Asia-Pacific Economic Cooperation (APEC) Overview

The Asia-Pacific Economic Cooperation (APEC) forum was established in 1989. Its primary purpose is to facilitate economic growth and prosperity in the region, with the vision of creating a seamless regional economy. APEC pursues these objectives through trade and investment liberalisation, business facilitation, and economic and technical cooperation. APEC aims to strengthen regional economic integration by removing impediments to trade and investment at the border, enhancing supply chain connectivity "ac ross the border" and improving the business environment "behind the border". It endeavours to improve the operating environment for business by reducing the cost of cross-border trade, improving access to trade information and simplifying regulatory and administrative processes. APEC also assists member economies build the institutional capacity to implement and take advantage of the benefits of trade and investment reform. APEC supports the multilateral trade negotiations underway in the WTO, and complements the goals of the G-20 Framework for Strong, Sustainable and Balanced Growth in the Asia-Pacific Region. Private sector engagement is central to APEC's success. The APEC Business Advisory Council (ABAC), established in 1995, represents the interests of business in APEC. ABAC is composed of up to three members from each of the 21 member economies, with business representatives appointed by APEC Leaders. The annual APEC CEO Summit and regular Industry Dialogues also provide opportunities for regional business leaders to interact with APEC and address key issues affecting business in the region.

Members
APEC has 21 members - referred to as 'member economies' - which account for more than a third of the world's population (2.6 billion people), approximately 60% of world GDP (US$19 254 billion) and about 47% of world trade. It also proudly represents the most economically dynamic region in the world, having generated nearly 70% of global economic growth in its first 10 years. APEC's 21 Member Economies are: Australia; Brunei Darussalam; Canada; Chile; People's Republic of China; Hong Kong, China; Indonesia; Japan; Republic of Korea; Malaysia; Mexico; New Zealand; Papua New Guinea; Peru; The Republic of the Philippines; The Russian Federation; Singapore; Chinese Taipei; Thailand; United States of America; Viet Nam.

History
APEC was established in 1989 to further enhance economic growth and prosperity for the region and to strengthen the Asia-Pacific community. APEC's Theme for 2004 was 'One Community, Our Future. This central theme was further developed by a series of sub -themes to guide APEC's working groups:

A commitment to development through trade Sharing benefits through better practices Skills for the coming challenges Opportunities for entrepreneurial growth

Growth and stability: key for APEC integration Commitment to sustainable growth Experiencing our diversity

For 2005, the Republic of Korea, the APEC host economy for the year, selected the theme 'Toward One Community: Meet the Challenge, Make the Change' to guide discussions throughout the year. Subthemes are:

Review the Commitment to the Bogor Goals Ensure Transparent and Secure Business Environment Build Bridge Over Differences.

Member Economies APEC has 21 members. The word 'economies' is used to describe APEC members because the APEC cooperative process is predominantly concerned with trade and economic issues, with members engaging with one another as economic entities.
Date of Joining

APEC Members

Australia Brunei Darussalam Canada Chile People's Republic of China Hong Kong, China Indonesia Japan Republic of Korea Malaysia Mexico New Zealand Papua New Guinea Peru The Philippines Russia Singapore Chinese Taipei

6-7 Nov 1989 6-7 Nov 1989 6-7 Nov 1989 11-12 Nov 1994 12-14 Nov 1991 12-14 Nov 1991 6-7 Nov 1989 6-7 Nov 1989 6-7 Nov 1989 6-7 Nov 1989 17-19 Nov 1993 6-7 Nov 1989 17-19 Nov 1993 14-15 Nov 1998 6-7 Nov 1989 14-15 Nov 1998 6-7 Nov 1989 12-14 Nov 1991

