International Business

WEDNESDAY, FEBRUARY 4, 2009

The global financial system (GFS)

Financial system - Introduction Recent changes in the global financial markets: Globalisation of financial markets. Increase in the amount of money involved in financial transactions. Increasing domination of institutional investors. Increase of new financial instruments and products. Increase use and importance of technology. Impact of the internet (online banking online dealing). Increase competition between banks (corporate banking decline). Trend towards deregulation of the financial sector. Emergence of EU and Euro. Increasing importance of emerging markets.

Financial system Introduction Financial System is the group of individuals, intermediaries and institutions that can potentially interact or participate in transactions that involve real or financial assets. The financial assets are instruments that facilitate transactions in real assets or constitute the subject of a transaction between market participants. The financial markets facilitate the trading of financial assets between market participants and The financial intermediaries facilitate the financial transactions of market participants.

The role of a financial system Principles The Financial System provides the environment in which the individual investors and companies operate. Financial system participants: Individuals. Companies. Financial institutions, private and public organisations. Governments. Functions of the financial system: Facilitations of transfer of money. Primary and secondary security markets. Financial services.

The role of a financial system Principles 2 In a financial system different parties participate in or perform different functions but the common feature of all those functions is The transfer of money from surplus to deficit economic agents. Examples: Bank deposits. Use of means of payments (cheques or electronically). Managing risk through investing in pensions or using insurance. Direct investment through buying and selling equities and bonds. Transfer of funds from ultimate Lenders to ultimate borrowers can Be made through direct lending; through trading in organised securities markets or indirectly through financial intermediaries.

Lenders and borrowers in a financial system End users: Ultimate Lenders. Ultimate Borrowers. Intermediate Lenders and borrowers Financial institutions. Dealers. Market makers. Financial intermediaries Brokers. Banks, Clearing houses. Issues: 1. Motivation and interests of the end users. 2. Motivation and interests of financial intermediaries. 3. Function of financial intermediaries.

Saving and Lending Savings is the surplus of the income over expenditure. In most developed economies, the majority of the individuals and households are net savers, i.e. surplus economic agents. Investment is the acquisition of real assets that are used in the production of goods or services by companies (the original term used by the economists). Financial Investment is a term used by financial press for acquisition of financial assets by individuals. Individuals has less investment opportunities than companies.

Borrowing The deficit economic agents have current consumption higher than

their current income. Borrowers are deficit economic agents such as: Companies. Government or local government authorities. Individuals and households. Deficit economic agents have to liquidate existing financial assets to finance their investments or incur financial liabilities, i.e. debts. Borrowers are interested at: 1. Minimising the cost of borrowing. 2. Maximising the length of time of the loan.

Lenders, borrowers and Financial assets In a transaction, the financial asset of one party is liability for the other party. In aggregate, the financial surpluses and deficits must be equal. Sectors in a closed economy: Households or private sector. Companies or corporate sector. Government. Assuming that households have a financial surplus and companies have financial deficit. If government runs a deficit, the private sector surplus has to be equal to the sum of the government and corporate sector deficit.

Financial Institutions Financial institutions (FI) are companies that act as mediators between surplus and deficit economic agents. Financial Institutions: Deposit takers (banks). Non-deposit takers. Functions of financial institutions: provision of payment mechanism. facilitation of lending and borrowing. provision of insurance, foreign exchange and other services. Liabilities of the banks are used as money. Banks are increase and facilitate money supply. Banks are closely regulated.

FIs as companies Financial institutions are companies and use labour and capital to provide efficient services. Financial crises, economic recession periods or industry consolidation forces FI to become more efficient. High street premises vs. internet banking.

 Labour efficiency. FI use capital (input) and provide loans (output) that generates economic rents. Deposit-taking FI: Input: customer deposits. Output: loans. Non-deposit-taking FI: Input: funds from savers (for insurance, pensions, unit trusts, mutual funds). Output: investments in FA and deposits/loans to other FI.

FIs as Intermediaries - Functions Financial institutions mainly receive deposit from surplus economic agents and provide loans to deficit economic agents but also provide a range of other services. Intermediation by FI also involves offering services not only to ultimate lenders and borrowers but also to other transacting parties . The role/functions of FI as intermediaries are: Provision of payment mechanism Creation of desirable assets and liabilities Maturity transformation Risk transformation/management Liquidity provision Cost efficiency (transaction, information and search costs) Provision of efficient monitoring mechanism.

FIs as Intermed. Provision of Payment Mechanism. Most payments do not involve exchange of cash Many FI such as commercial banks offer options to pay by: Cheques Credit cards Electronic transfers Debit cards etc. Opportunities to use non-cash payments are also offered by other non-bank financial intermediaries. Competition in prices and quality of services provide wide choice to market participants. Electronic transactions in fund transfers are increasingly common between domestic and foreign residents. The efficiency of system of payments facilitates economic growth.

FIs as Intermediaries Asset & Liability creation Creation of financial assets and liabilities: Examples: A bank attracts deposits of customers with surplus funds by creating a

number of different deposit and savings accounts (current accounts, savings accounts etc). A bank offers a number of different loans to individuals and companies (mortgages, short-term loans, consumer loans etc). A financial company raises equity capital and loans to provide lease services to corporate clients. An insurance company provides insurance services to households and companies. A mutual funds company offers investment opportunities.

Financial Markets Financial markets (FMs) are organised and highly regulated mechanisms that facilitate the transactions between investors and companies or other market participants that act as investors or intermediaries. No need to be in a specific physical location. Financial claims or financial instruments that represent investors assets and liabilities are traded in the FMs. 1. Financial instruments that can be traded directly: Shares, corporate and government bonds, treasury bills. 2. Financial instruments that cannot be traded directly: Life assurance benefits, pension benefits, bank or savings deposits.

Financial Markets & Financial Instruments Classification of FM by the type of interest rate that the traded financial instruments offer: 1. Instruments that pay fixed rate of interest (bonds, some mortgages). 2. Instruments that pay variable rate of interest (bank deposits, equities). Classification of FM by the time to the residual maturity of the traded financial instruments: 1. Money markets: where the maturity is less than a year. 2. Capital markets: where the maturity is higher than one year. Classification of FM by the type of issue: 1. Primary markets. 2. Secondary markets. The global financial system (GFS) The global financial system (GFS) is a financial system consisting of institutions and regulations that act on the international level, as opposed to those that act on a national or regional level. The main players are the global institutions, such as International Monetary Fund and Bank for International Settlements, national agencies and government departments, e.g., central banks and finance ministries, and private institutions acting on the global scale, e.g., banks and hedge funds Contents: 1 History

