CHAPTER Ill

The International Monetary System

INTRODUCTION
It has become a cliche to say that we now live in one world—ready or not. What happens in Europe, the
United States, or any other country influences other countries, and events abroad have repercussions at
home. Trillions of dollars’ worth of goods and services—American computers, German cars, Japanese
DVDs, French wines, Italian clothes—are traded across international borders each year. A vastly larger
volume of international transactions—trade in stocks, bonds, and bank deposits—take place in the global
economy at the speed of light. Buying goods, services, or assets from foreign countries is complicated by
the fact that countries use different monetary systems. In order for these transactions to take place, there
must be some way to change domestic into foreign money and vice versa. The foreign exchange market is
where these transactions take place. Its participants include banks and other financial institutions,
consumers, business firms, and governments.

Balance of Payments
The balance of payments is a summary statement of all transactions that take place between a country and
the rest of the world during a given period of time (usually a year). One of the main uses of the balance of
payments accounts is to provide information regarding the demand and supply of foreign exchange. In
other words, and for a given time period (a year), the balance of payments summarizes a country’s
transactions that require payments to other countries and transactions that require payments from other
countries. The balance of payments uses a double-entry system of bookkeeping. Transactions are
recorded as debits and credits. From the standpoint of the home country, a debit − transaction is a flow for
which the home country must pay and requires the supply of the home currency. Examples of debit
transactions are:
• Imports of goods and services
• Transfers to foreign residents (also known as remittances)
• Acquisition of long-term assets or reduction of a long-term liability (i.e., stocks, bonds, real capital)
• Acquisition of a short-term asset or reduction of a short-term liability (i.e., bank deposits, cash or
short-term bonds such as treasury bills).

From the standpoint of the home country, a credit + transaction is a flow for which the home country is
paid and increases the demand for the home currency by foreign residents. Examples of credit
transactions
are:
• Exports of goods and services
• Transfers from foreign residents
• Sale of a long-term asset or increase of a long-term liability
• Sale of a short-term asset or increase of a short-term liability
 Exhibit 3.1

As explained above, credit includes all transactions that give rise to foreign exchange inflows whereas
debit includes all transactions causing foreign exchange outflows. Consequently, exports of goods and
services are placed on the credit side. On the other hand, imports of goods and services are placed on
the debit side. The “Transfers” entry on the credit side refers to unilateral transactions or transfers (i.e.,
it does not require a corresponding payment abroad) and mainly includes remittances from home
residents working abroad and aid from abroad. Equivalently, the “Transfers” entry on the debit side
includes remittances paid to home or foreign residents (such as remittances to home students studying
abroad) and aid abroad. In Exhibit 3.1 total credits are equal to total debits according to double-entry
bookkeeping. For example, “exports of goods” is a credit entry and is only one side of the transaction.
The other side refers to the way the transaction is paid. Whether it is paid through lending or cash, it will
appear as a debit entry. The equality of credit and debit entries can also be seen from a different angle.
A country, as an individual, cannot pay more than it receives during a specified time period unless it
borrows or sells assets. The latter transactions are credit entries in the balance of payments accounts.

Current and Capital Accounts

All transactions are placed into specific categories. The simplest breakdown is between the current
account and the capital account.

1.Current account records all transactions involving goods and services.

• One of the most important categories of the balance of payments

• includes goods, services (tourism, banking, insurance, brokerage services, transport), transfers,
receipts of interest, profit and dividends earned by investments abroad, and, equivalently, payments of
interest, profit, and dividends to investments by foreign residents in the home country

2. Capital account records all transactions involving short-term and long-term assets.

• Included are items like trade credit (i.e., the settlement of debts at a future date), lending by banks,
and the purchase and sale of securities like company stock, corporate bonds, government long term
bonds, and short-term bonds such as Treasury bills
 Exhibit 3.2

In Exhibit 3.2, the capital account is in surplus, which exactly offsets the current account deficit so that
the balance of payments is zero. If there is a current account surplus, then there must be a corresponding
capital account deficit.
The services balance is also known as the invisible trade balance.