Thailand The United States Viet Nam

6-7 Nov 1989 6-7 Nov 1989 14-15 Nov 1998

EUROPEAN FREE TRADE ASSOCIATION (EFTA) The European Free Trade Association (EFTA) was established in 1960 by the Stockholm Convention (EFTA Convention). The original signatories were Denmark, Great Britain, Norway, Austria, Portugal, Sweden and Switzerland. Later, Iceland (1970), Finland (1986) and Liechtenstein (1991) joined. Denmark, Great Britain, Austria, Portugal, Sweden and Finland are no longer members of EFTA as they have since joined the European Union (EU). EFTA's current membership consists of Iceland, Liechtenstein, Norway and Switzerland. The Stockholm Convention establishes a free trade area for the movement of goods among the EFTA States under the terms of Article XXIV of the General Agreement on Tariffs and Trade (GATT). Contractual relations between the EFTA States were for a long time limited to trade in industrial products. The Convention was later supplemented by an economic integration agreement for the services sector according to Article V of the General Agreement on Trade in Services (GATS). On 21 June 2001 in Vaduz, the EFTA member States Iceland, Liechtenstein, Norway and Switzerland signed an agreement on the revision of the EFTA Convention. The sectorial agreements between Switzerland and the EU from 1999 ("Bilaterals I") served as a point of reference for the revision of the EFTA Convention. As a result, the EFTA founding provisions of 1960 were completely revised. The revised EFTA Convention establishes legal relations between Switzerland and the other EFTA States comparable to those contained in the seven bilateral agreements concluded between Switzerland and the EU in 1999. New provisions include, for example, the free movement of persons between Switzerland and the other EFTA States (with specific arrangements for the movement of persons between Switzerland and Liechtenstein). The Vaduz Agreement also added provisions regarding trade in services, movement of capital and protection of intellectual property. The Agreement amending the EFTA Convention came into force on 1 June 2002, at the same time as the seven sectorial agreements between Switzerland and the EU, signed in 1999. The EFTA Convention has been regularly amended since then, in particular in order to take into account the development in the bilateral relations between Switzerland and the EU (amendment of the bilateral sectorial agreements of 1999, conclusion of new agreements). The objective is to ensure, wherever possible, the parallel development of contractual relations among EFTA States and between EFTA States and the EU (bilateral agreements between Switzerland and the EU, EFTA Convention, European Economic Area).

Exchange rate
In finance, an exchange rate (also known as the foreign-exchange rate, forex rate orFX rate) between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one countrys currency in terms of another currency.[1] For example, an interbank exchange rate of 91 Japanese yen (JPY, ) to theUnited States dollar (US$) means that 91 will be exchanged for each US$1 or that US$1 will be exchanged for each 91. Exchange rates are determined in the foreign exchange market,[2] which is open to a wide range of different types of buyers and sellers where currency trading is continuous: 24 hours a day except weekends, i.e. trading from 20:15GMT on Sunday until 22:00 GMT Friday. The spot exchange rate refers to the current exchange rate. The forward exchange rate refers to an exchange rate that is quoted and traded today but for delivery and payment on a specific future date. In the retail currency exchange market, a different buying rate and selling rate will be quoted by money dealers. Most trades are to or from the local currency. The buying rate is the rate at which money dealers will buy foreign currency, and the selling rate is the rate at which they will sell the currency. The quoted rates will incorporate an allowance for a dealer's margin (or profit) in trading, or else the margin may be recovered in the form of a "commission" or in some other way. Different rates may also be quoted for cash (usually notes only), a documentary form (such as traveller's cheques) or electronically (such as a credit card purchase). The higher rate on documentary transactions is due to the additional time and cost of clearing the document, while the cash is available for resale immediately. Some dealers on the other hand prefer documentary transactions because of the security concerns with cash.

[edit]Retail

exchange market

People may need to exchange currencies in a number of situations. For example, people intending to travel to another country may buy foreign currency in a bank in their home country, where they may buy foreign currency cash, traveller's cheques or a travel-card. From a local money changer they can only buy foreign cash. At the destination, the traveller can buy local currency at the airport, either from a dealer or through an ATM. They can also buy local currency at their hotel, a local money changer, through an ATM, or at a bank branch. When they purchase goods in a store and they do not have local currency, they can use a credit card, which will convert to the purchaser's home currency at its prevailing exchange rate. If they have traveller's cheques or a travel card in the local currency, no currency exchange is necessary. Then, if a traveller has any foreign currency left over on their return home, may want to sell it, which they may do at their local bank or money changer. The exchange rate as well as fees and charges can vary significantly on each of these transactions, and the exchange rate can vary from one day to the next. There are variations in the quoted buying and selling rates for a currency between foreign exchange dealers and forms of exchange, and these variations can be significant. For example, consumer exchange rates used by Visa and MasterCard offer the most favorable exchange rates available, according to a Currency Exchange