2 Institutions 2.1 International institutions 2.2 Government institutions 2.3 Private participants 2.4 Legal frameworks and treatises 3 Perspectives 4 Criticism, discussions and reform History The history of financial institutions must be differentiated from economic history and history of money. In Europe, it may have started with the first commodity exchange, the Bruges Bourse in 1309 and the first financiers and banks in the 14001600s in central and western Europe. The first global financiers the Fuggers (1487) in Germany; the first stock company in England (Russia Company 1553); the first foreign exchange market (The Royal Exchange 1566, England); the first stock exchange {the Amsterdam Stock Exchange 1602).Milestones in the history of financial institutions are the Gold Standard (18711932), the founding of International Monetary Fund (IMF), World Bank at Bretton Woods, and the abolishment of fixed exchange rates in 1973. Institutions International institutions The most prominent international institutions are the IMF, the World Bank and the WTO: 1.)The International Monetary Fund (http://www.imf.org/) keeps account of international balance of payments accounts of member states. The IMF acts as a lender of last resort for members in financial distress, e.g., currency crisis, problems meeting balance of payment when in deficit and debt default. Membership is based on quotas, or the amount of money a country provides to the fund relative to the size of its role in the international trading system. 2)The World Bank (http://www.worldbank.org/) aims to provide funding, take up credit risk or offer favorable terms to development projects mostly in developing countries that couldn't be obtained by the private sector. The other multilateral development banks and other international financial institutions also play specific regional or functional roles. 3)The World Trade Organization (http://www.wto.org/) settles trade disputes and negotiates international trade agreements in its rounds of talks (currently the Doha Round) Government institutions Governments act in various ways as actors in the GFS: they pass the laws and regulations for financial markets and set the tax burden for private players, e.g., banks, funds and exchanges. They also participate actively through discretionary spending. They are closely tied (though in most countries independent of) to central banks that issue government debt, set interest rates and deposit requirements, and intervene in the foreign exchange market. Private participants Players acting in the stock-, bond-, foreign exchange-, derivatives- and commodities-markets and investment banking are Commercial banks Pension funds Hedge funds and Private Equity Legal frameworks and treatises Eurozone North American Free Trade Agreement (NAFTA) Mercosur Commonwealth of Independent States (CIS)

Perspectives There are three primary approaches to viewing and understanding the global financial system. The liberal view holds that the exchange of currencies should be determined not by state institutions but instead individual players at a market level. This view has been labelled as the Washington Consensus. This view is challenged by a social democratic front which advocates the tempering of market mechanisms, and instituting economic safeguards in an attempt to ensure financial stability and redistribution. Examples include slowing down the rate of financial transactions, or enforcing regulations on the behaviour of private firms. Outside of this contention of authority and the individual, neoMarxists are highly critical of the modern financial system in that it promotes inequality between state players, particularly holding the view that the political North abuse the financial system to exercise control of developing countries' economies. Criticism, discussions and reform Among the many critics of the GFS are: The ATTAC network Joseph Stiglitz George Soros Stefan G. Dunbar Pope Benedict has urged a major overhaul of the global financial system
Posted by meenusharmamba at 8:30 PM 0 comments FRIDAY, JANUARY 23, 2009

world trading system

the meanig of world trading system World Should not connote same participation by all nations Trading Should not be taken to mean just trade in goods and services; FDI and migration are important too System Should not be taken to mean that there is some overarching mechanism or group of people that control all of these commercial transactions or state-to-state interactions

Typically refers to the flows of goods, services, and non-financial investments across national borders; and The policy regimes that governs these economic activities Policymakers that care about their firms interests are concerned about the impact of foreign nations policies NGOs care about impact of these transactions and policies on environment, labor, etc. nIn sum: multiple actors, different motives, different laws, and various business practices Why care about the international rules that govern trade Absence of rules has been historically associated with economic turmoil and war Great Depression and World War II Rules reduce uncertainty in planning international transactions and operations Imagine what would happen if any productivity increase was matched 1-for-1 by a tariff increase Negotiations over trade policies can result in greater access to foreign markets Rules can protect foreign investments

Rules can improve the allocation of resources Trade rules: the legalese Basic idea, fancy language Two fundamental rules against discrimination of foreign firms or investors National treatment provision Most favored nation provision (MFN) Commitments codified as bindings Historically specified what governments will not do; but more recently include commitments to take action Many exceptions: including regional trade agreements like NAFTA and sectors like agriculture

Explanations for the factual record Principal explanations Supply side factors Policy changes Interaction between these two explanations "Death of Distance Falling international transportation costs Ease of communication Recent doubts on the importance of these factors Factor accumulation and changing production structure Reductions in trade barriers Relative importance: 2/3 policy; 1/3 other factors Growth in FDI Death of distance Rise of export platforms Rise of international outsourcing which, in turn, reflects Falling trade barriers Greater ability to enforce contracts with suppliers Changes in management thinking Substantial liberalisation of inward FDI regimes Less aversion to foreign takeovers and acquistions Privatisation and deregulation reforms Growth in international migration Greater information flows and impact on aspirations Large cohorts of younger people in the developing world Falling cost of international travel Increased premium on skill in industrialised world

Greater education opportunities in industrialised world Aging populations in industrialised world wto World Trade Organisation: India is one of the (out of 104) founder members of the WTO. The GATT was not an organization but it was only a legal agreement. On the other hand WTO is designed to play the role of watchdog in the spheres of trade in goods, trade in services, foreign investment, intellectual property rights

Uruguay Round: Unintended Consequences

It could perhaps be plausibly argued that in all significant government policies the unintended consequences overwhelm the original policy objectives. The Uruguay Round is a particularly striking example of this dictum. The Uruguay Round was the eighth negotiation under the auspices of the GATT (General Agreement on Tariffs and Trade), created in 1948 as part of the post-war international economic architecture. The primary mission of GATT was to reduce or eliminate the border barriers which had been erected in the 1930s and contributed to the Great Depression and its disastrous consequences. The GATT reflected its origins in the postwar world in that it provided rules to buffer or interface between the international objective of sustained liberalization and the objectives of domestic policy, primarily full employment and the creation of the welfare state. This paradigm appeared to be based on a consensus among the major players termed embedded liberalism. But there was less of a consensus between the Europeans and the United States than appeared at the creation. More of that later. Before the Uruguay Round, GATT worked very well. Tariffs and non-tariff barriers were significantly reduced and trade grew faster than output as each fed the other. From the 1960s on the rounds were essentially managed by the European Community and the U.S. (The Big Two) though smaller countries were able to play a useful mediating role. The developing countries were largely ignored as players, although that began to change in the 1970s, of which more below. Agriculture was virtually excluded from negotiations. The Common Agricultural Policy (CAP) of the European Community was enshrined in the Treaty of Rome in 1957 and regarded as the heart of European integration, an implicit contract between France and Germany. And the United States secured a GATT waiver for its agricultural support schemes. So the transatlantic alliance, sans agriculture and helped by the Cold Wars constraint on trade frictions, was the effective manager of the international trading system. The Uruguay Round was a watershed in the evolution of the system. Agriculture was at the centre of the negotiations. The French-German deal (French agricultural products for German manufactured products) was increasingly tenuous. The German market was simply not big enough for the vastly expanded European production nurtured by the CAP intervention on prices and incomes and so exports became the solution. By 1979 the Community became a net exporter of temperate foodstuffs. But exports required subsidies because of oversupply engendered by high internal prices. And this also required considerably more import protection. And so by the 1980s the Communitys insulation from world trade ended. The honeymoon with the Americans ended as U.S. exports to the E.C. diminished and E.C. exports flourished and even penetrated the American market. Anger at the unfair competition of subsidized products exploded. For the U.S. government there was only one answer. The CAP had to be reformed. And only one way to do it. A multilateral trade negotiation. That was much easier said than done. A U.S. call for negotiation started in 1981. The Uruguay Round was launched at Punta del Este in September 1986. The delay was due to the endless foot-dragging by

