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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?
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