Study conducted by CardHub.com.[3] This studied consumer banks in the U.S., and Travelex, showed that the credit card networks save travellers about 8% relative to banks and roughly 15% relative to airport companies.[3]

[edit]Quotations
A currency pair is the quotation of the relative value of a currency unit against the unit of another currency in the foreign exchange market. The quotation EUR/USD 1.2500 means that 1 Euro is exchanged for 1.2500 US dollars. There is a market convention that determines which is the base currency and which is the term currency. In most parts of the world, the order is: EUR GBP AUD NZD USD others. Accordingly, a conversion from EUR to AUD, EUR is the base currency, AUD is the term currency and the exchange rate indicates how many Australian dollars would be paid or received for 1 Euro. Cyprus and Malta which were quoted as the base to the USD and others were recently removed from this list when they joined the Euro. In some areas of Europe and in the non-professional market in the UK, EUR and GBP are reversed so that GBP is quoted as the base currency to the euro. In order to determine which is the base currency where both currencies are not listed (i.e. both are "other"), market convention is to use the base currency which gives an exchange rate greater than 1.000. This avoids rounding issues and exchange rates being quoted to more than 4 decimal places. There are some exceptions to this rule e.g. the Japanese often quote their currency as the base to other currencies. Quotes using a country's home currency as the price currency (e.g., EUR 0.735342 = USD 1.00 in the euro zone) are known as direct quotation or price quotation (from that country's perspective)[4] and are used by most countries. Quotes using a country's home currency as the unit currency (e.g., EUR 1.00 = USD 1.35991 in the euro zone) are known as indirect quotation or quantity quotation and are used in British newspapers and are also common in Australia, New Zealand and theeurozone. Using direct quotation, if the home currency is strengthening (i.e., appreciating, or becoming more valuable) then the exchange rate number decreases. Conversely if the foreign currency is strengthening, the exchange rate number increases and the home currency isdepreciating. Market convention from the early 1980s to 2006 was that most currency pairs were quoted to 4 decimal places for spot transactions and up to 6 decimal places for forward outrights or swaps. (The fourth decimal place is usually referred to as a "pip"). An exception to this was exchange rates with a value of less than 1.000 which were usually quoted to 5 or 6 decimal places. Although there is no fixed rule, exchange rates with a value greater than around 20 were usually quoted to 3 decimal places and currencies with a value greater than 80 were quoted to 2 decimal places. Currencies over 5000 were usually quoted with no decimal places (e.g. the former Turkish Lira). e.g. (GBPOMR : 0.765432 - : 1.4436 - EURJPY : 165.29). In other words, quotes are given with 5 digits. Where rates are below 1, quotes frequently include 5 decimal places.

In 2005 Barclays Capital broke with convention by offering spot exchange rates with 5 or 6 decimal places on their electronic dealing platform.[5] The contraction of spreads (the difference between the bid and offer rates) arguably necessitated finer pricing and gave the banks the ability to try and win transaction on multibank trading platforms where all banks may otherwise have been quoting the same price. A number of other banks have now followed this system.

[edit]Exchange

rate regime

Each country, through varying mechanisms, manages the value of its currency. As part of this function, it determines the exchange rate regime that will apply to its currency. For example, the currency may be freefloating, pegged or fixed, or a hybrid. If a currency is free-floating, its exchange rate is allowed to vary against that of other currencies and is determined by the market forces of supply and demand. Exchange rates for such currencies are likely to change almost constantly as quoted on financial markets, mainly by banks, around the world. A movable or adjustable peg system is a system of fixed exchange rates, but with a provision for the devaluation of a currency. For example, between 1994 and 2005, the Chinese yuan renminbi (RMB) was pegged to the United States dollar at RMB 8.2768 to $1. China was not the only country to do this; from the end of World War II until 1967, Western European countries all maintained fixed exchange rates with the US dollar based on the Bretton Woods system. [1] But that system had to be abandoned due to market pressures and speculations in the 1970s in favor of floating, market-based regimes. Still, some governments keep their currency within a narrow range. As a result currencies become overvalued or under-valued, causing trade deficits or surpluses.

