Financing Trade with India

Page 3: Introduction to the Financial System Page 7: Commercial Banks Page 12: The Share Market and the Corporation Page 15: Corporations Issuing Equity into the Share Market Page 19: Investors in the Share Market Page 24: Short-term Debt Page 28: Medium- to Long-term Debt Page 32: Interest Rate Determination and Forecasting Page 37: The Foreign Exchange Market Page 40: Factors that Influence the Exchange Rate Page 42: Futures Contracts and Forward Rate Agreements Page 47: Options

The exchange rates risk that is associated with economic, transaction, and translation exposure in Indian market. From the analysis, anticipate the fluctuations that seem to occur in the next 24 months

Investment on securities such as shares, debentures, bonds are profitable as well as exciting. It is indeed rewarding but involves a great deal of risk. Shapiro (2006) describes the emergence and growth of the market for derivative instruments can be traced back to the willingness of risk averse economic agents to guard themselves against uncertainties arising out of fluctuations in asset prices. Kawaller, the President of Kawaller & Company, LLC and Managing Director of the Kawaller Fund in Brooklyn, NY (2008) analysed the prevailing scenario and stated that currency risk is an inherent aspect of international commerce. Fortunately, for enterprises that function in this space-particularly for those that transact with counterparties

International projects present multinational corporations with many complexities in organizing a profitable transaction structure.Foreign exchange risk is an underlying problem. Credit risk presents another challenge. Payment terms and the certainty of realizing them can be difficult points. Negotiations with foreign corporations and governments, and with agents and intermediaries, present additional challenges. An example of the demanding environment for global financial activities is presented in the case of "Avicular Controls and Pakistan Airlines". It is found in Cases in International Finance on page 40.

Given the nature of its business, Jaguar is faced with three types of exchange rate exposure (1) Transaction, (2) Translation and (3) Economic . Transaction exposures arise whenever the firm commits (or is contractually obligated) to make or receive a payment at a future date denominated in a foreign currency. Translation exposures arise from accounting based changes in consolidated financial statements caused by a change in exchange rates. In this case we primarily focus on the Economic exposure -also known as Operating exposure or Competitive exposure- of Jaguar.

・The foreign currency rates applied may be wrong, leading to loss of profits and loss of cash outflows.

This report is created with a discussion over several important international finance topics for instance, interest-rate parity, currency risk management, regarding description on Carrefour S.A. financing policies as well as hedging strategy. Additionally, we also discussed on which currency Carrefour should issue its 10-year, 750 million euro, annual coupon bond, its foreign currency risk exposure and a possible hedging decision in dealing with any or all of the identified risks.

Next, we are concerned about accounting risk. At each reporting period end we must translate all of our balance sheet items to our reporting currency (USD). This means that if we hold assets in a foreign denominated currency and it depreciates relative to the USD, it will result in a write down of our balance sheet assets. This can be particularly harmful in the face of loan covenants, and potentially drive up our borrowing costs. This can also result in a decrease of our net income and drive down our share price.

Items presented in the financial statements of each of the Group`s entities are measured using the functional currency. IPL’s presentation currency is the Australian dollar, the currency used to present its consolidated financial statements. Foreign currency transactions are translated into the functional currency at the exchange rate on the day the transaction occurs. Foreign exchange gains and losses are recognised in the statement of comprehensive income, except when they are `deferred in equity as qualifying cash flow hedges`. These have been calculated following the AASB 121 `The effects of changes in Foreign exchange rates` and AASB 139 `Financial instruments – recognition and measurement`.

In the literature three types of exposure under floating exchange rate regimes are identified; economic, translation and transaction. Translation and transaction exposures are accounting based and defined in terms of the book values of assets and liabilities denominated in foreign currency. Economic exposure is

Also there are risks and uncertainties associated with the company’s expansion into their operations in Asia, Latin America, Caribbean and other foreign markets could adversely affect their results of operations, cash flow, liquidity or financial condition. Fluctuations in foreign currency

There has been significant changes in the international economy and politics that has led to uncertainty regarding the direction of foreign exchange rates that lead to volatility and the need to hedge foreign exchange rate risk and interest rate changes (Nobile, 2005). If a price is quoted ahead of time for a contract, the price may not be appropriate at the time of the actual agreement or the performance of the contract because of fluctuations in the foreign currency. The interest rate will have a differential between the two country currencies. A business or individual investor that buys foreign currency to purchase

Telefnica, a Spanish telecommunication company, faced the exchange rate risk. Foreign currency risk primarily show up in connection with1. The international presence of Telefnica, and the investment and businesses in other countries, such as Latin America, use other currencies, not the euro. 2. Liabilities denominated in currencies are different with its own country, and this debt is not likely to be conducted. At the same time, the thing of depreciation in foreign currencies relative to euro, and the value of cash flow has a loss in such currencies. However, this loss is offset by the reduction in the euro value of liabilities denominated. The level of exchange rate hedging was changed by the type of investment. In 2011, Telefnicas net debt was equivalent to about 7,953m euro in Latin America(Telefnica 2011). However, its currencies in which this debt is denominated is merged in percentage to the cash flow of each currency. the above hedge of exchange rate risks whether effective or not relies on which currencies depreciate relative to euro. In order to avoid decrease of the Latin America currencies relative to the euro, Telefnica group use the dollar-denominated debt. For instance, in spain, this is linked to an investment when it is suggested to be an effective hedge or in its own country. Meanwhile, the remaining exchange rate exposure on the income statement will be limited by the Telefnica Group to manage the exchange rate

The Indian rupee has become extremely unstable in the economy. Like Brazil, India is facing 6.1% inflation while its growth rate is sitting at 4.4% (Badkar, 2013). In order to curb the inflation, India banks have started buying oil in US dollars, while they sell it Rupees (Badkar, 2013). This allows them to make money off the sell rather than lose money from conversion. The country is still facing serious interest rates, as high as 8% (Monaghan, 2014).

Balance of Payments (BoP), being a record of the monetary transactions over a period with the rest of the world, reflects all payments and liabilities to foreigners and all payments and obligations received from foreigners. In this sense, the balance of payments is one of the major indicators of a country 's status in international trade. BoP accounting serves to highlight a country 's competitive strengths and weaknesses and helps in achieving balanced economic-growth. It can significantly affect the economic policies of a government and the economy itself. Therefore, every country strives to a have a favorable balance of payments and maintains its long run sustainability. India’s balance of payment position was quite unfavorable during the time of country’s entry into liberalized trade regime. Two decades of economic reforms and free trade opened several opportunities that, of course, reflected in the balance of payments performance of the country. This paper, therefore, attempts to evaluate the trends and emerging challenges of India’s Balance of Payments.