Questions:

1. With clear position, discuss whether currency black market can be eliminated in South
Sudan or not. Give your opinion and your stand as an upcoming finance manager.
2. Capital is one of the fundamental factors in business, discuss into details and relate your
points to South Sudan context.
3. Why is it necessary for a business entity to engage in foreign exchange markets?
4. If appointed as a business manager, what would you do to advance the business to
international level?

2. Introduction:
Every time we start a discussion about economics, few terms immediately come to our
mind. Capital is one of those terms.
We use this term so often in economics and that tells about its significance for businesses.
To start a business, every business entity needs capital so the following points given
below are discussed in relations to South Sudan’s business entities.
Definition
Capital refers to financial assets, such as funds in the form of deposit accounts and funds
got from special financing sources. Capital can also be relatable with the capital assets of
a company that requires a significant capital contribution to finance or develop.
Types of Capital
The four types of Capital are explained below.

Debt Capital

A business can acquire capital through the assumption of debt. Debt capital can be
obtained either from government sources or a private source. The sources of Capital can
be anyone from friends, family, to financial institutions, online money lenders, credit
card companies, federal loan companies, and insurance companies.

Equity Capital
Equity capital can come in several forms. The three distinct forms of equities are private
equity, public equity, and real estate equity.
This capital is received from the shareholders. However, private equity is not raised in the
public markets. It usually comes from private investors and owners.

Working Capital
Working Capital is the capital available for fulfilling daily obligations. It is the most
liquid capital asset available. Working capital measures a company’s short-term liquidity
—more specifically, its ability to cover its debts, accounts payable, and other obligations
that are due within one year.

Trading Capital
Trade Capital is held by firms and individuals that trade on a large scale daily. Trade
capital is the amount of money allotted to buy and sell various securities.

Characteristics of Capital

Capital has several important characteristics that are as follows

Capital is a Passive Factor

Capital is a passive factor of production. This is so because capital is ineffective without

the cooperation of labor. A business can not operate only with capital. They need to
invest equally in labor and land.

Capital is Man-Made

Capital is a man-made thing. Its production and supply is controlled by the efforts of
man.

Capital has high mobility

Among all the factors of production, Capital has the highest mobility. The land is
immobile and labor has the least mobility, while capital has both ‘place mobility’ and
‘occupational mobility’.

Capital is Elastic

The elasticity of capital is high when we talk about its supply. Its supply can be adjusted
quickly and easily depending on the demand.

Capital Depreciates

Capital depreciates over time. For example, if a machine is used again and again its
efficiency goes down and it may not be suitable for further use due to depreciation.
Capital is Productive
Capital helps in increasing production. When labor is given adequate capital, it
effectively increases production. More capital leads to better efficiency and increased
productivity.

Capital is temporary in nature

Capital is temporary. It can not last forever. Therefore, Capital needs to be reproduced
and replenished from time to time. This makes capital a short-term asset.
Functions of Capital
Some of the important functions of capital are listed below;

Provision for Subsistence

Capital helps to arrange food, shelter, and cloth for the workers involved in the
production process. Because production is a long process and passes through many stages
till it brings income to the manufacturers.

Provision for Appliances

Capital fund also helps in arranging the required appliances for the production process.
We all know that without taking the help of machines, efficient production is not
possible.
Provision for Raw Materials
A large part of the capital fund is used to procure raw materials for production purposes.
Raw materials being an essential thing, they require every concern.
Provision for Raw Materials
A large part of the capital fund is used to procure raw materials for production purposes.
Raw materials being an essential thing, they require every concern.
Economic Development
The most important function of the capital is to promote the economic growth of the
country. For the satisfactory development of the country, adequate funds are very
essential.

Importance of Capital
Capital is considered as one of the most important factors for production. It helps in
modern production systems. Some of the factors which make Capital imperative have
been discussed below:

Capital increases production and productivity

Capital plays a very important role in production these days. We cannot imagine a
production without ‘capital’. Land (nature) and labor (man) alone are not enough for
production. Companies require machines, tools, and equipment to produce.

Capital is the core of Economic Development

Because of its strategic role in raising productivity, capital occupies a central position in
the process of economic development. The economic development of any nation is not
the same as economic growth. There are some differences between economic growth and
economic development.

Capital generates more Employment Opportunities

The growing population needs to be fed and for this, there must be sufficient employment
opportunities. An adequate increase in stock capital ensures the fulfillment of
requirements like new machinery, tools, labor, and other important utilities.
3. Definition of foreign exchange markets.
Introduction:
Every country has their respective currencies which they use in their trade and
businesses, but what about in the foreign market? With the lack of versatility of the
currencies, they become a hurdle in world trade. To solve this problem, the Foreign
Exchange Market was introduced. This is a type of marketplace that will fix the exchange
rate for the currencies.
Definition
The foreign exchange market is over a counter (OTC) global marketplace that determines
the exchange rate for currencies around the world.
Types of Foreign Exchange Market
The Foreign Exchange Market has its own varieties. We will know about the types of
these markets in the section below:
The Major Foreign Exchange Markets –
 Spot Markets
 Forward Markets
 Future Markets
 Option Markets
 Swaps Markets
Let us discuss these markets briefly:

Spot Market
In this market, the quickest transaction of currency occurs. This foreign exchange market
provides immediate payment to the buyers and the sellers as per the current exchange
rate. The spot market accounts for almost one-third of all the currency exchange, and
trades which usually take one or two days to settle the transactions.

