International Capital Movement
International business or international business has two parts – international trade and international capital. International capital (or international finance) studies the flow of capital across international financial markets and the impact of these movements on exchange rates. International capital plays a vital role in an open economy. In this era of liberalization and globalization, the flow of international capital, including intellectual capital, is vast and diverse among nations. Finance and technology (such as the Internet) as a factor of production, in particular through transnational corporations (transnational corporations) to obtain more liquidity. Foreign investment is even more important for emerging economies such as India. This is in line with the trend of international economic integration. Peter Drucker rightly said, "world investment rather than world trade will increasingly promote the international economy." Thus, the study of international capital flows is beneficial both in theory and in practice.
Implications of international capital
International capital flows are the financial aspects of international trade. Total international capital flows = international credit flows + international debit flows. It is the purchase or sale of financial or physical assets across international borders as measured in the financial account of the balance of payments
Type of international capital
International capital flows through direct and indirect channels. The main types of international capital are: (1) foreign direct investment (2) foreign investment portfolio (3) official flows, (4) commercial loans. These explanations are as follows:
Foreign direct investment
Foreign direct investment (FDI) refers to an investment made by an alien in another country, where the investor retains control over the investment, that is, the investor obtains a lasting interest in the enterprise of another country. Most specifically, it may take the form of purchasing or constructing a plant in a foreign country, or improving it in the form of property, plant or equipment. Thus, foreign direct investment can take the form of subsidiaries or the purchase of shares of foreign companies or the establishment of joint ventures abroad. The main feature of FDI is "investment" and "management" together.
According to the United Nations Conference on Trade and Development (UNCTAD), the global expansion of foreign direct investment is currently
Factors Determining Foreign Direct Investment – Return of Foreign Capital (Such as restrictions on repatriation), taxes and investment policies, trade policies and barriers (if any), and so forth.
The advantages of foreign direct investment are as follows.
1. It complements the meager domestic capital available for investment and helps build productive enterprises.
2. It creates jobs in different industries.
3. It promotes domestic production, as it is usually a package – money, technology and so on.
4. It increases world output.
5. It ensures rapid industrialization and modernization, especially through research and development.
6. It paves the way for internationalization of markets with global standards and quality assurance and performance-based budgeting.
7. It actively resources – money, manpower, technology.
8. It creates more and new infrastructures.
9. For the motherland, it is a good way to use it in a favorable foreign investment environment, such as a low tax system.
10. For the host country, foreign direct investment is a good way to improve the balance of payments position.
Some of the difficulties facing foreign direct investment flows are: convertibility of domestic currencies; financial problems and conflicts with host Governments; infrastructure bottlenecks, special policies; bias towards growth and political instability in host countries; Market bias (investments in high-margin or non-priority areas only); over-reliance on foreign technology; capital flight to host countries; over-flow of production factors; BoP problems; adverse effects on host country culture and consumption.
Foreign Investment Portfolio
Foreign portfolio investment (FPI) or lease investment is a class of investment instruments that are not part of a controlling interest in an enterprise. These include investments in equity instruments (equities) or debt (bonds) of foreign enterprises that do not necessarily represent long-term benefits. FPI comes from many different sources, such as pensions for small companies or through individual mutual funds (such as the Global Fund). The return on the FPI is usually in the form of interest payments or dividends. FPI may even be less than a year (short-term portfolio flows)
Differences between FDI and FPI can sometimes be difficult to discern, as they may overlap, especially in equity investments. The determinants of foreign securities are complex and diverse – the rate of growth of the national economy, the stability of the exchange rate, the stability of the foreign exchange market, the stability of the foreign exchange market, the stability of the foreign exchange market, and the stability of the foreign exchange market.
General macroeconomic stability, the level of foreign exchange reserves held by the central bank, the health of the foreign banking system, the liquidity of stock and bond markets, interest rates, repatriation of dividends and capital, capital gains tax, stock and bond markets, domestic The quality of the accounting and disclosure system, the speed and reliability of the dispute resolution system, and the degree of investor protection.
FPI has tightened its momentum, abolished financial market controls, increased foreign equity participation in sops, expanded liquidity, and online trading pools. The advantages of FPI are as follows.
1. It ensures the efficient use of resources by combining domestic and foreign capital in production enterprises
2. It avoids unnecessary discrimination between foreign and indigenous enterprises.
3. It has helped to achieve economies of scale by pooling foreign capital and local expertise
The drawback of FPI is that flows are often more difficult to determine because they include so many different tools, and because reports are often poor; threats to industry Of the "localization" and does not promise to promote exports. Official Procedures.
In international business, the term "official flows" refers to public (government) capital. This includes foreign aid. A country's governments can make loans through bilateral loans (ie intergovernmental flows) and multilateral loans (ie assistance from global consortia such as assistance to Indian clubs, club clubs in Pakistan, etc.) as well as from international organizations such as the International Monetary Fund, vocabulary, etc.)
Foreign assistance refers to "public development assistance" or official development assistance, including official grants and concessional loans in the form of cash (in money) and in kind (such as food aid, military
In the postwar period, aid became a major form of foreign capital for reconstruction and development activities, and emerging economies such as India benefited from foreign aid used in economic planning.
Foreign […] assistance in the form of foreign aid, ie, incidental assistance and unaccompanied assistance, which refers to the donor, ie the source of procurement, or the use of intelligence, ie project specific or bilateral. The advantages of aid are as follows.
