What is EPZ

EPZ or Export Processing Zone is just like SEZ whose economic laws are different from the laws
of country but they are designed to help the manufacturing companies that are exporting their
entire production. EPZ has the sole aim to produce goods for export. The manufacturing units
are given tax holiday for a fixed period of time so as to make the product competitive in the
international market.

Differences between SEZ and EPZ

SEZ are much larger in geographical size than EPZ.

SEZ has much larger scope of business than EPZ.
SEZ is found all the countries but EPZ are generally located in under developed or

developing countries.
Infrastructure of SEZ consist of manufacturing units, townships, roads, hospitals, schools

and other services but EPZ are confined to manufacturing establishments.

The benefits of SEZ are more towards the growth of domestic business where as EPZ has

the main objective of developing exports business.

SEZ is open to all fields of business like manufacturing, trading and services but EPZ has

more focus on manufacturing.

Tax benefits in SEZ are much more than in EPZ.
There is very limited accountability of export performance in SEZ but it has great
influence over the business carried out in EPZ as the penalties and duty recovery is

imposed in case of shortfall.

The consumption of raw material that is imported duty free has to be consumed over a

period of 5 years in SEZ but the time period in EPZ is only 1 year.
Laws concerning the certification of the import goods are much more relaxed in SEZ than

in EPZ.
Custom department has less interference in the inspection of the premises in SEZ but

EPZ requires routine customs inspection of cargo.

FDI investment in manufacturing unite does not require sanctions from the board as it is
in EPZ.

Read more: http://www.differencebetween.com/difference-between-sez-and-vsepz/#ixzz2sYBDVt00

Difference between BOP and BOT

Basis of

Balance of Trade

Balance of Payment (BOP)

Difference

(BOT)

1. Definition

Balance of trade may

Balance of payment is flow of

be defined as

cash between domestic

difference between

country and all other foreign

export and import of

countries. It includes not only

goods and services.

import and export of goods

and services but also includes

2. Scope

It is narrower term

financial capital transfer.

It is wider term

3. Formula

BOT = Net Earning

BOP = BOT + (Net Earning

on

on foreign investment -

Export - Net payment

payment made to foreign

for imports

investors) + Cash
Transfer + Capital Account +or
- Balancing Item
or
BOP = Current Account +
Capital Account + or Balancing item ( Errors and

4. Favourable

If export is more than

or
Unfavourable

omissions)
Balance of Payment will be
favourable, if you have

import, at that time,

surplus in current account for

BOT will be

paying your all

favourable. If import

past loans in your capital

is more than export,

account.

at that time, BOT will

Balance of payment will be

be unfavourable.

unfavourable, if you have

current account deficit and
you took more loan from
foreigners. After this, you have
to
pay high interest on extra loan
and this will make your BOP
unfavourable.

5. Solution of

To Buy goods and

To stop taking of loan

Unfavourable

services

from foreign countries.

Problem

from domestic

6. Factors
affecting

6. Meaning of
Debit and
Credit

country.
Following are main
factors
which affect BOT
a) cost of production
b) availability of raw
materials
c) Exchange rate
d) Prices of goods
manufactured at
home
If you see RBI' Overall
balance of payment
report, it shows debit
and credit of current
account.
Credit means total
export of different
goods and services
and debit means total
import of goods and
services in current
account.

Following are main factors

which affect BOP
a) Conditions of foreign
lenders.
b) Economic policy of Govt.
c) all the factors of BOT

Credit means to receipt and

earning both current and
capital account and debit
means total outflow of cash
both current and capital
account and difference
between debit and credit will
be net balance of payment.

INTERNATIONAL FINANCIAL MARKET

What are emerging markets? Why advanced countries are interested in

them?

A country that has some characteristics of a developed market but is not a developed

market.
Countries whose economies are experiencing rapid economic and household income

growth and industrialization.

Differ from their "developed" market counterparts in four main ways. They have:
o Low household incomes
o Structural changes occurring, such as modernization of infrastructure or moving
o

from a dependence on agriculture to manufacturing

Economic development and reform programs under way

Stock and bond markets that are less mature in functioning, rules of conduct, and

liquidity
The most promising markets for doing business in future, for the worlds most competitive

companies
The economies of China (excluding Hong Kong and Macau, as both are developed) and

India are considered to be the largest

Cavusgil (1987)
EMs are high-growth developing countries that represent attractive
businessopportunities for Western firms... EMs share remarkable features in terms
ofeconomic potentials.

Emerging markets also have attractive attributes that could contribute to

strong future growth:

Favorable demographics
The populations of nearly every developed countrywith the significant exception of the
U.S.are expected to begin shrinking before mid-century. While some developing
countries face similar futures, many have large, young populations that are increasingly

moving to urban areas for employment opportunities.

