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International financial management

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Things the participants need to understand

Evolution of foreign trade Foreign currency Exchange rates Direct and Indirect quotes

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FDI FII MNC Indian MNCs

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Current account and capital account are two compartments of BOP. Current account shows transfer of real income, capital account shows transfer of funds without effecting real income.

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Current account transactions


Receipts

Export of goods Invisibles Non-monetary movement of gold

Payments

Import of goods Invisibles Non-monetary movement of gold

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Invisibles include Trade in services Investment income Unilateral transfer

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Capital account transactions

Forex inflow/outflow Foreign loans Banking transactions and other capital flows

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(a) Current account


Credit(Receipts) Merchandise import Merchandise export Balance of trade Invisibles Services(net) Unilateral transfers Investment income Non monetary movement of gold Bal. of Current account
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Debit(payments) 120

Balance

100 -20

4 2 1 -

-15

(b) Capital account


Credit(Receipts) Direct invest. abroad Foreign invt. Inflow Portfolio investment (net) Invisibles Loans(net) Holdings with banks Other short term transactions Balance of capital account 12 4 3 11 18 9 Debit(payments) 11 Balance

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Countrys Balance of payment


Credit(Receipts) Bal. of Current account Balance of capital account Errors and omissions Overall balance Debit(payments) Balance -15 11 -1 -5

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Balance of payment

Bal. of Current account + Bal. of Capital Account + Statistical discrepancy

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Find out (a) the balance of trade and (b) balance of current account, if Inflow on account of services is Rs. 1000, Outflow on account of services Rs. 800, outflow of dividend, royalty etc. Rs.1100, inflow of dividend Rs. 560, export of goods Rs 10,000, import of goods Rs. 12,000, remittances Rs. 1200.

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Find out the balance of capital account, if inflow of loans Rs 2000, repayment of loan Rs 2150, FDI inflow Rs 7000, FDI outflow Rs. 1500, FIIs investment in India Rs. 500, short term movement of funds (Rs 200).

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Arithmetic of foreign exchange

Direct quote Indirect quote Devaluation of currency

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Assignment topics

Dominance of Dollar in world trade- a myth or reality Forex reserve

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