Inward investment or capital inflow- The purchase of home country assets by foreign residents

Outward investment or capital outflow- the purchase of foreign assets by home country residents

Direct investment – transactions in physical assets

Indirect or portfolio investment- borrowing, lending, and transactions in securities

Balance of Payments Disequilibrium

It should be stressed from the outset that a deficit or a surplus in the balance of payments is an
economic and not an accounting concept since, in the accounting sense, the balance of payments should
always be zero. From an economic point of view, the existence of balance of payments deficits or
surpluses is a frequent phenomenon.

Autonomous transactions are independent of the balance of payments in the sense that they are
affected by factors outside the balance of payments statement. These include exports, imports,
transfers, public transactions, and net capital movements. Imports and exports are the result of cost
differences among countries (i.e., international competitiveness). Transfers and public transactions are
based on military, political, or humanitarian considerations (i.e., military aid or humanitarian aid
following natural disasters). Capital movements are dependent on expectations about returns on foreign
investments (i.e., interest rate and exchange rate considerations).
Accommodating (offsetting) transactions- transactions occurring in order to compensate for
differences between payments and receipts arising from a country’s autonomous transactions

In effect, they are balancing transactions, which finance payments imbalances associated with
autonomous transactions. For example, suppose a country’s autonomous transactions are the following:

• Exports: $40 billion

• Imports: $50 billion

• Transfer receipts: $4 billion

• Foreign aid receipts: $2 billion

• Net capital inflow: $2 billion.

According to the information above, payments are $50 billion (imports) while receipts are only $48
billion 40+4+2+2. The country in question has a disequilibrium of $2 billion, which, in effect, is a balance
of payments deficit. In order to correct the situation, this country must undertake a $2 billion financing
or accommodating transactions to account for the difference between payments and receipts.
Consequently, the existence of accommodating or financing transactions is evidence of balance of
payments disequilibrium.

The Foreign Exchange Market

Economic analysis tends to neglect the accounting procedures of the balance of payments and
concentrates on the fundamental economic and financial relationships emanating from these
procedures. The foreign exchange market, where different national currencies are bought and sold,
provides that link.

The exchange rate is the price of one nation’s currency in terms of another’s. Exhibit 4.4 shows
exchange rates between the euro and selected currencies on December 21, 2005. For example, E1 buys
1.1872 US dollars, 139.18 Japanese yen, or 0.67895 pounds sterling. Exhibit 4.5 shows dollar exchange
rates with selected currencies on January 7, 2004 and January 7, 2006.

It is important to emphasize that the exchange rate is a relative price, that is it can be expressed in
either direction—if the euro rises against the US dollar, the US dollar falls against the euro. One way is to
express the foreign currency in terms of the domestic currency. In other words, we ask how much
foreign currency exchanges for one unit of the domestic currency, as is the format in Exhibit 3.3 for the
euro, and in columns 3 and 5 of Exhibit 3.4 for the US dollar. This is known as indirect quotation of the
exchange rate. In this case, if the exchange rate of the domestic currency falls (rises), it means that its
value also falls (rises), that is it depreciates (appreciates). Therefore, we can say that the value of the
domestic currency has fallen (risen) or the exchange rate (of the domestic currency) has fallen (risen).
 Exhibit 3.3 Exhibit 3.4

An example from Exhibit 3.3 should put things into perspective. If $1.1872 = E1 in indirect quotation,
the direct quotation can be calculated as the reciprocal: if we divide e1 by the above indirect quotation,
we get 1/1.2138 = 0.84232, that is e0.84232 = $1. In terms of the direct quotation, if the euro fell (rose),
the exchange rate would rise (fall)—it would cost a higher (lower) proportion of the euro to buy one US
dollar. Conversely, if we were to use the indirect quotation, if the euro fell (rose), the exchange rate
would fall (rise)—it would cost fewer (more) euros to buy one US dollar. According to the dollar/euro
exchange rate from Exhibit 4.4, a product costing e25 in Europe would cost $29.68 25×1.1872; a product
costing $50 would cost e42.12 (50/1.1872).

We have mentioned that the dollar may depreciate or appreciate. The rate of depreciation or
appreciation is the percentage change in the value of the dollar over a specified time period. In terms of
Exhibit 3.4, the euro/dollar exchange rate was e1.2665 = $1 on January 7, 2004 and e1.2064 = $1 on
January 7, 2006. Using the percentage change formula we can calculate the change in the value of the
dollar in terms of the euro:

Since the percentage change is negative, the dollar has depreciated by 4.75 percent against the euro
during
the January 2004–2006 period. We can see from Exhibit 4.5 that the dollar has appreciated with respect to
the remaining currencies, with the exception of the Canadian dollar, between January 2004 and January
2006.
Exchange Rates in the Business Context

To understand the importance of the foreign exchange rate of a currency, it would be useful to consider
the role of the dollar exchange rate in the business environment.

