Professional Documents
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BBA (603)
ASSIGNMENT
WINTER 2016-2017
Movement of capital
Flow of finance
Trade in goods and services
Through movement of human resource
For most of the economies of the world, globalization has led to a large
number of beneficial effects. There is also a section of people who believe
that globalization has only benefited economies whereas the developing
ones are still struggling with inequality and poverty. Thus, we see that
globalization can have both positive and negative impact on the economy
of a nation, its people and the organizations within a specific industry.
Q2. Compare the relationship between Current Account, Capital Account and
Official Reserve Account. Illustrate the concept of BoP Accounting.
Capital Account
The official reserve account, a part of the capital account, is the foreign
currency and securities held by the central bank of a country and used to
balance the payments from year-to-year. The reserves swell in case of trade
surplus and shrink when there is a deficit. At times, the central banks use it
to change the exchanges rate to what the government perceives as more
favorable.
Concept of BoP Accounting
Bid rate – It is the rate at which the dealers or market makers buy
currency from the dealers or markets makers buy currency from the
customers.
Ask rate – The rate at which the dealers or market sell currency.
Spread – Is the difference between the bid and ask rates. The spread
may vary from currency to currency and is more for the thinly-traded
currencies. The spread also varies between the retail and the wholesale
customers and is more for the retail customers since the volume of
transaction is low for them.
Q4. Explain the Foreign Direct Investment (FDI). Give the comparison between
American Depository Receipt (ADR) and Global Depository Receipt (GDR). Write
the categories for trade blocs.
GDR ADR
Instrument:
GAAP No GAAP compatibility Foreign companies have
required for foreign to reconcile with US
companies. GAAP standards.
Disclosure Detailed information is For US listing, a
required for listing but comprehensive disclosure
less complex as compared is required for F-1 (a US
to full equity. prospective).
Cost LSE listing is less NYSE listing, a more
expensive. Initial listing expensive. Initial listing
requirement may be requirement may be
between $ 2, 00,000-$4, between $ 10, 00,000-$
00,000. 20, 00,000.
Centre They are listed on LSE Are listed on NYSE
which is not as big as
NYSE but still it is a global
center for international
equities.
Retail Although 5,000 QIBs are US retail market can be
accessed, but assessed thus maximizing
participation of retail gains, in a US public
investors is not allowed. offering.
Trade bloc can either be a part of regional organization, say the European
Union, or standalone agreements between states (North American Free Trade
Agreement). Besides, based on the level of economic integration, trade blocs can
also be categorized as:
Q5. Write down the differences between GATT and WTO. Explain the problems
and achievements of GATT & WTO.
GATT WTO
GATT was a multilateral agreement WTO is a permanent institution with its
with a set of rules which were not own secretariat.
enforceable. It had no institutional
framework and very small secretariat.
It was applied on a provisional basis Its commitments are full and
initially and continued to be treated like permanent.
that even after 40 years of its existence.
GATT applied to only trade in WTO applies to both trade of
merchandise goods. merchandise goods and services and
also trade related aspects of Intellectual
Property Rights.
Agreements constituting GATT were All agreements are multilateral in
initially multilateral in nature but by nature and involve commitments by all
1980s many new agreements which members.
were pluri-lateral or of selective nature.
GATT disputes settlement was slower WTO disputes settlement is more
and with a lot of hurdles. automatic and faster than that that of
GATT.
GATT existed until 1995 as GATT 1994- WTO agreement still constitutes ‘GATT
which an updated version of GATT 1994’ focusing on disciplines regarding
1947. international trade.
It has led to gradual erosion of the most favored nation (MFN) principle
by European Union (EU) and to a lesser degree by NAFTA. As per article
14 of GATT, member countries could from an FTA.
GATT has critically managed trade for textiles due to pressure from the
US and automobiles (VERs). Since GATT was just a voluntary agreement
it could not be enforced if members violated the rules.
The establishment of WTO brought in a new trade order and world trade
expanded.
Many studies have proven that increased trade promotes peace. There
have been no world wars since 1948.
It led to trade liberalization of industrial products (as per the goal of
Kennedy Round).
GATT has over 100 members and has generated 85-90 percent of world
trade.
This type of arrangement is mostly risky for the buyer and least risky for the
seller. The most frequently cash-in-advance options available to the
exporter are credit cards and wire transfers. Especially, this type of
arrangement may not work with foreign buyers who may not be sure
whether the goods will be delivered after the payment is made in advance.
Therefore, often other terms as Face-on-Board may also be combined with
this type of payment option.
Letter of Credit (LC) is one of the methods trade payment while dealing
with unknown exporters or importers. LC is one of the most secured modes
of payment for international traders, especially when the foreign buyer’s
reliable credit worthiness of the importer’s bank. Through this method, the
specific performance of both the parties i.e. exporters and importers is
ensured. Also, the exporter is protected since payment is only made once
the goods are delivered or shipped as promised.