the Community involving complex maneuvers not only in the GATT but also the OECD and Economic Summit. This foot-dragging spawned a new single-interest coalition, the Australia-led Cairns Group, which included Southern Countries from Latin America and Asia determined to ensure that liberalization of agricultural trade would not be relegated to the periphery as it always had in the past. (And this provided a glimpse of the future as we shall see below.) But the role of a group of developing countries, tagged the G10 hardliners and led by Brazil and India, was in many ways even more important in the Uruguay Rounds transformation of the system. The G10 were bitterly opposed to the inclusion of the so-called new issues--trade in services, intellectual property and investment--central to the American negotiating agenda. Although the new issues are not identical -- obviously negotiations on telecommunications or financial services differ from intellectual property rights -- they do have one common or generic characteristic. Thus, they involve not the border barriers of the original GATT but domestic regulatory and legal systems embedded in the institutional infrastructure of the economy. The degree of intrusiveness into domestic sovereignty bears little resemblance to the shallow integration of the GATT with its focus on border barriers and its buffers to safeguard domestic policy space. Thus, for example, the barriers to access for service providers stem from laws, administrative actions or regulations which impede crossborder trade and investment. Intellectual property negotiations covered comprehensive standards for domestic laws, private property rights of legal persons and also detailed provisions for enforcement. The inclusion of the new issues in the Uruguay Round was an American initiative and this policy agenda was largely driven by American MNEs (multinational enterprises) who were market leaders in the services and high tech sectors. These corporations made it clear to the government that without a fundamental rebalancing of the GATT they would not continue to support a multilateral policy but would prefer a bilateral or regional track. But they didnt just talk the talk, they also walked the walk, organizing business coalitions in support of services and intellectual property in Europe and Japan as well as some smaller OECD countries. The activism paid off and its fair to say that American MNEs played a key -- perhaps even the key -- role in establishing the new global trading system. This merits a brief digression. While initially opposed to the inclusion of the new issues, the E.C. later came to support negotiations especially in services and trade-related intellectual property (TRIPS). This change was almost entirely due to the policy activism of the American private sector. In Europe the role of MNEs was far weaker at the level of the Commission and was largely directed to national governments. For the E.C. the most important issue was to broker the policy pressures emanating for member states not private interest groups. This inward-directed focus became even stronger because of the Europe 1992 project to create a single market. In the United States the private-sector advisory process established in the 1970s for the Tokyo Round of Multilateral Trade Negotiations was designed to cope with or broker interest group pressures acting on Congress. But in the Uruguay Round its impact spread well beyond its original objective. The U.S. service sectors were world leaders and the same was true in investment and technology. American MNEs controlled 40% of the worlds stock of foreign investment at the outset of the 1980s and the American technology balance of payments was well over $6 billion while every other OECD country was in deficit. This was high-stakes poker and the MNEs launched the game. The U.S. Advisory Committee for Trade Policy and Negotiations (ACPTN), in cooperation with other U.S. business groups, undertook the task of convincing European and Japanese corporations to lobby for the new issues. In the services sector U.S. activism extended well beyond the two trading powers. Nine country service coalitions were organized and met regularly with the GATT secretariat. In the case of intellectual property the U.S. group, called the Intellectual Property Rights Committee or IPC, working through UNICE (Union of Industries of the European Community) and the Keidanren in Japan, persuaded their counterparts to table, in Geneva, a detailed trilateral proposal for an intellectual property agreement drafted by American legal experts. This bore a remarkable resemblance to what came out of the Uruguay Round. Be that as it may its important to note that only in these two instances, services and

intellectual property, did European business play a role in the Uruguay Round negotiations. The high profile of the American MNEs, however, was to have some unintended consequences (of which more to follow). If the word tortuous is not too strong for the launch it could also describe the negotiations. The Round almost collapsed at a mid-term Ministerial in 1988. It was supposed to be concluded by 1990 at a Ministerial in Brussels. The transatlantic divide over agriculture was at the heart of the problem. But by the onset of the 1990s the G-10 had disappeared, decimated by the debt crisis of the 1980s and chastened by the IMF and the World Bank. French opposition to any reform of the CAP was finally overcome in Washington with the so-called Blair House Accord on agriculture between the E.C. and the U.S. at the end of 1992. The Uruguay Round was completed in the following year. What might be called a North-South Grand Bargain was completed and was quite different from old-time GATT reciprocity -- Ill open my market if youll open yours. It was essentially an implicit deal: the opening of OECD markets to agriculture and labor-intensive manufactured goods, especially textiles and clothing, for the inclusion into the trading system of trade in services, intellectual property and (albeit to a lesser extent than originally demanded) investment. Also--as virtually a last minute piece of the deal--the creation of a new institution, the WTO, with the strongest dispute settlement mechanism in the history of international law and with virtually no executive or legislative authority (apart from negotiations). (The Canadian proposal to create a new institution was supported by the E.U. as a way of curbing American unilateralism.) Since the Uruguay Round consisted of a single undertaking (in WTO legal-ese) the deal was pretty much take it or leave it for the Southern countries. So they took it but, its safe to say, without a full comprehension of the profoundly transformative implication of this new trading system (an incomprehension shared by the Northern negotiators as well I might add). The Northern piece of the bargain consisted of some limited progress in agriculture, with a commitment to go further in new negotiations in 2000; limited progress in textiles and clothing with most of the restrictions to be eliminated later rather than sooner; a rather significant reduction in tariffs in goods in exchange for deeper cuts by developing countries with higher tariffs. On the whole not great but not bad when compared with previous rounds centred on traditional GATT type market access negotiations. But this was not a GATT negotiation as the Southern piece of the deal so amply demonstrates. The essence of the South side of the deal the inclusion of the new issues requires a major institutional upgrading and change in the infrastructure of most Southern countries. These changes take time and cost money. Implementation thus involves considerable investment with uncertain medium-term results. There were two significant unintended consequences to the Uruguay Round Grand Bargain (or Bum Deal). One is a serious North-South divide in the WTO. While the South is hardly homogenous there is a broad consensus that the WTO Round was asymmetric and the system must be rebalanced. The dbacle of Seattle in 1999 ended with the walkout of virtually all the developing countries. Its more than symbolic that the outcome of the Ministerial Meeting in Doha, Qatar, in 2001 was termed a development agenda and not a round. The main objective of the Doha meeting was to avoid another Seattle: thus its great success was that it didnt fail. Both the EC an d the US visited Africa to woo Ministers and the Declaration repeatedly refers to technical assistance and capacity-building. Pushed by the successful NGO (Non-governmental Organization) campaign about Aids in Africa the Americans even seemed willing to antagonize Big Pharma. So Doha was unique in its focus on the South and development. But, of course, there were many other items on the Doha agenda including agriculture and the so-called Singapore issues of competition, investment, government procurement and trade facilitation. And, finally, the Doha Declaration was a masterpiece of creative ambiguity so the devil remained in the details of the negotiations. More about that when we get to Cancun, the next Ministerial Meeting. But before then, its important to note the second and equally unintended consequence of the Uruguay Round, i.e. the rise in profile of the MNEs due to their crucial role in securing inclusion of services and