Illustrative Example

Let us imagine that an American firm exports hand tools to Europe. Let us further assume that the sale
price of each hand tool is $10 in the United States and the exchange rate is e1.1 = $1. Consequently, the
sale price in Europe is e11. If the exchange rate rose to e1.2 = $1, the sale price of the hand tool in the
United States would still be $10 and the American firm would have to raise the sale price from e11 to
e12. However, this implies that the sale price of the hand tool in Europe rises and the American firm
suffers a loss in sales.

If, on the other hand, the exchange rate falls to e0.95 = $1, the American firm can reduce the price of
the hand tool to e9.5. This means that the American firm acquires a competitive advantage and its sales
in Europe increase. Therefore, as a gene Conversely, American importers of European goods will have to
pay European suppliers in euros. The sale price of European goods in the United States will depend on
the price charged by European suppliers and on the euro/dollar exchange rate. For example, assume
that an American firm imports computers from Europe at a price of e500 per computer. If the exchange
rate were at e1 = $1, the firm would charge $500 per computer. In the case of a rise in foreign exchange
rate, say e1.2 = $1, the firm could afford a cut in the price of computers to $417. Consequently, as a
general rule, a high exchange rate reduces the dollar price of imported goods whereas a low exchange
rate increases the dollar price of imported goods. We can therefore say that a low exchange rate will
increase American exports and decrease imports (a trade surplus) whereas a high exchange rate will
decrease American exports and increase imports (a trade deficit).

• The above analysis implicitly assumed a spot exchange rate, that is the exchange rate at which
transactions are settled immediately (within two working days).

Also known as the nominal exchange rate. The nominal exchange rate can be:

1. Bilateral exchange rate (i.e., the exchange rate between two countries)

2. Effective exchange rate- The effective exchange rate as a measure takes into account the fact that the
dollar (or any currency) does not fluctuate evenly against all currencies. For example, the dollar may rise
against the euro but fall against the yen and pound sterling.

• Forward exchange rate refers to the rate on a contract to exchange currencies in 30, 60, 90, or 180
days Example. A firm, may sign a contract with a bank to buy, say, euros for US dollars 90 days from now
at a predetermined exchange rate, which is called the 90-day forward rate. Such forward contracts are
used to reduce exchange rate risk.

Exchange Rate Determination

The forces influencing the demand and supply of the dollar (or any other currency) include relative
national incomes, relative national price levels, interest rates, and expectations about the future value
of a currency. A change in some or all of these factors can cause the demand curve and/or the supply
curve of a currency to shift.

Relative National Incomes

From the standpoint of the United States, when income falls, as a result of a recession, the demand for
imports declines. Consequently, as Americans demand less imports, the supply of dollars falls (i.e., the
supply curve of dollars shifts to the left).

Relative Price Levels.

The demand for imports in the United States and foreign demand for US exports will also depend on the
price levels prevailing in the United States and abroad. If inflation is higher in the United States,
exporting becomes more difficult as foreign goods become comparatively cheaper.

Interest Rates

If the United States provides higher yields than comparable securities in, say, Europe, investors will sell
their assets denominated in euros and will buy dollar assets. To do this, they need to sell euros and buy
dollars. The demand curve for dollars will increase (i.e., shift rightward) and, other things being equal,
the dollar will appreciate.

Expectations.

Expectations about changes in the future value of a currency also exert a significant influence on
exchange rates.

Exchange Rate Regimes

Exchange rate

Inventories of foreign exchange to satisfy the needs of their retail customers. When a retail customer
purchases foreign exchange from a commercial bank, the bank’s inventories of foreign exchange are
depleted. When the customer sells foreign exchange, the bank’s inventories increase. If the many retail
sales and purchases were perfectly matched, there would be no net effect on the bank inventories of
foreign exchange. But since sales and purchases are imperfectly offsetting, the bank’s inventories move
above or below their desired level. This is the basis of an active market in foreign exchange among
commercial banks.

