: SUBMITTED TO:Dr. Sudhanshu Pandia

C.S.J.M.UNIVERSITY, KANPUR

Institute Of Business Management

1. Jyoti Pandey

2. Pawan Kumar

3. Anurag Katiyar

4. Shubham Yadav

GROUP - 11

International Indebtedness

Concept Of CAC

Pros And Cons Of CAC

Innovation In International Financial

instruments

NAME TOPICS

INTERNATIONAL INDEBTEDNESS

CONCEPT :

The debt one government owes to a foreign government or corporation.

Foreign debt may occur when one buys the debts securities issued by another government.

While foreign debt can be advantageous because it may allow a country to finance its development or other government functions.

A government owing too much foreign debt (or too much debt generally) may find itself beholden to another country. It is also called external debt or international debt.

TYPES OF DEBTLong term and short term debt

Individual debt and foreign

debt(external debt)

Multilateral and

Bilateral Debt

Sovereign (Government)

and Non-Sovereign

(Non-Government)

debt

LONG AND SHORT-TERM DEBT

One way of classifying external debt is the two-way scheme based on duration-long and short-term.Long term debt is defined as debt with an original maturity of more than one year, while short term debt is defined as debt repayments on demand or with an original maturity of one year or less.

EXTERNAL DEBT

Gross external debt, is a stock variable and is measured at a point in time. External debt is defined as “the outstanding amount of those actual current, and not contingent, liabilities that require payment(s) of principal and/or interest by the debtor at some point(s) in the future and that are owed to non-residents by residents of an economy” {External Debt Statistics - Guide for Compilers and Users, International Monetary Fund (IMF), 2003}.

Multilateral and Bilateral Debt

Multilateral creditors are primarily multilateral institutions such as the International Development Association (IDA), International Bank for Reconstruction and Development (IBRD), Asian Development bank (ADB) etc.

Bilateral creditors are sovereign countries with whom sovereign and non-sovereign entities enter into one-to-one loan arrangements. Some of India’s bilateral creditors who extend loans to both sovereign and non-sovereign debtors include Japan, Germany, United States, France, Netherlands and Russian Federation.

Sovereign (Government) and Non-Sovereign (Non-Government) debt

Sovereign debt includes (i) external debt outstanding on account of loans received by Government of India under the ‘external assistance’ programme, and civilian component of Rupee Debt; (ii) other Government debt comprising borrowings from IMF, defence debt component of Rupee debt as well as foreign currency defence debt and (iii) FII investment in Government Securities.

Non-sovereign includes the remaining components of external debt.

Top Ten Reasons for Developing Nations Debt

Colonialism

Poverty

Lack of infrastructure

Incapable/Untrained/Greedy leaders

Misguided use of funds

Military regimes

Uneducated workforce

Un payable principles

Uncontrolled population

The International Investment Position

If a country runs a current account deficit, it borrows from

abroad and increases its indebtedness

If a country runs a current account surplus, it lends to

foreigners and reduces its overall indebtedness

International investment position =

domestically owned foreign assets – foreign owned

domestic assets

CURRENT ACCOUNT

Current account balance: measures all current, non-capital transactions between a nation and the rest of the world

Current account has three main components: Goods and services =

the value of goods and services exported – the value of imports

Investment income = income from investments abroad – income paid to

foreigners on their U.S. investments Unilateral transfers =

any foreign aid or other transfers received by foreigners – that given to foreigners

The International Investment Position (cont.)

A positive international investment position = the

home country could sell all its foreign assets and

have more than enough revenue to purchase all the

domestic assets owned by foreigners.

In 2001, the U.S. international investment position =

$6,891 billion – $9,206 billion = –$2,315 billion

International financial flows, debt and equity combined, totaled $1,184 billion in 2013, 11 percent higher than 2012. The increase was driven by the 28 percent rise in net debt flows.

International Debt Statistics 2015 presents data and analysis on the external debt of developing countries for 2013.

1. Net debt flows to developing countries increased to $542 billion in 2013, an increase of 28 percent over the comparable 2012.

2. However, the aggregates are heavily impacted by the rise in net debt flows to China, which jumped to $139 billion, four times their 2012 level.

3. Net debt flows to developing countries, excluding China, were $403 billion, only 3 percent higher than in 2012.

4. External debt burdens in developing countries remained moderate. The ratio of external debt to GNI averaged 23 percent in 2013, and the ratio of external debt to exports averaged 79 percent. International reserves stood at 111 percent of external debt stocks.

5. Countries reporting to the QEDS confirm that external debt levels in high-income countries are, on average, much higher than in developing countries, but they have moderated somewhat in 2013.