intellectual property into the trade regime. The active role of the corporations made them and the WTO a magnet for what came to be called the anti-corporate globalization movement of NGOs. This is not the time for a review of the history and role of the NGOs in the trading system. Nor am I asserting that there is a homogenous set of institutions called NGOs. My major concern has been the role of advocacy NGOs whose main objective is to shape policy and the policy agenda. But there are different groups of advocacy NGOs, for example groups rich in technical and legal expertise who usually consult inside the system; NGOs dedicated to assisting and advising Southern governments, a virtual secretariat as it were; groups centred on establishing business codes of conduct on corporate social responsibility. All these are rather different from what Ive termed the mobilization networks, for whom a major object is to rally support for dissent at a specific event a WTO ministerial meeting, or a meeting of the World Bank and International Monetary fund, or a G-8 Summit and so on. The NGOs have effectively utilized the internet and thus have made the market for policy ideas contestable. And they created, in effect, a new service industry: the business of dissent. They were the activists on TV in Seattle, Washington or Genoa. Dissent attracts violence and extremists, however, and after Genoa, where one protester was killed and then, of course, the terrorist attack of 911, the mobilization networks and other advocacy groups recognize the need for a new strategy. One seems to be a new anti-war movement, which has produced demonstrations around the world. Their axis of evil is the US and Israel and its not clear how it will evolve. But another trend is now evident. Dissent as a brand is becoming tarnished. And there is no coherent strategy emerging from the movement. And growing criticism from supporters. As Todd Gitlin, a 1960s activist, succinctly puts it: a bumper sticker is not an argument. Or, as participants at the 2003 World Social Forum in Mumbai, India noted: Delivering an hour long litany of worn conspiracy theories Noam Chomsky almost managed the incredible feat of putting a full stadium of jubilant young people to sleep. A yearning for some Edenic past of self-sufficient communities begins to wear thin. As does the romance of Spanish anarchism. So a move from dissent to dialogue and debate is now apparent. And the new name for the movement appears to be the global justice movement read anti-poverty. Moreover, and of great significance, during the decade of the 1990s the spread of global civil society into the South was remarkable. Indeed the expansion of NGOs in low-income countries was higher than in the OECD.
Posted by meenusharmamba at 1:37 AM 0 comments THURSDAY, JANUARY 22, 2009

dimensions & mode sof IB, Risk in IB

Lecture No. - 3 International business Dimensions & modes of IB Introduction When any business across the border of its domestic country & reach foreign countries for carrying out their business, then it is called that, this firm is indulging in International business. International markets provide a wide range of opportunities compared to the domestic markets. But global business is inherently more risky than the domestic business. However, the firms prefers to go international, if the perceived benefits outweigh the anticipated risks. International business firms, have the fundamental goals of expanding market share, sales revenue & increase in profits. Expanding markets in oversees countries is one of the strategies to achieve these fundamental goals.

 The firms have alternative forign markets & alternative modes to enter that countries. Firstly the country is selected, & for the sake of it, the firms have to (1) Analyse alternative foreign markets (2) Evaluate the respective costs, benefits & risks & select one that hold the most potential for entry. The firms haas to analyses the alternative foreign markets by taking the following factors into consideration: Current & potential size of alternative markets ,which include following factors i. Size of the population of the country/market ii. GDP of the country & per capita GDP iii. Urban / rural areas iv. Purchasing power of potential customer level of competition the firm will face in each of theseb alternative markets Legal & political environment socio-cultural environment The next step in entering foreign markets is the assessment costs, benefits & risks associated with carrying out business in a particular country, which includes Costs: direct cost , opportunity cost Benefits: high sales profits, lower acquisition & manufacturing costs, competitive advantage, access of new technology, cheap labour & other resources in host country, foreclosing of markets to competitors, opportunity to achieve synergy Risks: exchange rate fluctuations, operating complexity, direct financial losses due to misassessment of market potential, Govt. seizure of property

DIMENSIONS & MODES OF ENTRY IN FOREIGN MARKETS Dimensions of International Business (1) Trading : exporting & importing (2) Manufacturing & Marketing : manufacturing at home country & marketing in foreign country (3) Sourcing & Marketing: manufacturing at foreign country & marketing in home & foreign country (4) Global Sourcing & Production: manufacturing at global level through sourcing from different forign countries & production at home or host country (5) Services : telecommunication, banking, tourism & transportation services (6) Investments : portfolio investment, setting wholly owned manufacturing facility in abroad, investment in foreign countries etc.

Modes of Entry in Foreign Markets: Dimensions in international business show the presence of business firm in foreign market & quantity of foreign investment needed for each routes of globalization. The usual routes of globalization on the basis of their dimensions are following: Exports & Imports Tourism & Transportation: including industries like shipping, airlines, hotel & travel agency

Use of assets: licensing & franchising Performance of services: turnkey operations & management contracts Direct investment: joint venture, wholly owned subsidiary, portfolio investment

Direct Investment Performance of Services Use of Assets Tourism & Transportation

Exports & Imports High

Foreign Investment

Low Low Presence in High Foreign Market

ROUTES OF GLOBALISATION

Lecture No. -4 Topic- STRUCTURE OF IB ENV IRONMENT Lecture OutcomeInternal Environment, external Environment, Types of External Encironment STRUCTURE OF IB ENVIRONMENT Environment of International business includes basically four environments These are: (1) POLITICAL-LEGAL ENVIRONMENT (2) TECHNOLOGICAL ENVIRONMENT (3) ECONOMY ENVIRONMENT