Commercial banks in the U.S. may trade foreign exchange directly with each other. More often, they rely
on interbank intermediaries called foreign exchange brokers. A broker is someone who “brings
together” a buyer and a seller, without taking a position in foreign exchange. That is, the broker simply
arranges the transaction for a fee. This fee is a spread between what a purchaser of foreign exchange
pays (the ask price) and what the seller of foreign exchange receives (the bid price).

• The price of a nation’s currency in terms of another currency.

• An exchange rate thus has two components, the domestic currency and a foreign currency.
• Three basic exchange rate regimes have operated during the twentieth century: fixed exchange rates,
flexible exchange rates, and managed exchange rates.

1. Fixed Exchange Rates

• This is where a Government maintains a given exchange rate over a period of time.

• This could be for a few months or even years.

• In order to maintain the exchange rate at the stated level government uses fiscal and monetary
policies to control aggregate demand.

Exhibit 3.5

Advantages of Fixed Exchange Rate

1. The risk and uncertainty of trade and promoting foreign direct investment (FDI) is reduced thus
making business and investment planning possible.

2. Reduced Currency Speculation.

3. Creates a stability in knowing the exchange rate

Disadvantages of Fixed Exchange Rate

1. Protecting the exchange rate requires domestic economic policies to be frequently adjusted. Monetary
policy focuses on keeping the rate stable.
2. Reserves are needed to protect the value.
3. An improvement in an economy’s competitiveness that results in lower prices will not be fully passed
on to export customers if the exchange rate remains unchanged.
4. Exchange rate may be undervalued or overvalued.

2. Flexible Exchange Rates

• A floating exchange rate regime is where the rate of exchange is determined purely by the demand
and supply of that currency on the foreign exchange market.
• The value of a currency is allowed to be determined by the forces of demand and supply on the
foreign exchange market.
• There is no government intervention
• Any change in supply or demand for a currency will cause a depreciation or appreciation in the
exchange rate.
• An increase in demand for the local currency causes it to appreciate or rise.
• However, if there is a greater demand for the foreign currency the value of the local currency falls
or depreciates to the foreign currency.
 Exhibit 3.6

Advantages
1. market determined, so it is more efficient
2. no need for reserves to intervene
3. exchange rate would reflect its true value
4. absorbs economic shocks better
5. freedom of government to pursue internal policies
6. Automatic BOP adjustment, less likelihood of a BOP crisis

Disadvantages
1. large depreciation may occur
2. instability of exchange has a negative impact on domestic economy
3. terms of trade may decline with fall in exchange rate
4. Uncertainty of currency
5. Speculation of currency
6. reduced investment as this would be too risky

Managed Exchange Rates

• An intermediate system, sometimes referred to as a “dirty float,” may be, and has been, used
whereby the monetary authorities intervene in varying degrees in order to influence the exchange
rate in the desired direction by the purchase and sale of foreign currencies.
• This is where the currency is broadly managed by the forces of demand and supply but the
government takes action to influence the rate of change in the exchange rate.
• The Central Bank seeks to stabilize the exchange rate within a predetermined range for a given
period of time, but DOES NOT FIX IT at any particular level. This allows for policy makers the
benefit of planning with some degree of certainty, for the macroeconomic affairs of a country.
• Central bank intervenes to smoothen out ups and downs in the exchange rate of home currency to
its own advantage.

Exhibit 3.7
Advantages
• The managed float attempts to combine the advantages of both the fixed and flexible exchange
rate systems, depending on the degree of instability.
• The less instability, the less intervention is necessary by central banks and they can pursue quasi
independent domestic monetary policies to stabilize their own economies.
• The greater the instability, the more intervention is necessary by central banks and the less free
they are to pursue independent domestic monetary policies because they are frequently required to
use their money supplies to calm disturbances in the foreign exchange markets

Disadvantages
• The big problem with a managed float comes in determining the timing and magnitude of the
instability and the necessary intervention.
• If the central banks are too quick to respond or if the amount of intervention is inappropriate, their
actions may be further destabilizing. This increased instability has a tendency to dampen
international flows and contract world trade. If they wait too long, permanent damage may be done
to some countries' trade and investment balances.
EFFECTS OF EXCHANGE RATE CHANGES

• Changes in the exchange rate will cause an Appreciation or Depreciation in the local currency as
explained earlier.
• If the currency is devalued then:
1. The price effect – goods become cheaper and imports become more expensive. The devaluation
worsens the BOP.
2. the volume effect – cheaper exports mean that more will be sold and less imports will be bought
thus improving the BOP.