CAPITAL ACCOUNT CONVERTIBILITY

Implies progressive integration of the domestic financial system withinternational financial flows.Regarded as one of the hallmarks of a developed economy. Signalsopenness of the economyComfort factor for overseas investors. Encourages global capital flows into the countryIndian businesses - access to cheaper external credit (Global rates +Country risk) - without having to ask permission of the RBI.High Risk – High Gain – Good Times – Chance of huge inflows of foreign capital; Bad times – Chance of an enormous outflow of capitalChance of “export of domestic savings” - for capital scarce developing countries this could curb domestic investmentExposes an economy to extreme volatility on account of “hot money”flows

Increases competition and reduces inefficiency; aids price discovery

Allows access to funds at global rates (plus country risk)

Disciplines domestic policy and exchange rate monitoring.

Integrates economy to global trade and capital flows.

Capital controls ineffective with open trade, human movement.

Natural direction of evolution for Developing economies (globalization)

PROS OF CAC

Cons of CAC

No evidence linking improved growth to CAC (Bhagwati, Rodrik, Stiglitz)

Increases vulnerability to herd behavior, contagion, sentiment.

Downside exceeds upside – High Risk, High/Moderate Gain.

Reduces monetary, exchange rate autonomy for a nation.

INNOVATION IN INTERNATIONAL

FINANCIAL INSTRUMENTS

Innovation ?• Innovation can be

Continuous Disruptive

• Innovation in

Product Service Process Ideas Technologies

Why we don’t innovate ? Unproven business care

• Risk• fear

No need Barrier to entry

• IT investment• Cost of capital and credit• Getting customer to switch

Purpose of Innovation Different Type of Credit Control and Macro-

level Liquidity Management

Matching Cash Flow Requirement of the Fund Raiser

Satisfying other Objectives like Retaining Management Control

Better Treasury Management

“We will fight our battles not on the low road to commoditization, but on the high road of innovation.”

Howard Stringer, Chairman & CEO, Sony Corporation

Oct. 4, 2005

“Government support for scientific research is not enough. We also need to make sure that scientific innovation gets translated into applied uses in business.”

U.K. Prime MinisterTony Blair

"Constant reinvention is the central necessity at GE... We're all just a moment away from commodity hell.“

Jeffrey ImmeltChairman and CEO, GE

“More and more CEOs are adopting an innovation agenda.”

Sam Palmisano, IBM CEO

“Electronics Industry Lacks Innovation, Philips CEO Charges”

EE Times, Sept. 27, 2005

“Continuous innovation and the full, unfettered expression of human capacity are indispensable to Japan's economic rebirth and revitalization.”

Japanese Prime MinisterJunichiro Koizumi

“Innovation is an essential component of corporate survival.”

Anne GoldenPresident and CEO

Conference Board of Cda

Source: IBM

Innovation has become an important part of the agenda for senior public and private sector leaders

Several sources of innovative ideas are actually external to the organization

Source: IBM

0 10 20 30 40 50

Employees

Business Partners

Customers

Consultants

Competitors

Associations/Trade Groups

Internet Sales/Service Units

Internal R&D

Academia

* Respondents could select up to three choices

External Sources of Innovation

Percentage of Respondents

Companies that relied more on external sources for innovative ideas outperformed other companies.

Technology EnablersInnovation Enablerse-Business StrategyExecution Strategy

Innovation Roadmap

Innovation Strategy LOB*

IT

LOB &IT

* LOB = Line of Business

Business Model Innovation Product

Innovation

Operations Innovation

Business Function Innovation

Services Innovation

Technology EnablersInnovation Enablerse-Business StrategyExecution Strategy

Innovation Strategy

Innovation Strategy

LeadershipGovernance

Change Management

Communications

Organization

Technology EnablersInnovation Enablerse-Business Strategy

Execution Strategy

Execution Strategy

Foundation PhaseTransformation

Phase

Innovation Phase

Business Extension

Phase

Technology EnablersInnovation Enablers

e-Business Strategy

e-Business Strategy

Conferences & workshopsEducation gone public

Technology Enablers

Partner collaboration

Innovation Enablers

Innovation Enablers

Technology Enablers

Social networking Video

Blogs 3G & IMS

Technology Enablers

FINANCIAL INSTRUMENTS The basic documents issued to the large

body of investors when an organization or institution raises the funds from a large body of investors

Standardized document as per statute or governing institution containing features of the relation between the fund raiser and the user

Limited formats

Purpose of Innovation Different Type of Credit Control and

Macro-level Liquidity Management Matching Cash Flow Requirement of the

Fund Raiser Satisfying other Objectives like

Retaining Management Control More Effective Catering to the Needs of

the Investors Better Treasury Management

BIBLIOGRAPHY

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