and here the liberalization of tariff, liberalization of custom duties, liberalization negotiation
among different different countries to liberalize the international trades are trades are mentioned
there, you can go through the world trade organization website, try to find the liberalization
in the world economy particularly the trade regime.
I also follow the Brookings institution, Brookings institution where the J D Sachs and Aslund,
Fischer they have written one good one paper on, one paper particularly in the anniversary
paper issues in 1995 they liberealized they survey the economic reform and the process
of global integration they may here also I found that this paper is very useful for to
understand the economic liberalization over the years.
They have confined their they have not confined the liberalization in particular country,
they have shared they have mentioned their over the years how the economic world economy
has liberalized and how the world economy has become more integrated at present and
in the second third one I mentioned here that primarily in the Indian context 1947 to 2007
the foreign trade of India, here foreign trends policies prospect a Vibha Mathur, new century
publication they mentioned that and here they analyzed the trade regime Indian foreign trade,
the liberalization aspect, direction of trade, custom duty, tariff liberalization, liberalization
of FDI investment, the all trends and policies they have mentioned that this book also good
for to good to understand the trade regime in Indian context. Here I have supposed supposed
to mention here supposed to mention here that the trade means trade has a two parts in Indian
context, one part is called the items or the goods and services, another part is the direction.
Items are not only generally we classify items trade items in the form of, in the form of
manufactured goods, in the form of traditional and non-traditional good.
Traditional good in the form of handicraft export, in the form of exports of raw materials,
in the form of exports of exports of mineral commodities and and also we have these commodities
are we have been exporting because we are not in a position to give value addition to
this commodity, this commodity though have a market, but we could not get sufficient
amount of foreign exchange. We need to improve our, improve our value added from our value
added export which to capture the world market. If you see world world trade our export is
hardly less than one percent of the world export. So, we have to export more by giving
more importance to the manufacturing side and more important to what is called the value
added trade. On the other hand we have direction of export,
what is called direction which country you are exporting, direction we have a US dollar
US country, our Latin American country, we have a country to like our Saudi Saudi Arabian
country, we have a country other Asian country, European union, but our export primarily directed
to world primarily directed to US economy and European country. Our export we have not,
we have not so far directed our export to South Africa side, African country side who
have more important to export and direction of export is very important because we should
not confine to one country, one zone because it may affect their one country export, that
their import may affect may affect our export side. So, we have to diffuse diffuse our export
to different part of the country to take into different part of the world to take into account
the movement the advantage of this country. Okay, before coming to end let me discuss
go for the model questions here, the model question I have mentioned here write in brief
the historical development of international financial environment here and second question
is briefly outline the transition of Indian foreign trade after 1991 economic reform and
third question is outline the missing-link of globalization. In the before first question
number one write the write in brief the historical development of international financial environment
and here the you have to mention how the international trade, international trade environment develop
over the year. Before mentioning that you have to outline the eighteen, seventeen eighteen
century the movements of human beings, establishment of different countries, establishment of sovereign
powers, you have to establish here you have to mention here the colonial expansion of
the European union European country primarily primarily the great Britain, how they expand
their economy economy to different part of the world particularly the Asian Asian country
and also African country. Here also here also you mention after the
first world first and second world war how the world economy developed, world economy
developed, how the establishment of world trade organization world trade organization
particularly the GATT, WTO, IMF help in creating an environment for the smooth international
financial movement, international financial movement, also international international
movements of goods and services. In that question also we mention that how the developing country
and the soviet union have have integrated over the world economic system, the how are
the capitalism they spread all over the world, then how the MNC have spread their wings,
spread their company different part of the world, this will lead to the this may, this
may help you analyzing the historical development of the international financial environment.
Second question is your briefly outline the transition of Indian foreign trade after the
1991 economic reform. Here you have to mention how the economy Indian
economy has liberalized their financial sector, the trade sector and other economic policy
particularly the licensing raj, the MRTP act abolished, we have established the competition
commission we have liberalized their economy we have allowed their MNC our domestic economy
domestic company to move move from one country to another country. We have also liberalized
liberalized the foreign liberalized their foreign currency market, we have liberalized
the export import side, we have established a foreign currency market, we have, we also
mentioned that the current account convertibility convertibility, capital account liberalization
side how it affect how it help help in the foreign currency, foreign foreign trade in
the Indian Indian in Indian context. Here also I mentioned how the India has become
a member of the WTO and at the at the polish as a member country Indian Indian export import
duty, particularly the custom duty have reduced for different goods and services. Once upon
a time the custom duty was more than 100, 200 percent it has been levy it has been reduced
to 35- 40 percent now this help in in in a further this help in boosting our trade. Here
also I mentioned how are the our direction and items of trade. Our direction of trade
earlier the U S European European country US and also we have established our trade
link to African countries. Here also I mentioned our different items
of trade we have now more value rate trade, the mineral export, mineral export, the export
of the non traditional traditional goods traditional goods has reduced over the year, our value
added export has increased, we established a new source of export particularly the soft
export we call it the technology soft software technology exports that also major part of
our export basket basket now and this way you can you can analyze the Indian foreign
currency market foreign trade after the 1991 economic reform. Third question is outline
the missing-links of globalization here we have discussed in our presentation that there
are many missing links are there in globalization process first missing link is the human phase
of liberalization. The liberalization has helped in human helped
in the society or not you have to analyze establish you have to understand that and
also you mean the liberalization lead to more movement of risk capital, it has created financial
financial sector of rivals, it has created world world sub-prime crisis, it has created
the risk in more risks in the world economy, we have to establish the this links the missing
links at that we have to establish a global level financial institution to monitor the
movement of risk capital, this is essential for you for the success of the world economy
because world economy needs smooth flow of capital at the same time world economy also
need to manage the risk, risk is there this will affect the world trade and also risk
is there it affects the movement of world capital, the for this reason the management
of risk and their liberalization should go together and we have to establish such kind
of institution, world level institution which can monitor the monitor the risk and with
a regulatory regulatory regulatory framework they can, they can establish the smooth flow
of international trade and finance. Thank you.

Reader Comments

  1. Almost incomprehensible. I've some academic knowledge of international finance and FX markets, but THIS is awesome !

  2. this is disgusting… what is this guy doing… just reading even not able explain what exactly tens mean. Shouldn't upload

  3. I don't care whether you're from an IIT or an MIT, it pains me to see such a beautiful subject getting messed up by you. Please work on your presentations before agreeing to make such videos.

  4. I love to study about financial environment. you'r class gave me mostly knowledge. i than you……………………….

  5. I think you are not a IIT professor……. your lecture is worst ….please don't do this type of videos…. it will spoil the students life…

  6. NPTEL is a good platform for someone to learn but how can anyone learn when he can not even understand what teacher is saying. What's the point in having a Ph.d when you don't have a command over a language. If English is weak, try teaching in hindi or any language that you can speak, but at least make yourself understandable to students.

    for NPTEL, please for god sake have some teacher that is atleast presentable. This country has thirst for knowledge but unfortunately teachers like this can never quench it

  7. Professor had good command over subject. please stop commenting about English language command it is not our mother tongue ( listen to a Spanish guy speaking in English)

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