(4) SOCIO-CULTURAL ENVIRONMENT

Lecture No. -5 Topic-Risk in IB Lecture Outcome(a) Different types of risk political risk, legal risk, culture risk, economic risk , technology risk, other risk (b) components of each risk management of all type of risk (1) POLITICAL RISK: corporate face political risk when they conduct business with the outside world. Political risk is any governmental action or politically motivated event that could adversely affect the long term profitability or value of firm. (a) Macro Political Risk e.g. Barriers to repatriation of profits, Confiscation of properties, Loss of technology & other intellectual property Campaigns against foreign goods Mandatory labour legislation Civil wars Inflation Currency devaluations (b) Micro political Risk e.g. kidnapping, terrorist, threats, increased taxation, Official dishonesty MANAGING POLITICAL RISKS (1) Avoid Investment (2) Adaptation (3) Host country has no option (4) Influence local politicians- (lobbying) (5) Terrorism consultants (2) LEGAL RISK LEGAL SYSTEM (1) Islamic Law (2) Common Law (3) Marxist Law (4) Civil or code law AREAS OF CONCERN FOR MNCs (a) Protection of IPRS (b) Product liability & safety (c) Computation law (d) Bribery & corruption

(e) Environmental law (f) Labour laws (g) Contracts law (h) Shipping of goods (i) Advertisement& sales promotion laws (2) TECHNOLOGICAL RISK IMPACT OF TECHNOLOGY (a) social implication (b) economic implication (c) plant level changes Implication & MNCs MNCs E-Commerce Telecommunication Transportation Technology Transfer Markets Production Technology & MNCs

(3) CULTURAL RISK Elements of culture: (1) LANGUAGE (2) EDUCATION (3) RELIGION (4) AESTHETIC (5) ATTITUDES (6) CUSTOMS & MANN ERS IMPLECATIONS FOR IB

Multi-culture Sread cross cultural literacy Cultural & competitive advantage Compatibility between strategy & culture Managing diversity (5) ECONOMIC RISK COMPONENTS : (b) income classification of countries

 Developing Countries Developed Countries (c) economic system classification Pure market Economy Pure centrally planned Economy Mixed Economy (d) region wise classification of countries (e) economic trade policies Outward & Inward looking policies (6) OTHERS (a) Huge forign indebtness (b) Exchange rate risk (c) Entry requirements (d) Tariff, Quatas & trade barrier (e) Corruption (f) Bureaucratic practices of Govt. (g) Technological pirating (h) High cost
Posted by meenusharmamba at 1:55 AM 0 comments

Lesson Plan The readings referred to in the table below are recommended material from A International Business Environment- Cherunilum, Francis B International Business -P. Subba Rao C International Business- K Aswathappa D- International Business -Mnab Adhikari Lecture Topics Readings #

1 Introduction C-Chapter A 2 Recent global trends in International trade & finance A- (pg.245-249) B-(pg.249-271) C-(pg.51-64) 3 Dimensions & modes of IB A-(pg.457-473) B-(pg.74-116) C-(pg.11-13) 4 Structure of IB Envt. A-(pg.10-78) B-(pg.31-73) C-(pg.73-78,105-116,123-128, 151-157) 5. Risk in IB A-(pg.478-479) B-(pg. 22-27,353-356)

C-(pg.19-24) 6 Motives of internationalization of firms A-(pg.4-9 B-(pg.6-1121-22) C-(pg.5-10) 7. Organizational structure for IB C-(pg.200-217) D-(pg.284-295) 8 & 9. World trading system & impact of WTO A-(pg.181, 144-178) B-(pg.144-158) C-(pg-478-491) 10. Exchange rate system A-(pg.410-422) B-(pg.337-341) C-325-327) 11 & 12 Global financial system B-(pg.333-336) C-(pg.322-324,328-335, 340-356) 13. Barriers to IB A-(pg.214-244) B-(pg.206-210) C- (pg. 165-173) D-(pg. 26-28, 157-168) 14. IB information & communication A-(pg.347-367) B-(pg.524-540) C-(pg.115-116) D-(pg.375-385) 15. Foreign market entry strategies A-(pg.462-473) C-(pg.11-15) 16. Country evaluation & selection A-(pg.381-385) C-(pg.40-51) 17. Factors affecting foreign investment decision A-(pg.290-297) C-(pg.51-55) 18. Impact of FDI on home & host countries A-(pg.294-298) B-(pg.344-349) C-(pg.263-264) 19 &20. Types & motives for foreign collaboration C-(pg.438-454) D-(pg.391-394, 378-381) 21. Control mechanism in IB

B-(pg.214-215) 22 & 23 Decision concerning global manufacturing & material mgt. A-(pg.377-380) B-(pg.458-473) C-(pg.244-251) 24 Outsourcing factors A-(pg.379-380) C-(pg.234-241) 25. Managing global supply chain mgt. A-(pg.373-376) C-(pg.245-246) 26. Product & branding decisions B-(pg. 407-419) C-(pg.289-293) 27. Managing distribution channels B-(pg.428-430) C-(pg.312-315) 28. International promotion mix & pricing decisions B-(pg.419-427, 430-436) C-(pg.295-301,304-311) 29 Counter trade practices B-(pg.426) C-(pg.370-373) 30 Mechanism of international trade transactions B-(pg.436-444) C-(pg.363-370) 31 Harmonizing accounting difference across countries B-(pg.311-324) C-(pg.377-391) 32 Currency translation methods for consolidating financial statements B-(pg.324-328) C-(pg.389-396) 33 The LESSARD-LORANGE model notes available 34 Cross cultural challenges in IB B-(pg.489-496) C-(pg.401-406,410-416) 35 International staffing decision A-(pg.385-389) C-(pg.407-417) 36 Compensation & performance appraisal of expatriate staff B-(pg.496-507) C-(pg.418-428)