[edit]Fluctuations

in exchange rates

A market-based exchange rate will change whenever the values of either of the two component currencies change. A currency will tend to become more valuable whenever demand for it is greater than the available supply. It will become less valuable whenever demand is less than available supply (this does not mean people no longer want money, it just means they prefer holding their wealth in some other form, possibly another currency). Increased demand for a currency can be due to either an increased transaction demand for money or an increased speculative demand for money. The transaction demand is highly correlated to a country's level of business activity, gross domestic product (GDP), and employment levels. The more people that are unemployed, the less the public as a whole will spend on goods and services. Central banks typically have little difficulty adjusting the available money supply to accommodate changes in the demand for money due to business transactions. Speculative demand is much harder for central banks to accommodate, which they influence by adjusting interest rates. A speculator may buy a currency if the return (that is the interest rate) is high enough.

In general, the higher a country's interest rates, the greater will be the demand for that currency. It has been argued[by whom?] that such speculation can undermine real economic growth, in particular since large currency speculators may deliberately create downward pressure on a currency by shorting in order to force that central bank to buy their own currency to keep it stable. (When that happens, the speculator can buy the currency back after it depreciates, close out their position, and thereby take a profit.)[citation needed] For carrier companies shipping goods from one nation to another, exchange rates can often impact them severely. Therefore, most carriers have a CAF charge to account for these fluctuations.[6][7]

[edit]Purchasing

power of currency

The "real exchange rate" (RER) is the purchasing power of a currency relative to another. It is based on the GDP deflator measurement of the price level in the domestic and foreign countries ( ), which is

arbitrarily set equal to 1 in a given base year. Therefore, the level of the RER is arbitrarily set depending on which year is chosen as the base year for the GDP deflator of two countries. The changes of the RER are instead informative on the evolution over time of the relative price of a unit of GDP in the foreign country in terms of GDP units of the domestic country. If all goods were freely tradable, and foreign and domestic residents purchased identical baskets of goods, purchasing power parity (PPP) would hold for the GDP deflators of the two countries, and the RER would be constant and equal to one.

[edit]Bilateral

vs. effective exchange rate

Bilateral exchange rate involves a currency pair, while an effective exchange rate is a weighted average of a basket of foreign currencies, and it can be viewed as an overall measure of the country's external competitiveness. A nominal effective exchange rate (NEER) is weighted with the inverse of the asymptotic trade weights. A real effective exchange rate (REER) adjusts NEER by appropriate foreign price level and deflates by the home country price level. Compared to NEER, a GDP weighted effective exchange rate might be more appropriate considering the global investment phenomenon.

[edit]Uncovered

interest rate parity

Uncovered interest rate parity (UIRP) states that an appreciation or depreciation of one currency against another currency might be neutralized by a change in the interest rate differential. If US interest rates increase while Japanese interest rates remain unchanged then the US dollar should depreciate against the Japanese yen by an amount that preventsarbitrage (in reality the opposite, appreciation, quite frequently happens in the short-term, as explained below). The future exchange rate is reflected into the forward exchange rate stated today. In our example, the forward exchange rate of the dollar is said to be at a discount because it buys fewer Japanese yen in the forward rate than it does in the spot rate. The yen is said to be at a premium. UIRP showed no proof of working after the 1990s. Contrary to the theory, currencies with high interest rates characteristically appreciated rather than depreciated on the reward of the containment of inflation and a higher-yielding currency.

[edit]Balance

of payments model

This model holds that a foreign exchange rate must be at its equilibrium level - the rate which produces a stable current accountbalance. A nation with a trade deficit will experience reduction in its foreign exchange reserves, which ultimately lowers (depreciates) the value of its currency. The cheaper currency renders the nation's goods (exports) more affordable in the global market place while making imports more expensive. After an intermediate period, imports are forced down and exports rise, thus stabilizing the trade balance and the currency towards equilibrium. Like PPP, the balance of payments model focuses largely on trade-able goods and services, ignoring the increasing role of global capital flows. In other words, money is not only chasing goods and services, but to a larger extent, financial assets such as stocks andbonds. Their flows go into the capital account item of the balance of payments, thus balancing the deficit in the current account. The increase in capital flows has given rise to the asset market model.

