international capital movements
international economics or international business of two parts - international and financial trade. International capital (or international finance) the flow of capital in the international financial markets, and the effects of these movements in exchange rates studies. International capital plays a very important role in an open economy. In this era of trade liberalization and globalization, and the flows of international capital (including intellectual capital) and a huge variety of different countries. Acquired finance and technology (like the Internet) more mobility to factors of production, particularly through multinational corporations (MNCs). Foreign investment is very important even for the emerging economies such as India. That is, in line with the trend of international economic integration. Says Peter Drucker right "increasingly global investment rather than world trade will lead the international economy." Therefore, the study of international capital movements is the largest reward in theory and practice.
meaning Capital International
international capital flows is the financial aspect of international trade. International capital flows = gross international credit flows + discount international flows. It is the possession or sale of assets, financial or real, across international borders is measured in the financial account of the balance of payments.
international capital types
international capital flows through direct and indirect channels. Main types of international capital are: (1) foreign direct investment (2) portfolio of foreign investments (3) official flows, and (4) commercial loans. He explained those below.
foreign direct investment
foreign direct investment refers ((FDI)) for investment by foreign (s) in another country where the investor retains control over the investment, any investor gets a lasting interest in an enterprise in another country. More specifically, it may take the form of buying or building a factory in a foreign country or adding improvements to such a facility, in the form of property, plant, or equipment. Thus, foreign direct investment may take the form of a subsidiary or buy shares of a foreign company or starting a joint venture abroad. The main feature of FDI is that "investment" and "management" go hand in hand. Investor FDI profits in the form of profits such as dividends and retained earnings, management fees and pay the fees.
According to the United Nations Conference on Trade and Development (UNCTAD), the global expansion of foreign direct investment is driven by more than 64,000 transnational corporations with more than 800,000 branches of foreign companies, generating 53 million jobs
there are different factors that determine foreign direct investment - the rate of return on foreign capital, and the risks, market size, economies of scale, product cycle, and the degree of competition, and the mechanism of the exchange rate / controls (for example, restrictions on repatriation), tax policies and investment and policies and trade barriers (if any) and so on.
foreign direct investment advantages are as follows.
(1). It complements the meager domestic capital available for investment and helps to establish productive projects.
(2). It creates job opportunities in various sectors.
(3). Domestic production and enhances it usually comes in the package - money and technology etc.
(4). It increases global output.
(5). It ensures the speed of industrialization and modernization, particularly through research and development.
(6). It paves the way for the internationalization of the markets with the international standards and the development of the budget to ensure the quality and performance based.
(7). Pools of resources that productive - money, manpower, and technology.
(8). It creates more and new infrastructure.
9. homeland is a good way to take advantage of favorable foreign investment climate (low tax system, for example).
(10). For the host country for foreign direct investment is a good way to improve the position of the balance of payments
some of the difficulties encountered in foreign direct investment flows are: the problem of local currency conversion; financial problems and disputes with the host government; infrastructure bottlenecks, customized policies. Growth biased, and political instability in the host country; biases and investment market (investments only in areas like high-profit or non-priority); by relying on foreign technology. Capital flight from the host country; the excess flow of factors of production. Balance of payments problem. And a negative impact on the culture and consumption of the host country.
Foreign Investment Portfolio
Foreign portfolio investment (FPI) or rent-seeking investment is a category of investment instruments that do not represent a controlling stake in the institution. These investments include through equity instruments (shares) or debt (bonds) from a foreign institution which does not necessarily represent a long-term interest. FPI comes from a variety of sources such as a small company pension or through investment funds (such as global funds) owned by individuals. Revenue gain investor FPI usually take the form of interest payments or profits. FPI can be even less than a year (conservative flows in the short term).
difference between FDI and FPI can sometimes be difficult to distinguish them, since they may overlap, particularly with regard to investment in securities. Typically, the threshold for foreign direct investment is ownership "of 10 percent or more of the ordinary shares or voting power" of a business entity
determinants FPI complex and diverse - the national economic growth rates and a stable exchange rate and public macro-economic stability and the levels of foreign exchange reserves at the Central Bank, and the safety of the foreign banking system, and liquidity of the stock and bond market, interest rates, and ease of profits and capital, and taxes on capital gains, and the organization of the stock and bond markets, and the quality of the accounting and disclosure of local systems, the speed and reliability of the dispute settlement systems, and the degree of protection of the rights investor, etc.