37 Ethical dilemmas & social responsibility issues A-(pg.480-497) B-(pg.304-305), C- (CH-18)

Posted by meenusharmamba at 12:31 AM 0 comments TUESDAY, JANUARY 20, 2009

INTERNATIONAL FINANCE IN THE PERIOD OF GLOBALIZATION: CURRENT TRENDS

The contemporary debate about globalization has a very large impact on the structure and the practices of international public finance. As many critics are calling for reform of the IMF and World Bank, others fear the consequences of the continued dominance of less developed countries by the wealthy few. The games of power politics and economics play out even less equitably in the globalized world, according to the anti-globalizers. Undoubtedly, however, and despite the recent financial crisis, current trends show that private capital flows are high; institutional investors are more inclined to use their leverage ; access to quick information that is not always thorough is increasing financial market instability ; and hedging and speculation are on the rise . As Ross Buckley concludes, "[e]ach of these aspects of globalization tends to increase the volume of portfolio capital flows to emerging market nations and the volatility of such flows. Indeed, there is considerable evidence that the globalization of financial markets increases the volatility of such markets." Therefore, the increase of globalization produces higher financial risks, and consequently also increased need for bailouts. Pro-globalization advocates support the process of globalization, arguing that its long-term benefits will outweigh the short-term difficulties, with respect to the less developed nations. They split, however, regarding the means of establishing a more globalized economic and financial system. Some argue that structure in the system is necessary in order to produce stability and more accountability. Others maintain that a laissez-faire approach is most favorable to the higher levels of development, and to the absolute wealth gain. Anti-globalization movements are gaining increasing strength in their opposition to the globalized economy. They point to the increased poverty and militarization, hazards to environment, and lack of protection of human rights as evidence of the lack of success of the current state of affairs. A. CURRENT PRACTICES OF THE IMF AND THE WORLD BANK The IMF and the World Bank continue to play their traditional roles in world global finance, encouraging global capital movements, both private and public, and stepping in to provide managed defaults and structured bail-outs. For example, the IMF dealt with the global financial crisis of 1997-1998 by ensuring the bailout of large banks and other lenders to the countries in crisis. Less developed countries have generous access to foreign capital, which, as many would argue, is not beneficial for those countries, either politically and economically. Examples of Mexico, the Asian states, and Russia, all demonstrate that whatever the benefits globalization may have, it also produces many undesirable effects. 1. GLOBALIZATION AND DEVELOPMENT It is hardly disputed, at least with regards to the short term situation, that the globalization of capital can have bad effects on the less developed states. The repayment of loans leads to higher national taxes, reduction of price substitution for essential products, and decreasing spending on public health care, education, and infrastructure (many recognize that the liberal capital inflows into these countries often end up enriching the local rich who, when they cannot make the payments on these capital inflows, subject their populations to the consequences of the capital outflows). Still others point out the risks found in incurring further debt to finance the existing loans "[b]ecause private banks and institutions often view a credit package as a "seal of approval" that the nation is a reasonable investment, the IMF and the Bank have developed into de facto analysts of a nation's economic health." Moreover, the IMF bailouts are essentially long-term loans that are used to repay short-term creditors , particularly private and commercial developed world banks. Therefore, the bailouts are funds to creditors who made bad loan decisions, rather than to the nations themselves. Critics calling for reform of the IMF and World Bank, or for an alternative regime, support their position by arguing that "even though the IMF identified poor local prudential regulation and underdeveloped local capital markets as two of the principal contributing causes to the [1997-1998 financial] crisis, the

IMF-orchestrated bailouts contained not one dollar to correct these weaknesses. Even the supporters of the globalized financial system and, in general, supporters of the IMF and the World Bank, criticize their current programs. Because the IMF and the WB have a flawed vision of development, they argue, the continuous lending to governments increases the state sector at the expense of the private sector. This produces further debt, not development, and it stalls reform. These critics argue that the organizations finance governments whose anti- growth policies of trade barriers, state-owned corporations, and investment restrictions, among others, resulted in very high debt. 2. THE LOCAL ENFORCEMENT PROBLEMS Certain critics argue that the current situation is not conducive to globalization because the majority of entrants to the global marketplace lack developed financial structures, poor legal, accounting and regulatory framework, history of political interference and cronyism. 3. THE CONTINUING ROLE OF DEBT Many countries presently spend large amounts of their GDP, and millions of dollars servicing their international debts. The IMF and G7 creditor nations have instituted a debt relief plan for the most impoverished states (Heavily Indebted Poor Countries Initiative), which are located mostly in Africa. The HIPC Initiative has provided for a Trust Fund, administered by the World Bank, which provides debt relief owed to multilateral institutions, funded by the World Bank and certain donor countries. It also provides an ESAF-HIPC Trust which extends grants and loans to these countries, and subsidizes interest rates through donors and IMF's Special Disbursement Account. The problems inherent in these debt relief programs are that they are nevertheless within the IMF conditionality principle. The IMF provides the relief contingent on the country's meeting the structural reforms required by the IMF, such as reduction in government spending, which inevitably reduces state employment and social benefits. Moreover, the IMF limits the "dimensions of the goal of broad participation" by limiting the number of countries that are eligible and by imposing structural adjustment programs. The proponents of debt relief on the pro-globalization side argue, however, that debt relief coupled with reforms will eventually lead to a more efficient, high-growth economy. There are many critics who call for flexible debt relief, especially for the least developed nations, arguing in some cases that servicing the debt forces violations of human rights in those countries: "By continuing to insist that poor states use their scarce resources for debt service payments, rather than for improved access to health care, education, food, and basic shelter for their impoverished populations, the international community becomes complicit in the wide-scale violation of human rights." B. ALTERNATIVES TO THE CURRENT GLOBAL FINANCIAL SYSTEM The current international financial system is governed by the IMF, the World Bank, the WTO, and the OECD. The IMF regulates the transparency practices for central banks, government finances, fiscal and monetary policy, and possesses broad economic, financial, and sociodemographic data. The World Bank governs the development project loans and the cross-border insolvency. The OECD regulates the principles of corporate governance. The WTO replaces GATT, essentially regulating international trade. Both the anti-globalizers and the pro-globalizers argue for some kind of alternative to the current system. Some pro-globalizers still maintain their position that the laissez faire approach is the best way to deal with financial issues in a globalized world. Along the same lines, some anti-globalizers argue against a globalized monetary system per se. In the middle, both the anti and the pro globalization advocates argue for a reformed monetary institutional system. They differ in their specification of the kind of system that would best serve the nation-states. 1. GLOBAL LENDER OF LAST RESORT A lender of last resort lends to state and private banks "freely and quickly, on good security and at high interest rates, at times of need." As a result, the depositors do not bail at the first sign of financial trouble, because they are sure that their banks will be able to meet their account balances. This, in