[edit]Asset

market model

The expansion in trading of financial assets (stocks and bonds) has reshaped the way analysts and traders look at currencies. Economic variables such as economic growth, inflation and productivity are no longer the only drivers of currency movements. The proportion of foreign exchange transactions stemming from cross border-trading of financial assets has dwarfed the extent of currency transactions generated from trading in goods and services.[8] The asset market approach views currencies as asset prices traded in an efficient financial market. Consequently, currencies are increasingly demonstrating a strong correlation with other markets, particularly equities. Like the stock exchange, money can be made (or lost) on the foreign exchange market by investors and speculators buying and selling at the right (or wrong) times. Currencies can be traded at spot and foreign exchange options markets. The spot market represents current exchange rates, whereas options are derivatives of exchange rates

[edit]Manipulation

of exchange rates

Countries may gain an advantage in international trade if they manipulate the value of their currency by artificially keeping its value low, typically by the national central bank engaging in open market operations. It is argued[by whom?] that the People's Republic of China has succeeded in doing this over a long period of time. In 2010, other nations, including Japan and Brazil, attempted to devalue their currency in the hopes of subsidizing cheap exports and bolstering their ailing economies. A low exchange rate lowers the price of a country's goods for consumers in other countries but raises the price of goods, especially imported goods, for consumers in the manipulating country.[9

S.No. (1)

Foreign Currency (2)

SCHEDULE-I Rate of exchange of one unit of foreign currency equivalent to Indian rupees (3) (a) (For Imported Goods) (b) (For Export Goods) 55.55 140.90 52.60 9.40 70.45 7.00 62.05 186.75 45.00 9.45 81.85 43.45 5.85 14.15 8.45 57.35 14.45 54.20

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. S.No. (1)

Australian Dollar Bahrain Dinar Canadian Dollar Danish Kroner EURO Hong Kong Dollar Kenya Shilling Kuwait Dinar New Zealand Dollar Norwegian Kroner Pound Sterling Singapore Dollar South African Rand Saudi Arabian Riyal Swedish Kroner Swiss Franc UAE Dirham US Dollar Foreign Currency (2)

56.95 149.30 53.95 9.75 72.25 7.10 65.90 198.25 46.20 9.75 83.85 44.50 6.25 15.00 8.70 58.85 15.30 55.15

SCHEDULE-II Rate of exchange of 100 units of foreign currency equivalent to Indian rupees (3) (a) (b) (For Export Goods) 57.90 (For Imported Goods) 59.45

1.

Japanese Yen

Management of Risks in International markets

Risk is a fact of business life, more so of international business. What is more due to increasing complexities of business, the number and variety of risks are increasing. What is needed for the success of business, as also of international business is the ability to evaluate carefully the risks involved and then try to cover them if possible. Experienced businessmen are aware of the risks involved in business and, instinct, they try to minimize their risks. For example, Indian exporters usually begin with exporting to nearby countries or to countries having a substantial number of Indian settlers there. So also they prefer to go to English-speaking countries. Every businessman prefers to export to safer countries rather than to unsafe ones. In this respect developed countries are considered to be less risky than the developing countries. Two points may be noted in this connection: (1) Competition is the keenest in markets consider safe and is virtually non-existent in so called unsafe markets, (2) Nobody can foresee which countries are to be risky. Countries once considered safe may become absolutely unsafe. In international marketing assumption of risks is often, though not always, voluntary. In the initial stages a policy of risks avoidance is followed but it is not always possible to do so and a firm must be prepared to accept progressively greater risks. The various types of risks that an international marketer may face can be divided into the following categories: 1. Commercial risks 2. Political arising out of foreign laws 3. Cargo risk 4. Credit risk 5. Exchange fluctuations risk We shall discuss each of these risks separately. Commercial Risks Among commercial risks be included the risks arising from suitability of the product for the market or otherwise, change general, it may be said that the export trade is more risky than the domestic trade.