Forward Market
In the forward market, there are two parties which can be either two companies, two
individuals, or government nodal agencies. In this type of market, there is an agreement
to do a trade at some future date, at a defined price and quantity.
Future Markets
The future markets come with solutions to a number of problems that are being
encountered in the forward markets. Future markets work on similar lines and basic
philosophy as the forward markets.

Option Market
An option is a contract that allows (but is not as such required) an investor to buy or sell
an instrument that is underlying like a security, ETF, or even index at a determined price
over a definite period of time. Buying and selling ‘options’ are done in this type of
market.

Swap Market
A swap is a type of derivative contract through which two parties exchange the cash
flows or the liabilities from two different financial instruments. Most swaps involve these
cash flows based on a principal amount.

Functions of Foreign Exchange Market

The various functions of the Foreign Exchange Market are as follows:

Transfer Function: The basic and the most obvious function of the foreign exchange
market is to transfer the funds or the foreign currencies from one country to another for
settling their payments. The market basically converts one’s currency to another.

Credit Function: The FOREX provides short-term credit to the importers in order to
facilitate the smooth flow of goods and services from various countries. The importer can
use his own credit to finance foreign purchases.
Hedging Function: The third function of a foreign exchange market is to hedge the
foreign exchange risks. The parties in the foreign exchange are often afraid of the
fluctuations in the exchange rates, which means the price of one currency in terms of
another currency. This might result in a gain or loss to the party concerned.

Features of Foreign Exchange Market

This kind of exchange market does have characteristics of its own, which are required to
be identified. The features of the Foreign Exchange Market are as follows:

High Liquidity
The foreign exchange market is the most easily liquefiable financial market in the whole
world. This involves the trading of various currencies worldwide. The traders in this
market are free to buy or sell the currencies anytime as per their own choice.

Market Transparency

There is much clarity in this market. The traders in the foreign exchange market have full
access to all market data and information. This will help to monitor different countries’
currency price fluctuations through the real-time portfolio.

Dynamic Market
The foreign exchange market is a dynamic market structure. In these markets, the
currency values change every second and hour.

Operates 24 Hours
The Foreign exchange markets function 24 hours a day. This provides the traders the
possibility to trade at any time.
Who are the Participants in a Foreign Exchange Market?
The participants in a foreign exchange market are as follows:
Central Bank: The central bank takes care of the exchange rate of the currency of their
respective country to ensure that the fluctuations happen within the desired limit and this
participant keeps control over the money supply in the market.

Commercial Banks: Commercial banks are the channel of forex transactions, which
facilitates international trade and exchange to its customers. Commercial banks also
provide foreign investments.

Traditional Users: The traditional users consist of foreign tourists, the companies who
carry out business operations across the globe.

Traders and Speculators: The traders and the speculators are the opportunity seekers
who look forward to making a profit through trading on short-term market trends.

Brokers: Brokers are considered to be the financial experts who act as a sure
intermediary between the dealers and the investors by providing the best quotations.

Advantages of Foreign Exchange Market

The whole world economy is relying upon this foreign exchange market for obvious
advantageous reasons.
There are very few restrictive rules, this allows the investors to invest in this market
freely.

There are no central bodies or clearinghouses that head the Foreign Exchange Market.
Hence, the intervention of the third party is less.

Many investors are not required to pay any commissions while entering the Foreign
Exchange Market.
As the market is open 24 hours, the investors can trade here without any time-bound.

The market allows easy entry and exit to the investors if they feel unstable.

4. If I was appointment as a business manager these are the following ways in which
I would advance the business into an international level;

Develop a Strategy and Business Plan

Each market has its own nuances due to economic, cultural, governmental, and market
conditions. It is important to develop a localized strategy and business plan that drives
local success while remaining integrated with the overall corporate strategy and
objectives.

Product Readiness
Based on the product gap analysis, take the necessary steps to market-ready your
offerings to achieve high-impact product differentiation.

Organizational Readiness
Cultural differences, whether it is language, regulations, or customs, requires a firm to be
flexible in the policies and procedures implemented in an international operation to
ensure employees are engaged and executing on the company’s plans.

Legal Readiness
Some countries are known for being highly litigious, so it is critical that strong legal
processes are put in place to minimize unnecessary commercial risks.

Establish a Go-to-Market Strategy

The effective selling and marketing of your products or services requires a
comprehensive, cohesive strategy that addresses sales strategy, sales delivery,
branding/value proposition, marketing strategy, marketing programs, and pricing, which
together create clear market differentiators that propel market acceptance and revenue
growth.

Tax and Finance Readiness

The proper tax and finance infrastructures need to be set up early on to ensure that you
are receiving timely reporting and that your foreign entity is adhering to local corporate
policies and procedures.

Establish Close Relationships with Local Businesses

Gain a strong competitive advantage by creating a supporting ecosystem of
complimentary products and services, which can come via third-party relationships.
These relationships can support the scaling of the organization while minimizing the
financial risk.
References
Capital in Economics, Ritesh Pathak
Foreign Exchange Market/ Vedantu
Forbes/Michael Evans, March 4, 2015