Q.

International finance refers to the study and management of financial

interactions between countries. It encompasses various financial aspects such as
currency exchange rates, international trade, foreign investments, and the global
movement of capital. The goal is to understand how economic and financial
decisions in one country can impact others, and to develop strategies for managing
risks and optimizing opportunities in the global financial system.
Importance/benefits of International Finance:
1.Higher rate of profits: International companies search for foreign markets that
hold promise for higher rate of profits. Thus, the objective of profit affects and
motivates the business to expand its operations to foreign countries.
2.Corrective Measures: Due to worldwide cash flows international finance helps to
take corrective measures to bad government policies.
3. Increased market share: Large scale international companies like to enhance their
market share by expanding and intensifying their operations in various foreign
countries.
4. Higher rate of economic development: International companies help the
governments to achieve higher growth rate of the economy, increase the total and
per capita GDP, industrial growth, employment and income levels.
5. Financial Safety: International investment decisions - determining whether or not
investors’ money is safe with foreign debt securities.
6. Promotion of Investment: International Finance helps to promote domestic
investments and growth through Capital Market.
7. Better Banking System: International Finance Helps to Healthy Competition Due
to Which Provides Better Banking System.
8. Effective Capital Allocation: It helps to allocate the country’s capital effectively by
providing information related to different areas.
The Special Drawing Rights (SDRs) as an international reserve asset or reserve
money in the international monetary system was established in 1969 with the
objective of alleviating the problem of international liquidity. The IMF has two
accounts of operation—the General Account and the Special Drawing Account. The
former account uses national currencies to conduct all business of the fund, while
the second account is transacted by the SDRs. The SDR is defined as a composite of
five currencies—the Dollar, Euro, Pound Sterling, Yen and Yuan. The SDRs are
allocated to the member countries in proportion to their quota subscriptions. Only
the IMF members can participate in SDR facility. SDRs being costless, often called
paper gold, is just a book entry in the Special Drawing Account of the IMF.
Globalization refers to the interconnectedness and interdependence of countries
through the exchange of goods, services, information, and ideas on a global scale. It
involves the increasing integration of economies, cultures, and societies, facilitated
by advancements in technology, communication, and transportation .
Benefits/Positive Effects of Globalization?
Globalization impacts businesses in many different ways
Positive Impacts of Globalization on Business:
1*Increased Market Access:* Globalization opens up new markets, providing
businesses with opportunities to reach a larger customer base.
2.*Cost Efficiency:* Companies can benefit from cost-effective production and
resource utilization by sourcing materials and labor from different parts of the world.
3.*Technological Advancements:* Access to global markets facilitates the exchange
of technology and innovation, allowing businesses to stay competitive and adopt
best practices.
4.*Economies of Scale:* Larger markets enable mass production, leading to
economies of scale, reducing production costs and improving overall efficiency.
5.*Risk Diversification:* Operating in multiple markets helps businesses diversify
risks, as economic downturns in one region may be offset by growth in another.
Negative Impacts of Globalization on Business:
1. *Increased Competition:* While competition can drive improvement, it can also
lead to market saturation, pricing pressures, and the risk of smaller businesses being
overshadowed by larger global corporations.
2. *Job Displacement:* Globalization can result in job losses as companies seek cost
savings through outsourcing and automation, impacting local employment.
3. *Cultural Homogenization:* There is a risk of cultural diversity being eroded as
globalized products and brands dominate, potentially leading to a loss of unique
local flavors.
4. *Environmental Concerns:* Increased international trade can contribute to
environmental issues such as pollution and resource depletion, as goods travel
across the globe.
5. *Loss of National Control:* Nations may lose some control over their economies
and policies as global forces influence decisions on trade, finance, and regulations.
6. *Currency Fluctuations:* Businesses operating globally are exposed to currency
fluctuations, which can impact profits and financial stability.
International Monetary Fund (IMF)
The International Monetary Fund (IMF) is an international organization that was
created on July 22, 1944 at the Bretton Woods Conference and came into existence on
December 27, 1945. The IMF was established as an outcome of Bretton Woods
Conference with an initial membership of 44 countries and has a current strength of
190 member countries. The organization's stated objectives are to promote
international economic cooperation, international trade, employment, and exchange
rate stability, including by making financial resources available to member countries
to meet balance of payments needs. The IMF provides policy advice and financing to
members in economic difficulties and also works with developing nations to help
them achieve macroeconomic stability and reduce poverty.
Objectives of IMF:
IMF seeks to achieve the following objectives:
1. To promote international monetary cooperation through the Fund’s machinery for
consultation and collaboration on international monetary problems.
2. To ensure stability to foreign exchange rates and avoid competitive exchange
depreciation.
3. To reduce disequilibrium in the international balance of payments of member
countries.
4. To promote capital investment in backward and underdevelopment countries.
5. To assist in the establishment of a multinational system of payments in respect of
current transactions between the member countries.
6. To provide short term monetary help to members during emergency.
7. To achieve balanced economic growth and high level of employment in member
countries.
Key IMF activities
The IMF supports its membership by providing…..
1. Policy advice to governments and central banks based on analysis of economic
trends and cross-country experiences;
2. Research, statistics, forecasts, and analysis based on tracking of global, regional,
and individual economies and markets;
3. Loans to help countries overcome economic difficulties;
4. Concessional loans to help fight poverty in developing countries; and
5. Technical assistance and training to help countries improve the management of
their economies.
WORLD BANK
The World Bank is one of four institutions created at the Bretton Woods Conference
in 1944. It is an international economic institution that provides loans and technical
help to poor countries. The objective is poverty reduction. World Bank's Articles of
Agreement mandate that it is committed to promotion of foreign investment, foreign
trade, and promotion of investments. The headquarters are the United States located
in Washington, D.C.
The World Bank group consists of:
International Bank for Reconstruction and Development (IBRD)
International Development Association (IDA)
International Finance Corporation (IFC)
Multilateral Investment Guarantee Agency (MIGA)
International Centre for settlement of Investment Disputes (ICSID)
Objectives of World Bank:
1. To assist in the reconstruction and development of the territories of its members by
facilitating the investment of capital for productive purposes.
2. To promote foreign private investment by means of (a) guarantees of or through
participation in loans and other investments made by private investors; and (b) where
private capital is not available on reasonable terms, to make loans for productive
purposes out of its own resources or out of the funds borrowed by it.
3. To promote the long-range balanced growth of international trade and the
maintenance of equilibrium in balance of payments by encouraging international
investment thereby assisting in raising productivity, the standard of living and
condition of labour in the territories of the member countries.
4. To encourage loans made or guaranteed so that more useful and urgent projects,
large and small alike will be dealt with first.
5. To conduct its operations so as to bring about a smooth transition from a war-
time economy to a peace-time economy.
Lending instruments of World Bank:
1. Specific Investment Loan (SIL): Creation of new productive assets, establishment of
social, economic and institutional infrastructure, etc. are the primary objectives of the SIL.
2. Sector Investment and Maintenance Loan (SIML): The purpose of SIML is to
encourage investments, policies, and performance in specific sector(s) in accordance with
National goods.
3. Financial Intermediary Loan (FIL): The FIL support financial development and
provide finances in the nature of general purpose credit. The credit or loan maybe for
certain main sector or sub-sectors.
4. Emergency Recover Loan (ERL): This credit is given for restoration of assets and
productivity of a member country. This is after situations like war or natural disaster
7. Sector Adjustment Loan (SEAL): The SEAL is meant to help in Government policy reform
for the private productive sector where foreign exchange is required for urgent
rehabilitation of key infrastructure and productive facilities. This loan is used when SAL is
not available.
WTO The World Trade Organization (WTO) is the only global international
organization engaged with the rules of trade between nations. At its heart are the
WTO agreements, negotiated and signed by the bulk of the world’s trading nations
and substantiate in their parliaments. The motive is to assist producers of goods and
services, exporters, and importers organize their business. WTO ensures trade
liberalization among member nations.
Function…
1.Trade Negotiations: The WTO provides a forum for member countries to negotiate
trade agreements. These negotiations aim to reduce trade barriers, such as tariffs and
non-tariff barriers, and to promote fair and open trade among member countries
2.Dispute Settlement: The WTO has a dispute settlement mechanism that allows
member countries to resolve trade disputes through a structured and transparent
process.
3.Trade Policy Review: The WTO conducts regular reviews of the trade policies and
practices of its member countries. These reviews provide a platform for member
countries to discuss their trade policies and receive feedback from other members,
4.Trade Capacity Building: The WTO provides technical assistance and training to
developing countries to help them build their trade capacity.
5.Monitoring and Surveillance: The WTO monitors global trade trends and
developments, providing valuable information to member countries and the public.
6.Trade-Related Technical Assistance: The WTO offers technical assistance and
training to help member countries develop their trade-related infrastructure and
regulatory frameworks.
7.Promoting Transparency: The WTO promotes transparency in trade-related
matters by requiring member countries to notify the organization of their trade
policies, measures, and regulations