essence, assures that the debt crisis of the 1980s does not happen again. Although some refer to the IMF as an international lender of last resort, the IMF actually does not lend "freely and quickly", but instead conditions its loans on specified economic criteria. Moreover, the IMF disburses the funds slowly as compliance with its criteria is proven. Finally, because of its difficulties in securing funds from its wealthy members, it does not have a sufficient amount of capital to serve as a lender of last resort. On the other hand, the establishment of a true lender of last resort would require that both the borrowers and the lenders take responsibility for bad loans: "borrowers should repay their debts, even when it is painful to do so [and] banks and investors who make errors should suffer the consequences". Furthermore, such a lender would have to make loans available for bailouts of international banks and member states so that they can repay their loans, rather than to meet the financial needs of short-term private creditors who make bad loans. 2. GLOBAL BANKRUPTCY COURT Although not really a viable alternative due to the substantial limitations on sovereignty that it would impose, an international bankruptcy court would be able to more equitably allocate losses and improve the functioning of the system. On the other hand, many nations have already surrendered their sovereignty to a number of international courts and arbitration panels, as well as to the IMF and the World Bank. 3. REFORM OF THE IMF AND THE WORLD BANK PRACTICES The IMF and the World Bank are criticized for their role in a globalized financial system. Critics point out that these two organizations do not monitor their own standards given the conflicts of interests they have inherent in their many roles, the political role of their governance, and the increased bureaucratization and concentration of power in the institutions. Instead of advocating the withdrawal of the IMF and the World Bank, some argue that these institutions still have an important role to play in a global financial system, but that they need to reform their lending practices. For example, the organizations could lend to the nation without conditions and demand payment at the end of a specified period, which, if left unpaid, would result in a lack of extension of further loans. The problem with this approach is that defaults would still inevitably occur, and when they did, especially in economically and politically important nations whose stability is essential in a geopolitical sense, the IMF and World Bank would have to step in. This, in turn would affect their credibility, in addition to not solving the bailout problem. In the alternative, the IMF and the World Bank could impose limited conditionality, which allows for discrimination on the basis of the type of economic problems causing the repayment difficulties (i.e., those problems that are caused by the nation's policies and those that are beyond a nation's control). However, this approach also produces challenges in that it would be extremely difficult for these organizations to police these issues and to accurately identify their causes. The significance of this problem is magnified in the global interdependent economy. Milena Makich-Macias argues that the IMF bailout program should remain intact, coupled with a number of changes that would make it function better. Her proposal calls for strengthening the macroeconomic stabilization policies, expanding the structural adjustment reforms (such as low interest loans to poor countries), and exploring innovative approaches to address social concerns so that emerging growth countries can become and remain self-sufficient. Macias states that "[f]ocusing on macroeconomic stabilization and structural adjustment reforms allows the IMF to ameliorate social concerns...In addition, by its promotion of a stable system of exchange rates which promote the balanced growth of international trade, the IMF contributes to sustainable economic and human development." 4. SINGLE WORLD REGULATOR Fratianni and Pattison argue that a single regulatory body would achieve the efficiency and the ease of acting when mandated, to impose the best solution, limited by standards of accountability. These

standards would ensure that the regulator takes a strictly regulatory approach, instead of a marketfriendly regulatory approach. The agency should also not be amenable to any particular country, and should be made in reliance on an international agreement. CONCLUSION Globalization has produced an increase in interdependence of monetary and fiscal policies, with the resulting movement of private and public capital and increased risks. The globalization debate has certainly invaded the area of IMF and World Bank policies. Depending on the particular side that one takes in the debate, different proposals as to how to deal with challenges and problems of the interdependent world are made. The one thing that all the commentators agree on, however, is that the system needs change. They only differ as to the means for implementing this change.
Posted by meenusharmamba at 1:00 AM 0 comments

Ib-trends( history)
INTERNATIONAL FINANCE IN THE PERIOD OF GLOBALIZATION: CURRENT TRENDS The contemporary debate about globalization has a very large impact on the structure and the practices of international public finance. As many critics are calling for reform of the IMF and World Bank, others fear the consequences of the continued dominance of less developed countries by the wealthy few. The games of power politics and economics play out even less equitably in the globalized world, according to the anti-globalizers. Undoubtedly, however, and despite the recent financial crisis, current trends show that private capital flows are high; institutional investors are more inclined to use their leverage ; access to quick information that is not always thorough is increasing financial market instability ; and hedging and speculation are on the rise . As Ross Buckley concludes, "[e]ach of these aspects of globalization tends to increase the volume of portfolio capital flows to emerging market nations and the volatility of such flows. Indeed, there is considerable evidence that the globalization of financial markets increases the volatility of such markets." Therefore, the increase of globalization produces higher financial risks, and consequently also increased need for bailouts. Pro-globalization advocates support the process of globalization, arguing that its long-term benefits will outweigh the short-term difficulties, with respect to the less developed nations. They split, however, regarding the means of establishing a more globalized economic and financial system. Some argue that structure in the system is necessary in order to produce stability and more accountability. Others maintain that a laissez-faire approach is most favorable to the higher levels of development, and to the absolute wealth gain. Anti-globalization movements are gaining increasing strength in their opposition to the globalized economy. They point to the increased poverty and militarization, hazards to environment, and lack of protection of human rights as evidence of the lack of success of the current state of affairs. A. CURRENT PRACTICES OF THE IMF AND THE WORLD BANK The IMF and the World Bank continue to play their traditional roles in world global finance, encouraging global capital movements, both private and public, and stepping in to provide managed defaults and structured bail-outs. For example, the IMF dealt with the global financial crisis of 1997-1998 by ensuring the bailout of large banks and other lenders to the countries in crisis. Less developed countries have generous access to foreign capital, which, as many would argue, is not beneficial for those countries, either politically and economically. Examples of Mexico, the Asian states, and Russia, all demonstrate that whatever the benefits globalization may have, it also produces many undesirable effects. 1. GLOBALIZATION AND DEVELOPMENT It is hardly disputed, at least with regards to the short term situation, that the globalization of capital can have bad effects on the less developed states. The repayment of loans leads to higher national taxes, reduction of price substitution for essential products, and decreasing spending on public health care, education, and infrastructure (many recognize that the liberal capital inflows into these countries often

