INTERNATIONAL FINANCE MANAGEMENT

CASE STUDY : 1

Latvia has become the second European Union country to seek the International Monetary Fund's (IMF) help to stabilize its financial system. It is also asking for help from the European Union. The Latvian Prime Minister said the sum needed would be decided by talks with the IMF and EU. Latvia has fallen into recession and recently nationalized the country's second largest bank. The government invested $ 353 m into the parex bank to help it survive after a run on its deposits. It also offered $ 877 m in guarantees to its creditors. Latvia's economy, which grew by 50% between 2004 & 2007, Shrank 4.2% in the third quarter of this year, the sharpest economic contraction in the European Union. The Latvian Government has already started talks with the European Commission, the executive branch of the EU, on a possible rescue package for its economy. The IMF has said it has $ 200 bn set aside to help out countries facing turmoil because of the current global financial crisis. It has also said it expects to provide help for some 24 countries.

Question :

1) What measures can the European Union take in order to undo the economic contraction?

2) What is the role of IMF towards the countries that have fallen into recession?

3) In what ways can Latvia use the financial aid from IMF to stabilize its financial system?

4) Explain the term Economic Recession in detail.

CASE STUDY : 2

Prime Minister Dr Singh is right in advocating a phased movement to fall convertibility starting with Special Economic Zones (SEZs), we need to move along the convertibility highway, even if slowly. Our Economy is in take off stage and needs timely infusions of fixed and working capital. Since India is now an enterprise driven economy like most others, the Rupee needs to become more convertible to reduce transaction costs. Fears of a Recurrence of the 1991 crisis, when our reserves were insufficient to finance 3 weeks imports are perhaps exaggerated. The currency has been ruling at below 47 to a dollar for the last 6 months. Investors and rating agencies are convinced that the India's growth story is here to stay. Their views determine flows of FDI & FPI in a big way. Current Account transactions no longer influence a country's BoP profile to the extent they did a couples of decades ago. Despite a ballooning trade deficit, our reserves have steadily increased over the years to 144 billion dollars.

Question :

1) Current Account Transactions no longer influence a country's B.O.P. Discuss.

2) What is Capital Account Convertibility?

3) What are the risks in Capital Account Convertibility in Indian context?

4) What is the present status of Capital Account Convertibility in India?

CASE STUDY : 3

Tata Chemicals, leading manufacturer of Caustic Soda in the country said today that it had bought a 35 per cent stake in JOIL Pte, a Singapore based jatropha seeding company. The stake buy will help the firm gain exclusive marketing rights for technology to develop the best seed varieties of the plant which yields bio-diesel. The Mumbai-based company has committed to invest Rs 80 crore in lieu of the stake in the next 4 years. Bio-diesel is one of the many alternatives being developed globally to achieve energy security. According to Tata Chemicals, the break even price for jatrophaused biodiesel is $ 55 - $ 60. The price crude oil is currently hovering around $ 52 a barral after dropping almost 65 per cent from its all time high of $ 145 a barral in July. `No one is expecting crude to remain at this level' said Home, M. D. Tata Chemicals. `We have made the investment keeping 2-3 years in mind, when we expect crude oil to trade $ 100 a barral. He said. Joil a joint venture of Temasek Life Science Laboratory and other investors, has developed the technology to produce seedings, which gives standardized yield and consistent output from Jatropha. Currently, the Jatropha plant used for commercial production has an irregular pattern of production. "We will have an exclusive global marketing right to the research done by Temasek Life Science Laboratory," said Homi. The company will be setting up a tissue culture lab to study the commercial potential of the project and it will take atleast a year before it is brought to the market.

Question :

1) What is the commercial viability of Jatropha used bio-diesel?

2) What is the profitability of this bio-diesel?

3) What is the future of this jetropha based bio-diesel as alternate energy security?

4) Explain the term Joint Venture in detail.

CASE STUDY : 4

The growing strength of India's BoP observed in the post reform period since the crisis of 1991 continued in 2005-2006. This growing strength was inspite of a widening current account deficit to the tune of US dollar 9.2 million that is equivalent to 1.1 per cent of GDP in 2005-2006. Rising foreign investment together with a sharp revival of inflows of non-resident deposits maintained a strong balance in the capital account visà- vis high level of reserves. Given such robust external position R.B.I. had deemed it

opportune to revisit the issue of full Capital Account Convertibility. An insight into India's BoP Capital Account is possible with the following table. In this scenario, Indian companies hand holdings with international agencies (taxing loans & equity partnership) plans to make huge investments in retails and infrastructure. Also many companies are boosting up their foreign country operations. They are less perturbed about the rising inflation rate interest rate or the other tight money measures adopted by the Government. This could be due to favorable consolidation exposure and the opportunity in covering their risk in currency future market.

Question:

1) What is trade deficit?

2) What according to you would be the reason for India's growing trade deficit.

3) Find out the capital account balance from the above table and explain the main forms of FDI and FII flows into India?

4) What are the tight money policy measures used in India in the recent past?