Basic trading principles of WTO:

1.Non-Discrimination Principle :. Non-discrimination covers two major elements,
the most-favoured-nation (MFN) and the national treatment principle. It ensures that
trading is conducted without discrimination.
2.Most-favoured nation treatment: All members of WTO are granted the status of
Most-Favoured-Nation (MFN). This implies that none of the member nation shall not
differentiate that link trading partners. All members of WTO must be considered the
same.
3.No National Special Treatment: Locals and foreigners are to be treated equally.
National treatment implies imported products to be considered at par with domestic
products
4.Freer Trade: The WTO has removed some trade barriers to popularize trade
liberalization. The major aspects covered to promote free trade among member
nations are lowering trade barriers
5.Promoting Fair Competition: WTO trading principles are meant to promote
competition in the global market and facilitate fair and undisturbed market
competition
6.Encouraging Social Development and Economic Reforms: WTO principles are
structured in a manner that supports economic reforms and social development.
Effect of the WTO on India
Trading is an excellent weapon for any developing country, and one who uses it
rightly wins prosperity and wealth for their country. India, as a developing nation,
does the same. India is an agricultural country, and most of its GDP depends upon
agriculture, as it exports agrarian products across the world. Trading can play a huge
role in developing any nation, if adequately used, because it also has harmful impacts.
So, let’s take a look at the good and bad impacts of the WTO on India.
Positive impacts of the WTO on India
India is a developing country and has a vast geographical area and population. That’s
why it needs more capital to feed its citizens. India is good in agriculture, as its
geographical condition is very good for crops, so they are self-sufficient in feeding
their people and exporting edible products, but some things are imported. So, it has a
perfect balance of imports and exports, and India, as one of the founding members of
the WTO, has a very positive impact on it. There are some points listed below that
helped in the development of India through the World Trade Organization:
- India’s export competitiveness has been improved by the WTO.
- The lower tariff has helped integrate with the global economy more efficiently.
- India’s growth and development have been pursued by transferring and exchanging
technology and ideas.
- There is a reduction in cost and time due to market access.
- The WTO helped better settle trade disputes in a well-defined and structured
manner.