FPI has gained momentum with the liberalization of financial markets, and increase the standard operating procedures for the participation of foreign capital, an expanded set of liquidity and trading via the Internet and so forth FPI advantages are as follows.
(1). It ensures productive use of resources through a combination of domestic capital and foreign capital in productive projects
(2). It avoids unjustified discrimination between foreign companies and indigenous undertakings.
(3). It also helps reap economies of scale by foreign funds and local expertise assembly
and disadvantages of FPI are: flows tend to be more difficult once to calculate, because it includes many different tools, and also because of reporting often poor ; threat to 'localize' industries. And not to refer to the promotion of exports.
official flows
in international business, "official flows" a term that refers to capital (the government) year. Popularly This includes foreign aid. Government of a country can get aid or assistance in the form of bilateral loans (ie intergovernmental flows) and multiple loans Parties (any aid from international consortia such as the Indian club's aid and assistance to Pakistan Club etc., and loans from international organizations such as the International Monetary Fund and the World Bank word, etc.).
foreign aid refers to "public development assistance" or official development assistance, including official grants and soft loans to both cash (currency) and type (such as food and military aid assistance, etc.) from the donor (such as developed countries) to the donee / receiver (for example a developing country), on the basis of "developmental" or "distribution".
aid in the post-war era Word became a great form of foreign capital for reconstruction and development activities for. Emerging economies such as India benefited a lot of foreign aid is used in the context of the economic plans.
There are basically two types of foreign aid and aid which is linked to the aid is conditional. Conditional aid is aid that connects the donee either purchase wise, any source of buying or using wisdom, any particular project or both (equivalent to twice!). Unconditional aid is unconditional aid at all.
from the advantages of foreign aid is as follows.
(1). It encourages employment, investment and industrial activities in the recipient country.
(2). It helps poor countries to obtain sufficient foreign exchange to pay for critical imports.
(3). In-kind assistance to help meet the food crisis and the scarcity of technology, sophisticated machinery and tools, including defense equipment.
(4). Aid helps donors to make the best use of the surplus funds: Means formation of political friends and allies of the army, and to achieve humanitarian goals, equality etc.
foreign aid has the following disadvantages.
(1). It reduces aid conditional choice of recipient countries to use capital in the development process and programs.
(2). A lot of aid leads to the problem of accommodating aid.
(3). Aid has inherent problems in the 'dependency', 'transform' 'the fire ... etc.
(4). Politically motivated aid Bs not only politics but also economic bad.
(5). Aid is always uncertain.
It is a sad fact that aid has become a (debt) trap in most cases. Should aid be more than trade. Fortunately, official development assistance and a decrease in importance with each passing year.
Business Loans
until the 1980s, commercial loans and the largest source of foreign investment in developing countries. However, since that time, lending levels by a relatively steady business loans remained, while global FDI and FPI levels increased dramatically.
Commercial loans also foreign commercial loans (ECB). It includes commercial loans the bank, 'credit, suppliers buyers credit, tools lush such as floating rate notes and fixed rate bonds, interest, etc., and credit from credit agencies official export trade and loans from the private sector window of multilateral financial institutions such as the International Finance Corporation (IFC), the Bank Asian development (ADB), the joint venture partners, and so on in India, allowing companies to raise the European Central Bank in accordance with the guidelines of the policy of the Indian government / RBI, consistent with prudent debt management. Can RBI approves the European Central Bank up to $ 10 million, with a maturity period of 3-5 years. The ECB can not be used to invest in the stock market or in real estate speculation.