Growing consumption
Emerging markets' economies historically have tended to focus on exportsproducing
goods to be shipped abroad to wealthier countries. Many economists predict a shift away
from this model toward domestic consumption-led growth as incomes rise and

populations migrate from poor rural areas into cities.

Relatively low debt levels
Emerging markets tend to have lower debt burdens than developed countries. Thanks to
robust growth and spending restraint, many emerging market governments and
corporations have healthy balance sheets. Citizens of emerging markets also tend to
havehigh savings rates, which bodes well for future spending should savings rates

eventually fall to levels closer to their developed market counterparts.

Room for productivity gains
Productivity in emerging markets has greatly lagged that of mature economies. Analysts
predict that better infrastructure and technological advances in emerging markets could
greatly boost productivity, a major factor in sustainable economic growth.

Doing business in EMs give to MNCs a lot of advantages.

Added sales volume;

Economies of scale;
Increased profits;

Improved competitive ability;

Reduced market dependence;
Improved immunity to cyclical fluctuations;
Stabilization of production schedules;
Reduced effect of market saturation;
Prolonged product life cycles
Enhanced investment profiles
Greater growth opportunities;
Reduced level of competition
Possibility of large potential markets; and
Reduced costs of market entry.

What is deregulation of financial markets? Why is it necessary?

Variety of changes in the law which allow financial institutions more freedom in how they
compete
Reduction the amount of regulation over a market or economy
Especially seen in banking and other financial services
Includes
o LIberalising the rules and regulations of controls
o Removal of quotas and tariff and non-tariff blocs
o Providing freedom to the business and industry
o Providing infrastructural facilities
o Removal of bureaucratic hurdles
o Encouraging research and development
o Encouraging the competitiveness based on quality, price, delivery and customer

service, etc.
o Providing autonomy to the public sector to compete with private sector company
o Providing administrative and governmental support
o Developing money and capital market
May allow an organization to conduct more activities than it could before
o for example, it may allow a bank to make more high risk investments
Does not mean removing all rules or regulations.
The best known form of financial deregulation in the United States came in 1999 when

Congress repealed sections of the Glass-Steagall Act.

Intendedto increase efficiency in the market by letting the Invisible Hand guide the

economy apart from government intervention

Widely debatable whether such changes are beneficial or harmful to the economy
Arguments - deregulation increases the likelihood of fraud and unfair practices such as

insider trading.
Indian economy to great extent open economy but not like financial markets in USA, UK,

Germany, Japan, etc.

GOI began to deregulate domestic financial markets by the mid of 1980s
o Contributed to greater convergence of issuing costs between offshore and onshore
markets

Thereby encouraging corporations and govt. to seek capital in the major domestic

securities markets
Japan relaxed regulation on the Samurai bond market in 1983
o Issued first Shortgun bond in 1985

Need of Financial Deregulation

To focus on increased competition as a means to improve the capability of domestic

financial institutions
Macro economic policy co-ordination and mutual co-operation among industrial and

developing countries
To fulfill the commitments to WTO enabling foreign entry in banking system
To allow banks free pricing the loan products
To adopt financial inclusion

Write a shortnote on Financial hubs

Financial centre of a country

Mumbai considered as a financial capital of India
GFCI (Global Financial Centres Index) first ever study to continuously rank financial

centres
According to study top 10 financial hub of the world
o London, New York, Hong Kong, Singapore, Zurich, Frankfurt, Sydney, Chicago,

Tokyo, Geneva
o Mumbai 39th rank
Biggest contributors to overall competitiveness
o Regulatory and tax environments
Some key areas ranked
o People, business environment, market access, infrastructure and general
competitiveness
Between London and New York regulation as a decisive factor

What are International Financial Markets?

Financial market facilitates trade between buyers and sellers of financial assets.
The international financial system fulfils two major roles
o It serves to integrate the separate domestic systems
o It acts as a system in its own flight by supporting financial transactions that are
supranational.
The growth of financial markets is facilitated by the deregulation of markets by the govts.
Based on the nature of securities in which the markets deal, the international financial
markets can be categoriesed as
o International Banks
o Euro Currency market

o Euro Bond market

o International Stock Market
International Banking
o Grown in both complexity and risk over the past two decades
o Playing critical role as both commercial banking and investment banking
o Large banks have internationalized their operations
o Providing own overseas operations increasingly to improve ability to compete
internationally
Euro Currency Market
o Euro currency financial asset denominated in currency other than the domestic
o
o

Euro
o
o
o

currency of the respective economy

Euro Dollar Any dollar denominated financial asset outside the boundaries of
USA
Factor led to Euro Currency market
European communist countries wanted to hold their dollars denominated
fund out of US for fear of confiscation
European banks supported and held their holdings
Bond Market
Provides funds to MNCs and other entities
Access towards long term funds in foreign markets by issuing bonds
Eurobonds sold in countries other than the country represented by the currency

denominating them
o Highly competitive and often funds obtained on favourable terms by borrowers
International Stock Market
o Due to liberalization, MNCs no longer restricted to domestic stock markets for
o
o

raising new equity

Raising from overseas market too
Many Indian Stocks are listed in American Stock Exchange extending ownership of
these corporate to international markets

Explain the role of International Financial Markets in the development of

international business.

