International Capital Movements
International Economic or International Business consists of two parts – International Trade and International Capital. International capital (or international finance) is studying the flow of capital on international financial markets and the impact of these movements on exchange rates. International capital plays a key role in the open economy. In this era of liberalization and globalization, the flow of international capital (including intellectual capital) is enormous and diverse in each country. Finance and technology (for example, the Internet) have produced more mobility as a production factor, especially through multinational corporations (MNCs). Foreign investment is becoming even more important for emerging economies such as India. This is in line with the tendency of international economic integration. Peter Drucker rightly says, "World trade will increasingly become world trade instead of world trade towards the international economy". Therefore, the study of international capital movements is highly rewarded both theoretically and practically.
The meaning of international capital
International capital flows are the financial side of international trade. Gross international capital flows = international debt dilemma + international debt. Selling or selling of financial or real international property measured in the financial account of the balance of payments
Types of international capital
International capital flows are realized through direct and indirect channels. The main types of international capital are: (1) foreign direct investment (2) foreign portfolio investments (3) official sales revenue, and (4) commercial loans. These are described below:
Foreign Direct Investment
Foreign direct investment (FDI) refers to foreign (s) investments in another country where the investor maintains the investment control, ie the investor has a long-term interest in an enterprise in another country. Most specifically, the purchase or construction of a foreign country factory or the repair of such an establishment, property, plant or equipment. Thus, FDI may be the acquisition of a subsidiary or stocks of a foreign company or the launch of a foreign company. The main feature of FDI is that "investment" and "management" coincide. Investor FDI revenues are made in the form of profits such as dividends, retained earnings, management fees and royalties.
According to the United Nations Conference on Trade and Development (UNCTAD), the global expansion of FDI is currently more than 64,000 transnational corporations with more than 800,000 foreign affiliates, creating 53 million jobs
Different factors determine FDI – (eg restatement restrictions), tax and investment policies, trade policies and barriers (if any), etc.
The benefits of FDI are as follows.
1. It complements the low domestic capital for investment and helps the creation of productive enterprises.
2. Creates jobs in various industries.
3. Increases domestic production, as it is usually a package of money, technology, and so on.
4. This increases the output of the world.
5. Ensures rapid industrialization and upgrading, especially through R & D.
6. This promotes internationalization of global standards, quality assurance and performance-based budgets.
7. Resources make money, work, and technology productive.
8. Creates more and more new infrastructure.
9. A home country is a good way to take advantage of a favorable foreign investment environment (such as a low tax system).
10. FDI is a good way for the host country to improve the BoP position.
Some of the difficulties of FDI transactions: the problem of the convertibility of the domestic currency; budgetary problems and host government disputes; infrastructure bottlenecks, ad hoc policies; increasing growth and political instability in the host country; investments and market distortions (investments with high profits or non-priority areas only); Above dependence on foreign technology; capital outflow from the host country; excessive outflow of production factors; BoP problem; and has an adverse effect on the culture and consumption of the host country.
Foreign Portfolio Investment
Foreign Investment Portfolio (FPI) or Investor Investment is a category of investment instruments that do not represent an enterprise's holding. These include equity instruments (stocks) or debt (bonds) of a foreign interest, which do not necessarily represent long-term interest. FPI comes from a variety of sources, such as a small company pension or investment funds owned by individuals (such as global funds). The proceeds of the FPI earned by investors are normally in the form of interest payments or dividends. FPI may be shorter than one year (short-term portfolio flow)
. The difference between FDI and FPI is sometimes difficult to distinguish as it may overlap, especially with respect to investments in stocks. Generally, the FDI threshold is the ownership of a "10 percent or more ordinary shares or voting power" of a business.
FPI's determinants are complex and diverse – national economic growth rates, exchange rate stability, general macroeconomic stability of the foreign banking system, liquidity of stock and bond markets, ease of repatriation of interest rates, dividends and capital, tax on capital gains, stock and bond regulation markets, quality of domestic accounting and disclosure systems, rapidity and reliability of dispute settlement systems, protection of investor rights rate, etc.
The FPI has gained momentum with the deregulation of financial markets, expanded liquidity and online trade, and so on. The merits of the FPI are as follows.
1. Ensures the productive use of resources by combining domestic capital and foreign capital into productive enterprises
2. Avoids unnecessary discrimination between foreign companies and indigenous enterprises.
3. Helps gain economies of scale by collecting alien money and local expertise.
FPI Failures: Flows are generally more difficult to calculate because they contain many different tools and also because the report is often weak; a threat to the "indigenization" of industries; and the obligation to export aid.
In international business, the term "official flows" refers to public (public) capital. Usually it involves foreign aid. The government of a country can receive support or assistance in the form of bilateral loans (eg intergovernmental flows) and in the form of multilateral loans (eg support for global consortia, such as Aid India Club, Pakistani Pakistani Club etc. As well as international organizations such as the International Monetary Fund, Word Bank etc.)
Foreign aid refers to "state development support" or official development assistance (ODA), including cash (in currency) and nature (eg food aid, military aid, etc. (eg a developed country) for development or for a recipient (eg a developing country), "development" or "disseminating".
During the post-war war, support abroad and development activities. Emerging economies such as India have benefited greatly from foreign projects
Mostly There are two kinds of foreign aid, namely, knit aids and non-aid. Compulsory aid is a support that binds your comrades or purchases, that is, purchasing resources or wisdom, that is project-specific or both (double bonded!). Discontinued aid is a grant that is unrelated to any kind
The merits of foreign aid are as follows.
1. Support for employment, investment and industrial activities in the beneficiary country.
2. It helps poor countries to get enough foreign currency for their critical import.
3. In-kind support helps in food crises, lack of technology, sophisticated machinery and equipment, including defense equipment.