Commercial risks due to (1) lack of knowledge, (2) inability to adapt to the environment, (3) different kinds off situations to be dealt with, and (4) greater transit time involved. The exporter is unlikely to know as much about the foreign market as he does about his own. He does not have adequate about the foreign market as he does about his own. He does not have adequate information about the market or does he have the same feel about the foreign market as the domestic market. Distances involved are usually greater and hence the transit time is longer. In case goods are not sold, he might have to bring the goods back (involving additional freight costs) or be prepared to sell them at lower prices. Changes in exchange rates, either of the countrys currency or for foreign currencies might seriously affect the countrys competitive capacity. For most of the commercial risks there is no possibility of shifting the risk to professional risks bearers and the exporting firms would have to bear these risks themselves. However, these risks can be reduced by the application of forecasting techniques as also by keeping a watch on the changing business conditions in the countries concerned as also of the international economy as a whole. What is needed is to be prepared for any adverse changes and take corrective action as soon as possible when the situation so warrants. Political Risk: Political risk may arise as a result of changes in party to power in the countries concerned coups, civil wars, rebellions, wars between two countries or among many countries capture of cargo by enemy etc. Political risks could be avoided /reduced to some extent by judicious selection of countries. Insurance companies may agree to provide cover for some of these risks on payment of additional premium. Some of the risks are also covered by the Export Credit Guarantee Corporation. Legal Risks: Commercial laws may be different in the two countries. Moreover, conducting legal proceedings in a foreign country is complicated and expensive. The major risks can be taken care of by stipulating in the contract itself which law will apply and who will be the arbitrator in case of disputes. But even then the risks remain and have to be assessed as part of the total risks situation.

Managing Risk in International Business

Managing risk in international business is crucial in an increasingly globalized business environment. The business should employ risk mitigating policies and strategies to ensure that its interests are safeguarded when it engages in international business transactions.

Risk Management in Global Trade

Managing risk in international business and trade can be more challenging than in the domestic market. The geographical distance, the gap between cultures and languages, different local rules and regulations, and different political and economic climates of each country, add an element of uncertainty to international business. However, in an increasingly globalized world, it is difficult to remain immune from international markets and confine the scope of business only to the home country. Therefore, the best approach is to take measures to mitigate risk as far as possible, and understand the nuances of international trade and business for profit maximization.

Customer or Supplier Reliability Risk

The international customer or vendor may be an unknown entity, and it may be difficult to verify their credibility and trustworthiness. So it can be a risky proposition to deal with unverified international business associates. A safer way is to deal only with internationally recognized or reputed foreign entities, as a matter of business policy. Another alternative is that before going ahead with a business transaction with an unknown party, its credentials may be verified through the commercial division of the local embassy in that country, or through banks or local chamber of commerce.

Payment Guarantee Risk

If the business needs to import certain goods from a foreign supplier, any advance payments before the delivery of the consignment may be risky. This is particularly true if the business is dealing with an unknown foreign entity for the first time. One of the best ways of managing risk in international business in such a situation, is to use the international Letter of Credit as a payment instrument, instead of transferring cash from the bank. With the letter of credit, the other party will be able to cash the payment only when they have actually produced and delivered the goods.

Risk of the Quantity and Quality of Goods

Even if the payment is made through a letter of credit, the risk of the actual physical quantity and quality of the shipped cargo still remains. This risk can be managed by appointing an internationally reputed neutral inspection agency to check the cargo, before it is loaded for shipment. The costs of such inspection may be high, but these costs must be incorporated in the pricing beforehand. This method ensures that the correct quantity and quality of material is shipped from the foreign port.

Timely Delivery and Shipping Risks

There must be a clause in the letter of credit, stipulating a delivery deadline. If this deadline is not adhered to, the business gets the right to reject the shipment, or impose a penalty for delayed shipment. It may also include a penalty clause for opportunity loss, which may occur to the business due to failed or delayed delivery. Furthermore, the cargo must be insured port-to-port, or door-to-door, to ensure its safety during transit.

Customs and Country Risks

The political, economic and social conditions in the foreign country are external risk factors which cannot be controlled. This is an inherent risk in international business which is unavoidable. However, a safe approach may be to deal with countries that have a good record of political, social and economic stability. The customs laws and regulations also differ from one country to another. Therefore, the business should acquire proper knowledge of the foreign countrys local laws to ensure it does not violate any laws out of ignorance.

Currency Fluctuation Risks

Foreign exchange fluctuations are also a macro economic risk factor that cannot be controlled. The business can try to manage this risk by dealing only in internationally stable currencies, or exclusively in the U.S. dollar. But in cases where it is necessary to deal in foreign currency, the pricing of the transaction must cover for any potential lower margins arising out of an unfavorable currency fluctuation. With these risk management strategies in place, the business can hedge itself sufficiently against managing risk in international business.