Negative impacts of the WTO on India

Every positive impact carries a negative with it. Even after so many positive things,
the WTO has also harmed India in some ways, which are listed below:
- The TRIPs agreement went against the Indian Patents Act (1970).
- The introduction of product patents in India by MNCs caused a hike in drug prices,
which left no generic option for the poor.
- India and its research institutions have been negatively affected by the extension of
intellectual property rights to agriculture.
- The MFN (most favoured nations) clause proved detrimental to India’s interests and
provided grounds for the Chinese invasion of the Indian market through dumping.
- India’s service sectors are backward compared to those in developed countries
 What is Foreign Exchange Market?
Foreign Exchange Market is simply a global market where the trading of currencies
takes place. This market is decentralized in nature. In simple words, one currency is
traded with another currency at a particular rate. Cross border transactions of
investment and trade occur through an exchange of currencies between buyers and
sellers. Foreign exchange is the money of a foreign country in the form of bank notes,
drafts and checks. It is expressed as the foreign exchange rate which is the price of
domestic currency in terms of a foreign currency – for ex. INR vs. the USD or INR
vs. the Euro.
Q.4. DERIVATIVES MARKET is financial marketplace where financial
instruments, such as options and futures are traded. There are four
participants in Derivatives markets - Hedgers, Speculators, Arbitrageurs, and
Margin Traders.
Types Of Derivatives/Types of Forex Market
1.Forwards :A forward contract is customised contract between two entities,
where settlement takes place on a specific date in future on today's pre-
agreed price.
2.Futures :A future contract is an agreement between two parties to buy or
sell an asset at a certain time in future at a certain price. They are special kind
of forwards contracts in the sense that former are standardised exchange
traded contracts.
3.Options :Options are of two types - calls and put option. Call option gives
the buyer the right but not the obligation to buy a given quantity of the
underlying asset, at a given price on or before a given future date. On the
other the put option gives the buyer the right, but not the obligation to sell a
given quantity of the underlying asset at a given price on or before a given
future date.
4.Swaps :Swaps are private agreements between two parties to exchange cash
flows in the future according to a prearranged formula. They can be regarded
as portfolios of forward contracts.
Q.. Participants in derivatives market
1.Hedgers: He is a person who undertakes a position in future and other
markets for purpose of reducing exposure to one or more types of risk.
2.Speculator: Speculators are operators who are willing to take a risk by
taking future position with the expectation to earn profits.
3.Arbitrageurs: They are the operators who deal in different markets
simultaneously for profit and eradicate the mispricing of securities across
different markets.
4.Spreaders: He is a person who believes in lower expected return at the
reduced risk
Participants in Foreign Exchange Market:
1. Commercial Banks: The major participants in the foreign exchange market are the
large Commercial banks who provide the core of market. As many as 100 to 200
banks across the globe actively “make the market” in the foreign exchange
2. Foreign Exchange Brokers: Foreign exchange brokers also operate in the
international currency market. They act as agents who facilitate trading between
dealers. Unlike the banks, brokers serve merely as matchmakers and do not put their
own money at risk.
3. Central banks: Another important player in the foreign market is Central bank of
the various countries. Central banks frequently intervene in the market to maintain the
exchange rates of their currencies within a desired range and to smooth fluctuations
within that range.
4. MNCs: MNCs are the major non-bank participants in the forward market as they
exchange cash flows associated with their multinational operations. MNCs often
contract to either pay or receive fixed amounts in foreign currencies at future dates, so
they are exposed to foreign currency risk.
5. Individuals and Small Businesses: Individuals and small businesses also use
foreign exchange market to facilitate execution of commercial or investment
transactions
6. Hedgers There are many businesses which end up creating an asset or a liability
priced in foreign currency in the regular course of their business
7. Speculators Speculators are a class of traders that have no genuine requirement for
foreign currency. They only buy and sell these currencies with the hope of making a
profit from it.
8. Arbitrageurs Arbitrageurs are traders that take advantage of the price discrepancy
in different markets to make a profit. Arbitrageurs serve an important function in the
foreign exchange market.

Functions of Foreign Exchange Market:

Foreign exchange market plays a very significant role in business development of a
country because of the fact that it performs several useful functions, as set out below:
1. Foreign exchange market transfers purchasing power across different countries,
which results in enhancing the feasibility of international trade and overseas
investment.
2. It acts as a central focus whereby prices are set for different currencies.
3. With the help of foreign exchange market investors can hedge or minimize the
risk of loss due to adverse exchange rate changes.
4. Foreign exchange market allows traders to identify risk free opportunities and
arbitrage these away.
Exchange rates are influenced by various factors, including:
1. *Interest Rates:* Higher interest rates can attract foreign capital, increasing
demand for the currency and raising its value.
2. *Economic Indicators:* Strong economic indicators, such as GDP growth and
employment rates, can boost confidence in a country's currency.
3. *Inflation Rates:* Lower inflation rates are generally associated with currency
appreciation, as the purchasing power increases.
4. *Political Stability:* Countries with stable political environments are more
attractive to investors, leading to increased demand for their currency.
5. *Trade Balances:* A country's trade surplus or deficit can impact its currency
value. Surpluses often lead to currency appreciation, while deficits may lead to
depreciation.
6. *Government Debt:* High levels of government debt can raise concerns about a
country's ability to meet its financial obligations, potentially leading to a weaker
currency.
7. *Market Speculation:* Traders' perceptions and expectations about future
economic conditions can influence exchange rates.
8. *Central Bank Actions:* Central banks can impact exchange rates through
monetary policy, such as adjusting interest rates or engaging in currency
interventions.