4. Aid helps the donor to best use surplus funds: a means of creating political friends and military allies, meeting humanitarian and egalitarian goals, and so on.
Foreign aid is the following.
1. Reduction of aid reduces the choice of capital in the beneficiary countries in the development process and programs.
2. Too much support is driving the help problem.
3. The aid shall be granted for 'dependence', 'diversion', 'amortization'
4. Politically motivated support is not just base policy but also bad economics.
5. Aid is always insecure.
It is a sad fact that support has in most cases (debt) become a trap. Aid must be more than trade. Fortunately, the ODA decreases every year.
Until the 1980s, trade credits were the largest foreign investment sources in developing countries. However, since then, the level of loans granted by commercial loans has remained relatively stable, while the levels of global FDI and FPI have increased dramatically.
Trade credits are also referred to as External Trade Borrowings (ECBs). These include commercial bank loans, customer loans, suppliers' loans, securitized assets, such as floating rate notes and fixed rate bonds, etc. Loans from official export credit agencies and commercial loans from the private sector window of multilateral financial institutions are provided by A Corporation, IFC , Asian Development Bank (ADB), partners of the joint venture, etc. In India, corporate enterprises may raise ECBs in accordance with Govt of India / RBI guidelines in accordance with cautious debt management. The RBI could approve the ECB for $ 10 million with a 3-5-year maturity. The ECBs can not be used for stock market investments or real estate speculation.
The ECB has allowed a large number of units – even middle and small – to capitalize on the acquisition, acquisition, development and upgrading of assets.
Infrastructure and key sectors such as power, oil exploration, road and bridges, industrial parks, Infrastructure and telecommunications are key beneficiaries (around 50% of funding). Other benefits include: i. Provides currency funds that may not be available in India; ii. the cost of funds is sometimes cheaper than the basics of the rupee; and (iii) the availability of resources on the international market is huge compared to the domestic market and the large amount of corporate money may be available depending on the risk assessment of the international market; arc. the leverage or multiplier effect of the investment; v. the easier-to-cover form of capital injection as swaps and futures can be used to address interest rate risk; and (vi) one way to raise capital, without giving any control as debt holders do not have the right to vote, etc.
ECB Restrictions: i. default risk, bankruptcy risk and market risks; (ii) most of the interest rates that increase the actual cost of borrowing and the debt burden and possibly reduce the credit rating of the company, which automatically increases borrowing costs, which further increases the liquidity crisis and bankruptcy risk ; (iii) interest payments.
Private companies are run to minimize taxes, so the debt shield is less important for public companies, as earnings are still lagging behind.
Factors influencing international capital flows
Many factors influence or determine the flow of international capital. Below is described.
first Interest rate
People who save income are generally interested. As Keynes rightly said, "interest is a reward for breaking up liquidity". Other things remain, capital starts from a country where the interest rate is low for the country where the interest rate is high.
Speculation is one of the motivations to maintain cash or liquidity, especially in the short term. Speculation also includes expectations of changes in interest rates and exchange rates. If the interest rate is expected to fall in a country in the future, current capital inflows will rise. However, if the interest rate is expected to increase in the future, the inflow of current capital will decrease
3. Manufacturing cost
If production costs are lower in the host country, foreign investment to the host country will increase compared to domestic costs. For example, lower wages in a foreign country direct production and factors (including capital) to low-cost resources and regions.
Profitability means the return on investment. It depends on the marginal efficiency of capital, capital costs and risks. Higher profitability will attract more capital, especially in the long run. Therefore, international capital flows faster to large profit areas
5. Bank interest
The bank interest rate is the interest rate charged by the central bank to the financial account provided to the member banks of the banking system on an aggregate basis. When the central bank increases the banking ratio on the economy, domestic loans shrink. Domestic capital and investments are declining. So in order to meet the demand for capital, foreign capital is about to enter.
6th Business conditions
Business conditions viz. the phases of the business cycle affect the flow of international capital. The rise of enterprises (eg Awakening and Recovery) will attract more foreign capital, while economic downturns (eg recession and depression) will withhold foreign capital. Trade and economic policies
Trade or trade policy means a policy of import and export of goods, services and capital in a country. A country may have a free trade policy or a limited (defense) policy. In the case of the former, trade barriers, such as tariffs, quotas, licenses, etc., are abolished. In the latter case, trade barriers are raised or maintained. Free or liberal trade policy, like today, allows free movement of capital around the world. Limited commercial policy prohibits or restricts the flow of capital with time / source / purpose.
Economic production policies (eg MNCs and joint ventures), industrialization (eg SEZ policy), banking (eg New Generation / Foreign Banks) and financing, investments (eg FDI policy) taxation (eg tax credit for EOUs, etc.) also affect international capital transfers. For example, liberalization and privatization increase industrial and investment activities.
8th General economic and political conditions
In addition to commercial and industrial policies, the country's economic and political environment also influences the flow of international capital. The economic environment of the country refers to internal factors such as market size, demographic dividend, growth and accessibility of infrastructure, human resources and technology, economic growth, sustainable development, etc. As well as political stability and good government. A healthy political and economic environment is conducive to the smooth flow of international capital.
The role of foreign capital
1. Internationalization of the World Economy
2. Underdeveloped economies – the emergence of labor and markets
3. Hi-tech transfers
4. Quick Passes
5. High income for companies / governments
6. New interpretation of consumer sovereignty – choice and standardization (superioirites)
7. Greater economic growth in developing countries
8. Problems of recession, non-priority production, cultural dilemmas, etc.
Source by sbobet