European Central Bank has enabled many of the units - even medium and small - in the capital for the creation and acquisition of assets, development and modernization secure
infrastructure and basic, such as energy and oil exploration, roads and bridges, industrial parks, urban infrastructure and telecom sectors were the beneficiary main (about 50% of the funding allowed). Other benefits are: (a) it provides funds in foreign currencies and that may not be available in India; (b) the cost of funds sometimes works out to be cheaper compared with the cost of funds of Rs. And c) the availability of funds from a huge international market compared to the domestic market, companies can raise a large amount of money depending on the perception of international market risk. (D) financial leverage or investment multiplier effect. (V) the form covered more easily for a capital increase, swaps and futures can be used to manage interest rate risk. And (vi) It is a way to raise capital without giving up any control, and debt holders do not have the right to vote, etc.
restrictions on the European Central Bank are: (a) the risk of default, the risk of bankruptcy, and market risk, (b) a large number of interest rate increases from the actual cost of borrowing, and the debt burden, and perhaps cut the company's credit rating, which enhances automatically borrowing costs, leading to a lack of liquidity and the risk of bankruptcy, (c) the effect on profits arising from non-payment interest expense. Public companies are run to maximize profits.
is turned private companies to minimize the taxes, so the tax shield of religion is less important for public companies because of the profits still go down.
factors affecting international capital flows
There are a number of factors, the influence or determine the flow of international capital. He explained that they are below.
(1). Interest rate
those who provide income usually interest-induced. As Keynes rightly said, "interest is the reward for parting with liquidity." Other things remaining the same, the movement of capital from a country where low interest rates to a country where the interest rate is high.
(2). Guess
speculation is one of the motives for holding cash or liquidity, especially in a short period. It includes speculative expectations regarding changes in interest and exchange rates. If it is expected to fall in the future of the country's rate of interest, the current flow of capital rises. On the one hand, if it is expected to rise in the future interest rate, the current flow of capital decrease.
(3). The cost of production
if the cost of production is less in the host country, when compared with the cost of the home, foreign investment in the host country increase. For example, lower wages in a foreign country tends to move production factors (including capital) to low-cost areas and sources.
(4). Profitability
Profitability refers to the rate of return on investment. It depends on the marginal efficiency of capital, cost of capital and the risks involved. High-profit attract more capital, especially over the long term. Therefore, the international capital flowing faster to the high-profit areas
(5). Bank rate
bank rate is the interest rate by the central bank charged to financial accommodation granted to member banks in the banking system as a whole. When the central bank to raise the bank rate in the economy, the domestic credit intercalation. You will get domestic capital investment and reduced. So as to meet the demand for capital, foreign capital enters quickly.
(6). Working conditions
terms of business sense. Phases of the work cycle affect the flow of international capital. He complained the business (for example, the renaissance and prosperity) attract more foreign capital, while landing the business (for example, recession and depression) to discourage or expulsion of foreign capital.
(7). Trade and economic policies
Indicates
trade policy or trade policy on the import and export of goods, services and capital in the country. State may either have a policy of free trade or restriction policy (protection). In the case of previous trade barriers such as tariffs and quotas, and the dismantling of the license etc. In the latter case is the lifting of trade barriers or keep them. Free trade policy or liberal - as is the case in the afternoon - makes way for the free flow of capital, at the global level. And prohibit trade policy that restricted or restricts the flow of capital, by time / source / purpose.
economic policies relating to production (such as multinational corporations and joint ventures), manufacturing (such as special economic policy), banking (such as the new generation / foreign banks), finance and investment (such as foreign direct investment policy), and taxes (on for example, tax exemption for EOUs) and so forth, and also affect international capital transfers. For example, liberalization and privatization enhances industrial and investment activities.
(8). General political, economic and conditions
In addition to all the trade and industrial policies, economic and political environment in the country, in turn, may affect the flow of international capital. The economic environment in the country refers to the internal factors such as market size, demographic dividend and growth and access to the infrastructure, the level of human resources and technology, and the rate of economic growth and sustainable development, etc., and political stability with good governance. Prefer the existence of political and economic environment healthy smooth flow of international capital.
the role of foreign capital
(1). The internationalization of the world economy
(2). Facelift for the underdeveloped economies - labor markets
(3). Hello technology transfer
(4). Crossing fast
(5). High profits for companies / governments
(6). New meaning to the sovereignty of the consumer - Options and uniformity (superioirites)
(7). Faster economic growth in developing countries
(8). Recession and production is a priority, and dilemmas cultural problems etc.
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