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International Finance & Foreign Exchange

Presented by Dinesh Ramrakhyani (90)

International Finance
Currency to be used
Exporter Importer prefer home currency If Importers currency is weak then prefers hard currency like US dollar, UK pound

Creditworthiness of importer
Satisfactory Business relation credit rating of importer from internationally reputed firm

Methods of payment
Payment in advance Open account Documentary collection a)Sight Bill of Exchange b)Time Bill of exchange Letter of credit Credit cards Counter Trade

International Financial Environment


Influence the size, pattern and direction of international business Gold Standard Exchange Rate Regime since 1973
Floating Rate system Pegging of currency Crawling Peg Target Zone Arrangement

Theories of exchange rate Behavior


Balance of payment Approach Monetary Approach
By Flexible- Price Version By Sticky- Price Version

Portfolio Balance Approach

Foreign Exchange
The importing country pays money to the exporting country in return of goods either in its domestic currency or in hard currency. This currency which facilitates the payment to complete the transaction is called foreign exchange Foreign exchange includes foreign currency, foreign cheques and foreign drafts

Exchange Rate Determination


Exchange rate is the price paid in the home currency for unit of foreign currency. Demand for foreign Exchange
Imports of goods & services Investment in Foreign countries Other payment involved in international transaction Other type of outflow of forign capital like giving donation

Exchange Rate Determination


Supply of Foreign exchange Countrys export of goods & services Inflow of foreign capital Payments made by the foreign government Other type of inflow capital like remittance by NRI

Exchange Rate Policy