Risks in International Business

Just as there are reasons to get into global markets, and benefits from global markets, there are also risks involved in locating companies in certain countries. Each country may have its potentials; it also has its woes that are associated with doing business with major companies. Some of the rogue countries may have all the natural minerals but the risks involved in doing business in those countries exceed the benefits. Some of the risks in international business are: (1) Strategic Risk (2) Operational Risk (3) Political Risk (4) Country Risk (5) Technological Risk (6) Environmental Risk (7) Economic Risk (8) Financial Risk (9) Terrorism Risk

Strategic Risk: The ability of a firm to make a strategic decision in order to respond to the forces that are a source of risk. These forces also impact the competitiveness of a firm. Porter defines them as: threat of new entrants in the industry, threat of substitute goods and services, intensity of competition within the industry, bargaining power of suppliers, and bargaining power of consumers. Operational Risk: This is caused by the assets and financial capital that aid in the day-to-day business operations. The breakdown of machineries, supply and demand of the resources and products, shortfall of the goods and services, lack of perfect logistic and inventory will lead to inefficiency of production. By controlling costs, unnecessary waste will be reduced, and the process improvement may enhance the lead-time, reduce variance and contribute to efficiency in globalization. Political Risk: The political actions and instability may make it difficult for companies to operate efficiently in these countries due to negative publicity and impact created by individuals in the top government. A firm cannot effectively operate to its full capacity in order to maximize profit in such an unstable country's political turbulence. A new and hostile government may replace the friendly one, and hence expropriate foreign assets. Country Risk: The culture or the instability of a country may create risks that may make it difficult for multinational companies to operate safely, effectively, and efficiently. Some of the country risks come from the governments' policies, economic conditions, security factors, and political conditions. Solving one of these problems without all of the problems (aggregate) together will not be enough in mitigating the country risk. Technological Risk: Lack of security in electronic transactions, the cost of developing new technology, and the fact that these new technology may fail, and when all of these are coupled with the outdated existing technology, the result may create a dangerous effect in doing business in the international arena. Environmental Risk: Air, water, and environmental pollution may affect the health of the citizens, and lead to public outcry of the citizens. These problems may also lead to damaging

INTERNATIONAL MONETARY FUND :International Monetary Fund was established in 1947. Following were the main objectives of this fund. 1. To promote exchange rate stability among the different countries. 2. To make an arrangement of goods exchange between the countries. 3. To promote short term credit facilities to the member countries. 4. To assist in the establishment of International Payment System. 5. To make the member countries balance of payment favourable.

6. To facilitate the foreign trade. 7. To promote The international monetary corporation. Management Of Fund :The twelve member executive committee manages the affairs of IMF. Five members are the representatives of U.K, U.S.A, China, France and India. The remaining are elected by the other members countries. Its head office in in U.S.A. Source Of IMF :The initial capital of IMF was 8.5 billion dollar which was contributed by the 49 members. The quota of each member country was fixed in proportion to the national income and volume of foreign trade. Every country was required to pay in the form of gold and domestic currency.

FUNCTIONS OF IMF FUND

1. Merchant Of Currencies :IMF main function is to purchase and sell the member countries currencies. 2. Helpful For The Debtor Countries :If any country is facing adverse balance of payment and facing the difficulty to get the currency of creditor country, it can get short term credit from the fund to clear the debt. The IMF allows the debtor country to purchase foreign currency in exchange for its own currency upto 75% of its quota plus an addition 25% each year. The maximum limit of the quota is 200% in special circumstances. 3. Declared Of Scarce Currency :If the demand of any particular country currency increases and its stock with the fund falls below 75% of its quota, the IMF can declare it scare. But IMF also tries to increase its supply by these methods. 1. Purchasing :- IMF purchases the scare currency by gold. 2. Borrowing :- IMF borrows from those countries scare currency who has surplus amount. 3. Permission :- IMF allows the debtor countries to impose restrictions on the imports of creditor country. 4. To promote exchange stability :- The main aim of IMF is to promote exchange stability among the member countries. So it advises the member countries to conduct exchange transactions at agreed rates. On the other hand one country can change the parity of the currency without the consent of the IMF but it should not be more than 10%. If the changes are on large scale and IMF feels that according the circumstances of the country these are essential then it allows. The country can not change the exchange rate if IMF does not allow.

5. Temporary aid for the devalued currency :- When the devaluation policy is indispensable or any country then IMF provides loan to correct the balance of payment of that country. 6. To avoid exchange depreciation :- IMF is very useful to avoid the competitive exchange depreciation which took place before world war 2.