• The devaluation worsens the current account balance initially, and then it improves. Reasons being: 
Time lag in consumer response – people may still want the expensive good. Consumers may be
concerned about the quality and quantity of the local good and may continue buying the foreign goods
in the short-run.
• Time lag in producer response – producers may take a long time to adapt to say changing their plant
size to accommodate the increase in demand.

INTERNATIONAL MONETARY FUND

The International Monetary Fund (IMF) is an organization of 186 countries, working to foster global
monetary cooperation, secure financial stability, facilitate international trade, promote high employment
and sustainable economic growth, and reduce poverty around the world.

The IMF works to foster global growth and economic stability. It provides policy advice and financing to
members in economic difficulties and also works with developing nations to help them achieve
macroeconomic stability and reduce poverty.

Key IMF Activities

The IMF supports its membership by providing:

• policy advice to governments and central banks based on analysis of economic trends and crosscountry
experiences;
• research, statistics, forecasts, and analysis based on tracking of global, regional, and individual
economies and markets;
• loans to help countries overcome economic difficulties;
• concessional loans to help fight poverty in developing countries; and
• technical assistance and training to help countries improve the management of their economies.

IMF Functions

The IMF's main goal is to ensure the stability of the international monetary and financial system. It helps
resolve crises, and works with its member countries to promote growth and alleviate poverty.

• Economic and Financial Surveillance: The IMF promotes economic stability and global growth by
encouraging countries to adopt sound economic and financial policies. To do this, it regularly
monitors global, regional, and national economic developments.
• Technical Assistance and Training: IMF offers technical assistance and training to help member
countries strengthen their capacity to design and implement effective policies. Technical assistance
is offered in several areas, including fiscal policy, monetary and exchange rate policies, banking
and financial system supervision and regulation, and statistics.
• IMF Lending: In the event that member countries experience difficulties financing their balance
of payments, the IMF is also a fund that can be tapped to facilitate recovery.
• Research and Data : Supporting all three of these activities is the IMF's economic and financial
research and statistics.

CHAPTER IV
INTERNATIONAL FINANCIAL MARKETS

Motives for Using International Financial Markets

The markets for real or financial assets are prevented from complete integration by barriers such as tax
differentials, tariffs, quotas, labor immobility, communication costs, cultural differences, and financial
reporting differences.

Yet, these barriers can also create unique opportunities for specific geographic markets that will attract
foreign investors.

Investors invest in foreign markets:

• to take advantage of favorable economic conditions;

• when they expect foreign currencies to appreciate against their own; and
• to reap the benefits of international diversification.

Creditors provide credit in foreign markets:

• to capitalize on higher foreign interest rates;
• when they expect foreign currencies to appreciate against their own; and
• to reap the benefits of international diversification.

Foreign Exchange Market

Foreign exchange is highly liquid assets denominated in a foreign currency. In principle these assets
include foreign currency and foreign money orders. However most foreign exchange transactions are
purchases and sales of bank deposits. A foreign exchange rate is the price of one nation’s currency in
terms of another.

When goods, services, or securities are traded internationally, the currency denomination of the payment
may be an issue. The most obvious role of the foreign exchange market is to resolve this issue. Suppose
for example that a US exporter of calculators to Mexico wishes to receive payment in dollars while the
importer possesses pesos with which to make payment. Transforming the pesos into dollars will generally
take place in the foreign exchange market.

• The foreign exchange market allows currencies to be exchanged in order to facilitate international
trade or financial transactions.
• The system for establishing exchange rates has evolved over time.
• From 1876 to 1913, each currency was convertible into gold at a specified rate, as dictated by the
gold standard.
• This was followed by a period of instability, as World War I began and the Great Depression
followed.
• The 1944 Bretton Woods Agreement called for fixed currency exchange rates.
• By 1971, the U.S. dollar appeared to be overvalued. The Smithsonian Agreement devalued the U.S.
dollar and widened the boundaries for exchange rate fluctuations from ±1% to ±2%.
• Even then, governments still had difficulties maintaining exchange rates within the stated
boundaries. In 1973, the official boundaries for the more widely traded currencies were eliminated
and the floating exchange rate system came into effect.
Different rates used in Foreign Exchange Market

We can also calculate an exchange rate between two currencies by using their respective exchange rates

with a common currency; the resulting rate is called a cross rate. Frequently, the need arises to obtain

the relationship (price) between two currencies from their relationship with (quotation in) a third
currency.  A spot transaction is the purchase of foreign exchange for immediate delivery (usually,
delivery is within the following two business days. Rate used for the spot transaction is spot rate.