end up enriching the local rich who, when they cannot make the payments on these capital inflows, subject their populations to the consequences of the capital outflows). Still others point out the risks found in incurring further debt to finance the existing loans "[b]ecause private banks and institutions often view a credit package as a "seal of approval" that the nation is a reasonable investment, the IMF and the Bank have developed into de facto analysts of a nation's economic health." Moreover, the IMF bailouts are essentially long-term loans that are used to repay short-term creditors , particularly private and commercial developed world banks. Therefore, the bailouts are funds to creditors who made bad loan decisions, rather than to the nations themselves. Critics calling for reform of the IMF and World Bank, or for an alternative regime, support their position by arguing that "even though the IMF identified poor local prudential regulation and underdeveloped local capital markets as two of the principal contributing causes to the [1997-1998 financial] crisis, the IMF-orchestrated bailouts contained not one dollar to correct these weaknesses. Even the supporters of the globalized financial system and, in general, supporters of the IMF and the World Bank, criticize their current programs. Because the IMF and the WB have a flawed vision of development, they argue, the continuous lending to governments increases the state sector at the expense of the private sector. This produces further debt, not development, and it stalls reform. These critics argue that the organizations finance governments whose anti- growth policies of trade barriers, state-owned corporations, and investment restrictions, among others, resulted in very high debt. 2. THE LOCAL ENFORCEMENT PROBLEMS Certain critics argue that the current situation is not conducive to globalization because the majority of entrants to the global marketplace lack developed financial structures, poor legal, accounting and regulatory framework, history of political interference and cronyism. 3. THE CONTINUING ROLE OF DEBT Many countries presently spend large amounts of their GDP, and millions of dollars servicing their international debts. The IMF and G7 creditor nations have instituted a debt relief plan for the most impoverished states (Heavily Indebted Poor Countries Initiative), which are located mostly in Africa. The HIPC Initiative has provided for a Trust Fund, administered by the World Bank, which provides debt relief owed to multilateral institutions, funded by the World Bank and certain donor countries. It also provides an ESAF-HIPC Trust which extends grants and loans to these countries, and subsidizes interest rates through donors and IMF's Special Disbursement Account. The problems inherent in these debt relief programs are that they are nevertheless within the IMF conditionality principle. The IMF provides the relief contingent on the country's meeting the structural reforms required by the IMF, such as reduction in government spending, which inevitably reduces state employment and social benefits. Moreover, the IMF limits the "dimensions of the goal of broad participation" by limiting the number of countries that are eligible and by imposing structural adjustment programs. The proponents of debt relief on the pro-globalization side argue, however, that debt relief coupled with reforms will eventually lead to a more efficient, high-growth economy. There are many critics who call for flexible debt relief, especially for the least developed nations, arguing in some cases that servicing the debt forces violations of human rights in those countries: "By continuing to insist that poor states use their scarce resources for debt service payments, rather than for improved access to health care, education, food, and basic shelter for their impoverished populations, the international community becomes complicit in the wide-scale violation of human rights." B. ALTERNATIVES TO THE CURRENT GLOBAL FINANCIAL SYSTEM The current international financial system is governed by the IMF, the World Bank, the WTO, and the OECD. The IMF regulates the transparency practices for central banks, government finances, fiscal and monetary policy, and possesses broad economic, financial, and sociodemographic data. The World Bank governs the development project loans and the cross-border insolvency. The OECD regulates the

principles of corporate governance. The WTO replaces GATT, essentially regulating international trade. Both the anti-globalizers and the pro-globalizers argue for some kind of alternative to the current system. Some pro-globalizers still maintain their position that the laissez faire approach is the best way to deal with financial issues in a globalized world. Along the same lines, some anti-globalizers argue against a globalized monetary system per se. In the middle, both the anti and the pro globalization advocates argue for a reformed monetary institutional system. They differ in their specification of the kind of system that would best serve the nation-states. 1. GLOBAL LENDER OF LAST RESORT A lender of last resort lends to state and private banks "freely and quickly, on good security and at high interest rates, at times of need." As a result, the depositors do not bail at the first sign of financial trouble, because they are sure that their banks will be able to meet their account balances. This, in essence, assures that the debt crisis of the 1980s does not happen again. Although some refer to the IMF as an international lender of last resort, the IMF actually does not lend "freely and quickly", but instead conditions its loans on specified economic criteria. Moreover, the IMF disburses the funds slowly as compliance with its criteria is proven. Finally, because of its difficulties in securing funds from its wealthy members, it does not have a sufficient amount of capital to serve as a lender of last resort. On the other hand, the establishment of a true lender of last resort would require that both the borrowers and the lenders take responsibility for bad loans: "borrowers should repay their debts, even when it is painful to do so [and] banks and investors who make errors should suffer the consequences". Furthermore, such a lender would have to make loans available for bailouts of international banks and member states so that they can repay their loans, rather than to meet the financial needs of short-term private creditors who make bad loans. 2. GLOBAL BANKRUPTCY COURT Although not really a viable alternative due to the substantial limitations on sovereignty that it would impose, an international bankruptcy court would be able to more equitably allocate losses and improve the functioning of the system. On the other hand, many nations have already surrendered their sovereignty to a number of international courts and arbitration panels, as well as to the IMF and the World Bank. 3. REFORM OF THE IMF AND THE WORLD BANK PRACTICES The IMF and the World Bank are criticized for their role in a globalized financial system. Critics point out that these two organizations do not monitor their own standards given the conflicts of interests they have inherent in their many roles, the political role of their governance, and the increased bureaucratization and concentration of power in the institutions. Instead of advocating the withdrawal of the IMF and the World Bank, some argue that these institutions still have an important role to play in a global financial system, but that they need to reform their lending practices. For example, the organizations could lend to the nation without conditions and demand payment at the end of a specified period, which, if left unpaid, would result in a lack of extension of further loans. The problem with this approach is that defaults would still inevitably occur, and when they did, especially in economically and politically important nations whose stability is essential in a geopolitical sense, the IMF and World Bank would have to step in. This, in turn would affect their credibility, in addition to not solving the bailout problem. In the alternative, the IMF and the World Bank could impose limited conditionality, which allows for discrimination on the basis of the type of economic problems causing the repayment difficulties (i.e., those problems that are caused by the nation's policies and those that are beyond a nation's control). However, this approach also produces challenges in that it would be extremely difficult for these organizations to police these issues and to accurately identify their causes. The significance of this problem is magnified in the global interdependent economy. Milena Makich-Macias argues that the IMF bailout program should remain intact, coupled with a

number of changes that would make it function better. Her proposal calls for strengthening the macroeconomic stabilization policies, expanding the structural adjustment reforms (such as low interest loans to poor countries), and exploring innovative approaches to address social concerns so that emerging growth countries can become and remain self-sufficient. Macias states that "[f]ocusing on macroeconomic stabilization and structural adjustment reforms allows the IMF to ameliorate social concerns...In addition, by its promotion of a stable system of exchange rates which promote the balanced growth of international trade, the IMF contributes to sustainable economic and human development." 4. SINGLE WORLD REGULATOR Fratianni and Pattison argue that a single regulatory body would achieve the efficiency and the ease of acting when mandated, to impose the best solution, limited by standards of accountability. These standards would ensure that the regulator takes a strictly regulatory approach, instead of a marketfriendly regulatory approach. The agency should also not be amenable to any particular country, and should be made in reliance on an international agreement. CONCLUSION Globalization has produced an increase in interdependence of monetary and fiscal policies, with the resulting movement of private and public capital and increased risks. The globalization debate has certainly invaded the area of IMF and World Bank policies. Depending on the particular side that one takes in the debate, different proposals as to how to deal with challenges and problems of the interdependent world are made. The one thing that all the commentators agree on, however, is that the system needs change. They only differ as to the means for implementing this change.
Posted by meenusharmamba at 12:50 AM 0 comments

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COUNTER TRADE - MECHANISM OF ITERNATIONAL TRADE TRANSACTIONS International Staffing Decision Ethical dilemmas & social responsibility issues COMPENSATION & PERFORMANCE APPRAISAL OF EXPATRIATE... Cross- cultural challenges in IB - international promotion mix & pricing decision managing distribution channel - PRODUCT & BRANDING DECISION COMPENSATION & PERFORMANCE APPRAISAL OF EXPATRIATE...

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