There are various types of exchange rates in the international market, including:

1. *Floating Exchange Rate:* Determined by market forces based on supply and

demand.
2. *Fixed Exchange Rate:* Set and maintained by governments or central banks.
3. *Pegged Exchange Rate:* Tied to the value of another currency or a basket of
currencies.
4. *Managed Float:* A combination of market forces and government intervention.
5. *Dirty Float:* Where a currency's value is determined by market forces, but with
occasional government intervention.
6. *Real Exchange Rate:* Adjusted for inflation and reflects the relative price levels
between two countries.
FEMA 1999
Foreign Exchange Regulation Act, 1973 (FERA) was replaced by the Foreign
Exchange Management Act, 1999 (FEMA). FEMA was enacted by Parliament of
India and it came into force on 1st June, 2000. There are a total of 49 Sections divided
into 7 chapters. The reason for the replacement emerged because it was not suitable
for the prevailing environment and was harsh as it contained a provision for
imprisonment.
Objectives
 To reinforce and amend the law relating to foreign exchange.
 To simplify and ease the external trade and payments.
 To promote the systematized development and maintenance of a healthy foreign
exchange market in India.
 To remove disparity of payments.
 To control and direct the employment business and investment of the non-
residents.
 To utilise the foreign exchange resources effectively for the country.
Role of FEMA:
1. Regulation of Foreign Exchange: FEMA regulates foreign exchange transactions
to ensure stability and orderly development of the foreign exchange market.
2. External Trade Facilitation: It facilitates external trade and payments,
streamlining processes for importers and exporters.
3. Capital Account Transactions: FEMA governs capital account transactions,
including investments and transfers of capital, to maintain control and stability.
4. Reserve Management: It helps in managing the country's foreign exchange
reserves effectively for economic stability.
5. Authorized Persons: FEMA designates authorized persons (like banks) to deal in
foreign exchange and payments, ensuring proper channels for transactions.
6. Foreign Investment: It regulates foreign direct investment (FDI) and foreign
portfolio investment (FPI) to attract foreign capital while safeguarding national
interests.
7. Adjudication and Appeals: FEMA includes provisions for adjudication of
offenses and appeals, ensuring a legal framework for dispute resolution.
8. Promotion of External Sector Stability: By overseeing various aspects of foreign
exchange, FEMA contributes to the overall stability of the country's external sector.
Foreign Trade Policy 2015-20
India aims to be significant partner in global trade and with that vision; the Modi
government has introduced its first Foreign Trade Policy. The new five-year Foreign
Trade Policy, 2015-20 provides a framework for increasing exports of goods and
services as well as generation of employment and increasing value addition in the
country, in keeping with the “Make in India” & “Digital India” vision of Prime
Minister. The focus of the new policy is to support the manufacturing and service
sectors, with an emphasis on improving the ‘ease of doing business’
Key points/highlights of FTP 2015-20:
1.Simplification & Merger of Rewards Scheme
a. Merchandise Exports from India Scheme (MEIS): Earlier there were five different
schemes for rewarding merchandise exports. To make it simple, all five schemes have
been merged into a single scheme, MEIS.
b. Service Exports from India Scheme (SEIS): Served from India Scheme (SFIS)
has been replaced with Service from India Scheme (SEIS). SEIS shall apply to
‘Service Providers located in India’ instead of ‘Indian Service Providers’.
c. Scrips issued under Export from India Scheme can be used for the payment of
the Custom duty, Excise duty and service tax.
2.Status Holder
a. Business leaders who have excelled in international trade and have successfully
contributed to country’s foreign trade are proposed to be recognized as Status holder.
b. The nomenclature of Export house, Star Export House, Trading House, Star trading
House, Premier Trading House certificates has been changed to one, two, three, four
& five-star export houses.
c. The criteria for export performance for recognition of status holder have been
changed from Rupees to US dollar earnings.
3.Boost to Make in India