1. It promotes employment, investment and industrial activities in recipient countries.
2. It helps poor countries get enough foreign exchange to pay for key imports.
3. Aid in kind can help deal with food crises, scarce technology, sophisticated machinery and tools, including defense equipment.
4. Aid helps donors make the best use of surplus funds: to create political friends and military allies, to achieve humanitarian and equality goals and other means.
Foreign aid has the following shortcomings.
1. Bundling reduces the choice of recipient countries to use capital in development processes and programs.
2. Too much aid leads to the problem of aid absorption.
3. Aid has the inherent problems of "dependence", "transfer" and "amortization".
4. Politically motivated aid is not only political but also bad.
5. Aid is always uncertain.
It is a sad fact that aid has become a (debt) trap in most cases. There should be more aid than trade. Fortunately, official development assistance (ODA) is losing importance every year. Commercial Loans
Until the 1980s, commercial lending was the largest source of foreign investment for developing countries. Since then, however, lending levels through commercial loans have remained relatively stable, while global foreign direct investment and foreign portfolio investment have increased substantially.
Commercial loans are also referred to as external commercial borrowing (ECB). They include commercial bank loans, buyer credits, supplier credits, securitization instruments such as floating rate notes and fixed-rate bonds, credit from official export credit agencies, and commercial lending companies from the private sector window of multilateral financial institutions such as international financial institutions, (IFC), the Asian Development Bank (ADB), joint venture partners. In India, the company was allowed to raise the ECB under prudent debt management in accordance with the Indian Government / PBoC policy guidelines. RBI can approve up to 10 million US dollars of ECB, the maturity of 3-5 years. ECB can not be used for stock market investment or real estate speculation.
Infrastructure and core sectors such as electricity, oil exploration, roads and bridges, industrial parks, urban infrastructure and telecommunications have been the main beneficiaries (about 50% allow). (Iii) the availability of funds from the international market compared to the domestic market; and (iii) the availability of funds from the international market compared to the domestic market; (ii) the cost of the fund is lower than the cost of the rupee fund; (Iv) the financial leverage or multiplier effect of the investment; (v) the easier form of hedging to raise capital, since swaps and futures can be used to manage interest rate risk; [v] the risk of capitalization; (I) default risk, bankruptcy risk, default risk, default risk, and market risk, and (ii) excessive interest rates increase the actual cost of borrowing and the debt burden that may reduce the company's exposure to the company's assets and / or its assets and / or liabilities.
, Which automatically increases the cost of borrowing, further leading to liquidity crunch and bankruptcy risk, and (iii) the effect of interest expense on income.
Private companies operate to minimize taxation, so the debt tax shield is less important to public companies because income is still falling.
Factors Influencing International Capital Flows
A number of factors influence or determine the flow of international capital. They are explained below.
1. interest rate
Those who save income are generally interest-induced. As Keynes rightly says, "interest is a reward for separating liquidity." Other things remain the same, with capital moving from countries with low interest rates to countries with high interest rates
Speculation is one of the motives for holding cash or liquidity, especially in the short term. Speculation includes expectations of changes in interest rates and exchange rates. If interest rates in a country are expected to decline, current capital inflows will rise. On the other hand, if interest rates are expected to rise in the future, capital inflows will decline.
3. Cost of production
If the cost of production in the host country is lower than in the home country, foreign investment in the host country will increase. For example, foreign low wages tend to shift production and factors (including capital) to low-cost sources and regions.
Profitability is the rate of return on investment. This depends on the marginal efficiency of capital, the cost of capital and the risks involved. Higher profitability attracts more capital, especially in the long run. Therefore, the international capital flow to high-profit areas faster
5. Bank interest rate
Bank interest rate is the rate at which the central bank provides financial leases to members of the banking system as a whole. Domestic credit will be squeezed when the central bank raises interest rates on banks in the economy. Domestic capital and investment will be reduced. So in order to meet the needs of capital, foreign investment will soon enter.
6. Business operation
Commercial Conditions The various stages of the business cycle affect the flow of international capital. Business (such as revival and prosperity) will attract more foreign capital, and economic downturns (such as recession and depression) will hinder or expel foreign capital
7. Business and economic policies
A commercial or trade policy refers to the import and export policies of a country's goods, services and capital. A country may have a free trade policy or a restrictive (protective) policy. In the former case, the elimination of tariffs, quotas, permits and other trade barriers. In the latter case, trade barriers are raised or retained. Free or free trade policies – such as today's time – create conditions for the free flow of global capital.
Economic policies on foreign exchange (such as foreign banks) and finance (such as multinational corporations and joint ventures), industrialization (such as special economic zones policies), banking (eg new generation / emerging economies) Direct investment policies), taxes (eg, tax holidays for EOUs, etc.) also affect international capital transfers. For example, liberalization and privatization promote industrial and investment activities.
8. General economic and political conditions
In addition to all commercial and industrial policies, a country's economic and political environment also affects the flow of international capital. The country's economic environment refers to internal factors such as market size, demographic dividend, infrastructure growth and availability, human resources and technology, economic growth rates, sustainable development, and political stability of good governance. Healthy political and economic environment conducive to the smooth flow of international capital
1. Internationalization of the world economy
2. For the backward economies – labor, the market
3. High – tech transfer
4. Rapid transition
5. Company / government high yield
6. The New Meaning of Consumer Sovereignty – Selection and Standardization (superioirites)
7. Economic growth in developing countries is faster
8. The problem of recession, non-priority production, cultural difficulties, etc.