The forward rate is the rate at which two parties agree to exchange currencies on a specified future
date. The rate is agreed upon at the time the contract is made, but payment and delivery are not
required until maturity. Forward maturities are normally 30, 60, 90, 180, 360 days in the future.
Maturities of one or two weeks are also common.

Forward premium: If the forward rate exceeds the existing spot rate (direct quotes) that forward rate
contains a premium.

Forward discount : If the forward rate is less than the spot rate, that forward rate contains a discount 

Bid Price: price at which a dealer will buy a currency.

Ask Price: price at which the dealer will sell a currency

Participants in foreign exchange market include;

1. Importers
2. Exporters
3. Portfolio managers
4. Commercial banks

• Brokers: Bring buyers and sellers together for a small commission thereby helping to preserve the
anonymity.
• Arbitragers: Seek to earn riskless profit from price differences in different foreign exchange markets.
Speculators: Buy and sell in the hope that a price change will result in a profit.
• Governments: Central Banks, Treasury Departments and other Government Agencies sometimes
participate in the market in order to influence the exchange rate of a particular currency
• Hedgers: Hedgers, mostly Multinational corporations, enter into forward contracts to protect domestic
currency value of foreign currency denominated asset and liabilities on their balance sheet.

Exhibit 4.1

Exchange Rates

We have been talking about the purchase and sale of foreign exchange. Of course, these transactions

must take place at some price. We call that price the exchange rate. That is, an exchange rate is the rate

at which two different monies trade for each other. In this book, an exchange rate is the number of units

of the domestic money required to purchase one unit of a foreign money. This type of exchange rate is

called a direct quote. 6 With this convention, an exchange rate is like any other price: the domestic

currency cost of a purchase.

For example, if an American must spend USD 0.95 to buy a Canadian dollar, the exchange rate is CAD

USD=0.95. The first currency in the pair is called the base currency. The second currency in the pair is
called the quote currency (or counter currency). So in this example, the base currency is the Canadian

dollar and the quote currency is the U.S. dollar. An exchange rate states how much of the quote
currency

you need to buy one unit of the base currency.

From the perspective of a Canadian facing the same relative price, it takes CAD 1.05 to buy a American

dollar, so the exchange rate is USD-CAD=1.05. Note that we have the three letter ISO codes to describe

the relationship between the Canadian dollar (CAD) and the U.S. dollar (USD).7 In this book, we shall
also

use the codes for the Euro (EUR), the British pound (GBP), and the Japanese yen (JPY).

Foreign Exchange Transactions

• There is no specific building or location where traders exchange currencies. Trading also occurs
around the clock.
• The market for immediate exchange is known as the spot market.
• The forward market enables an MNC to lock in the exchange rate at which it will buy or sell a
certain quantity of currency on a specified future date.
• Hundreds of banks facilitate foreign exchange transactions, though the top 20 handle about 50%
of the transactions.
• At any point in time, arbitrage ensures that exchange rates are similar across banks.
• Trading between banks occurs in the interbank market. Within this market, foreign exchange
brokerage firms sometimes act as middlemen.
The following attributes of banks are important to foreign exchange customers:
• competitiveness of quote
• special relationship between the bank and its customer
• speed of execution
• advice about current market conditions
• forecasting advice
Banks provide foreign exchange services for a fee: the bank’s bid (buy) quote for a foreign currency will
be less than its ask (sell) quote.
This is the bid/ask spread.
bid/ask % spread = ask rate – bid rate ask rate
Example: Suppose bid price for £ = $1.52, ask price = $1.60.
bid/ask % spread = (1.60–1.52)/1.60 = 5%
• The bid/ask spread is normally larger for those currencies that are less frequently traded.
• The spread is also larger for “retail” transactions than for “wholesale” transactions between banks
or large corporations.