a. Export Obligation (EO) for domestic procurement under EPCG scheme has been
reduced to 75% of normal export obligation (EO). This will promote domestic capital
goods manufacturing industry.
b. Higher level of rewards is offered under MEIS for export items with high domestic
content and value addition.
4.Trade Facilitation and Ease of doing Business
a. Online filing of documents/applications: In line with Digital India, now
hardcopies of application and specified documents like certificated from CA, CS etc.
would not be required to be submitted to RA, under chapter 3 & 4 of FTP. It has been
decided to develop an online procedure to upload digitally signed documents by
CA/CS.
b. Online inter-ministerial consultation: – With the objective to reduce time for
approval, it is proposed to implement online inter-ministerial consultation in a phased
manner.
Sources of International Financing
Mainly these are classified into three categories which are as follows:
A. Commercial Banks
Commercial banks not only fund businesses and firms in the home country rather it
extends to the global level. Commercial banks provide foreign currency loans and
advances all over the world. Loans are generally provided for business purposes and
are a very famous source for funding non-trade operations internationally
B. International Agencies and Developmental Banks
These are named Developmental banks because these were introduced by the
government for developmental purposes only. International Agencies and
Developmental banks have emerged throughout the years with the goal to fund
finance internationally
C. International Capital Market
International Capital Market exists with the aim of enhancing efficiencies in
economies and generating economies of scale. It is the most consumed source of
financing.
1. Global Depository Receipts (GDRs)
It is a negotiable instrument that can be traded like any other instrument freely. Just
like any other security, GDR can exchange hands very easily.
 GDRs are listed on the foreign stock exchange.
2. American Depository Receipts (ADRs)
 The American Depository Receipts are quite similar to the Global Depository
Receipts.
 The process of issuing shares in local currency and then sending the shares to the
depository bank to convert them into depository receipts remains as it is.
3. Indian Depository Receipts (IDRs)
 As the name implies, Indian Depository Receipts are exclusively available in the
Indian markets.
 Just like for GDRs, here also the shares are forwarded to the depository banks to
get depository receipts in exchange for those respective shares.
4. Foreign Currency Convertible Bonds (FCCBs)
 Foreign Currency Convertible Bonds are a combination of debt and equity
instruments.
5. External Commercial Borrowings (ECB)
 ECB is an instrument that helps Indian firms and organizations raise funds from
outside India in foreign currencies .
IFRS stands for International Financial Reporting Standards. It is a set of accounting
standards developed by the International Accounting Standards Board (IASB) to
provide a common global language for business affairs. IFRS aims to ensure
consistency and transparency in financial reporting across different countries,
facilitating comparisons of financial statements and fostering international
investment.
IMPORTANCE….
1. Global Standardization: IFRS establishes a universal accounting language for
consistent financial reporting worldwide.
2. Facilitates International Investment: Boosts confidence for cross-border
investments by providing a transparent and comparable financial framework.
3. Reduced Costs for Multinationals:Streamlines financial reporting processes for
multinational companies, eliminating the need for reconciling statements under
different standards.
4. Improved Financial Transparency:Aims to offer a clearer and more transparent
view of a company's financial position, performance, and cash flows.
5. Global Access to Capital Markets: Companies following IFRS gain broader
access to global capital markets, meeting requirements of many exchanges and
regulatory bodies.
6. Adaptation to Economic Changes: Principles-based nature allows flexibility in
adapting to evolving economic conditions.
7. Harmonization of Accounting Practices:Promotes consistency and reduces
disparities in accounting practices globally.
8. International Recognition and Credibility:* Companies adhering to IFRS often
enjoy increased international recognition and credibility, attracting global investors.