Price discovery process

o the interactions of buyers and sellers in the markets determine the prices of the
assets traded
Ensure liquidity
o by providing a mechanism for an investor to sell a financial asset.
reduce the cost of transactions and information
o the remarkable technological change that has reduced the costs for market
participants; privatization of state assets; deregulation of financial markets in key
industrial countries; growth of institutional investors; and macroeconomic and

structural reforms in developing countries. This environment has encouraged

institutional and private investors to hold a wide range of international securities.

Consumption smoothing
o Access to world capital markets may allow a country to engage in risk sharing and
consumption smoothing, by allowing the country to borrow in bad times and lend

in good times
Availability of finance
o The ability to draw upon the international pool of resources
o Many developing countries, the capacity to save is constrained by a low level of
o

income.
Help the recipient country raise its rate of economic growth and improve living
standards.

What is disintermediation of financial markets? What are its reasons?

Disintermediation
o Removal of intermediaries from a process, supply chain or market
o Increasingly important in financial market
Institutional investors are undertaking direct investments and thus bypassing

intermediaries.
Greater use of a wider range of financial instruments such as asset backed securities and

convertible bonds and debentures encouraged this

Reduces amount of business available for commercial banks and generate business for

investment banks

Reasons for disintermediation of financial markets

Deregulation
o Encouraged corporations and govts. to seek capital in major domestic securities
o

market while leading to progressive internationalization

Japan relaxed regulation on Samurai bond market in 1983 and issued first

o
o

shotgun bond in 1985

US eliminated 30% withholdings tax on foreigners interest income in 1984
Germay stopped taxing foreign investors income from bonds and allowed

foreigners to buy federal bond in the primary market in 1988

India removed many restrictions in case of foreign exchange and provided
incentives to NRIs and FIIs.

Information Technology
o Significant changes in Business Process Re-engineering, Enterprise Resource
o

Planning and Supply Chain Mgmt

Major impact on coordination of headquarters-subsidiary and govt. relations

o
o

Globalization increased dynamics and complexity relations with the envt.

Technological changes reinforced the effects of deregulation and financial

innovations in internationalizing markets

Increasing efficiency in gathering and disseminating information and in processing

transactions
Improved communication also encourages FIs to continue to develop new
instruments to meet the needs of customers in isolated markets
Telebanking, internet banking, e-commerce, e-business, etc.

Financial Innovations
o Played key role in internationalization of financial markets
o Can lower funding costs, enhance yields or unbundled some of the characteristics

of securities
Price, credit risk, country risk and liquidity
Made more attractive to borrowers to raise capital in foreign markets and for
investors to make cross border investments

What is integration of financial markets?

In integrated financial markets

o Domestic investors can buy foreign assets and
o Foreign investors can buy domestic assets
In recent years, world capital markets have become more integrated
Important pillars of recent reforms
o Adoption of effective currency convertibility
o Trade liberalization
Well managed international financial integration promises substantial benefits
o Accrue on both the production and the consumption side
o Production side
permits greater international specialization and
facilitates allocation of scarce resources to their most productive uses
independent of location
thereby accelerating growth on the consumptions side
Insures individuals against adverse developments in their home economy through
o international portfolio diversification
o tapping global capital markets to smooth temporary declines in income
Banking system plays leading role
o One of the main channels through which benefits materialize
o In integrated environment, banks can expand lending more quickly and in larger
o

amounts
Circumstances can change more swiftly and market reacts faster

What is cross border alliance? Why is it required?

A strategic partnership that is formed between two or more firms from different countries
for the purpose of pursuing mutual interests through sharing their resources and

capabilities
Provide flexibility to the partnering firms by committing on fewer resources and activities
on which they have competencies and configuring networks of alliance partners to bridge

the gap between firms present resources and the required.

Brings in competitive advantage such as risk reduction and access to new technologies,

low cost resources, markets of developing nation, etc.

Cross border alliances have resulted in reducing the deficiency gap of Manufacturing

Enterprises in India
It can apply to virtually any of collaboration between two or more firms, including one or

more of the following activities :o Design Contracts

o Technology Transfer agreements
o Joint product development.
o Purchasing Agreement
o Distribution Agreement
o Marketing and Promotional Collaboration
o Intellectual Advice.
Need for Cross Border Alliance
o Get instant market access, or at least speed your entry into a new market.
o Exploit new opportunities to strengthen position in a market
o Gain new skills and technology.
o Develop new products at a profit.
o Share fixed costs and resources.
o Enlarge distribution channels.
o Broaden business and political contact base.
o Gain greater knowledge of international customs and culture.