objectives of International Financial Reporting Standards (IFRS)…….

1. Create a Common Language:IFRS aims to establish a common financial reporting
language that businesses around the world can use. This helps in facilitating
communication and understanding of financial information across different
countries and industries.
2. Aid Analysis: IFRS intends to provide relevant and reliable information to users,
such as investors, analysts, and creditors. This aids in their decision-making
processes by offering a consistent basis for evaluating the financial performance and
position of various entities.
3. Assist in Preparation of Reliable Financial Records: IFRS sets out guidelines and
principles for the preparation of financial statements. By adhering to these
standards, entities can produce reliable and consistent financial records, which
enhances the trustworthiness of financial information for stakeholders.
4. Ensure Comparability, Transparency, and Flexibility in Reporting:
IFRS promotes comparability by providing a framework that ensures similar
transactions are accounted for consistently across organizations. Transparency is
achieved through the disclosure requirements, providing a clear picture of an
entity's financial position and performance. Flexibility allows entities to adapt to
specific circumstances within the framework's principles.

Foreign Direct Investment (FDI)

A foreign direct investment (FDI) refers to purchase of an asset in another country,
such that it gives direct control to the purchaser over the asset (e.g. purchase of land
and building). In other words, it is an investment in the form of a controlling
ownership in a business, in real estate or in productive assets such as factories in one
country by an entity based in another country. This type of investment helps the
investor to acquire an effective voice in the management of the firm. It generally
takes the form of acquiring a stake in an existing enterprise in the foreign country or
starting a subsidiary to expand the operations of an existing enterprise of that
country. An investment into a foreign firm is considered an FDI if it establishes a
lasting interest. A lasting interest is established when an investor obtains at least
10% of the voting power in a firm.

General Agreements on Tariffs and Trade (GATT), the predecessor of WTO was
formed after the Second World War. During the great depression of 1930’s, countries
adopted protectionist approach and imposed trade restriction to safeguard their
economies. In 1945, talks began to reduce trade tariffs and by the end of Second
World War the momentum of trade liberalization geared up. And a group of 23
countries at Geneva negotiated on tariff related trade rules and GATT was born on
30th October, 1947. After the Second World War, US and its allies formed three
bodies under the Bretton System, namely, international monetary fund, World bank
and GATT. While GATT was referred as International Trade organization (ITO) and
it had the basic goal as governance of international trade and trade liberalization.
Since 1948, the General Agreement on Tariffs and Trade (GATT) had provided the
rules for the system. Over the years GATT evolved through several rounds of
negotiations.
SPECIAL ECONOMIC ZONES (SEZ):A special economic zone (SEZ) is a specially
marked territory or enclave or an area within the national borders of a country in
which the business and trade laws are different or that has moreliberal economic
laws from the rest of the country.
EXPORT PROCESSING ZONE (EPZ)Export Processing Zone, shortly known as EPZ is a
special economic zone where Export and Import of goods are allowed without any
restrictions. EPZ are designated by the government of a country for the promotion of
export-oriented businesses and offers many facilities and incentives to the Export-
Import oriented units, for promoting exports from country.
EXPORT ORIENTED UNITS (EOUs)Export-oriented units are units undertaking to
export their entire production of goods. EOUs can engage in manufacturing,
services,development of software,repair,remaking,reconditioning, re-engineering
including making of gold/silver/platinum jewellery and articles.

Role of World Bank

1. Development Financing: The World Bank provides financial assistance and loans
to developing countries for projects aimed at reducing poverty and fostering
sustainable economic development.
2. Technical Assistance: Apart from funding, the World Bank offers technical
expertise and advisory services to member countries, assisting them in designing and
implementing effective development projects.
3. Poverty Alleviation: One of the primary goals of the World Bank is to reduce
global poverty. It funds projects that address key issues such as education,
healthcare, infrastructure, and agriculture in impoverished regions.
4. Global Partnerships:The World Bank collaborates with other international
organizations, governments, and the private sector to leverage resources and
expertise for impactful development initiatives.
5. Research and Data: The World Bank conducts research and collects data on
various economic and social issues, providing valuable insights to member countries
and the global community for informed decision-making.
Role of IMF
1. Economic Stability: The IMF aims to ensure the stability of the international
monetary system by providing short-term financial assistance to member countries
facing balance of payments problems, helping them stabilize their economies.
2. Policy Advice: IMF offers policy advice and recommendations to member
countries on economic and monetary matters, aiming to foster sound economic
policies that contribute to global stability.
3. Capacity Development: The IMF assists member countries in building institutional
and human capacity to improve their economic governance, policy formulation, and
implementation.
4. Surveillance: The IMF monitors global economic trends and provides economic
analysis and forecasts. It conducts regular assessments of member countries'
economic policies through consultations.
5. Crisis Prevention and Resolution: Beyond financial assistance, the IMF plays a
crucial role in preventing and resolving financial crises by promoting sound economic
policies and providing support to countries in times of need.