UNIT 1 MULTINATIONAL BUSINESS FINANCE

1.1 An Overview of International Finance Management (IFM)

International financial management is also known as international finance. International finance

is the set of relations for the creation and using of funds (assets), needed for foreign economic
activity of international companies and countries. Assets in the financial aspect are considered
not just as money, but money as the capital, i.e. the value that brings added value (profit). Capital
is the movement, the constant change of forms in the cycle that passes through three stages: the
monetary, the productive, and the commodity. So, finance is the monetary capital, money flow,
serving the circulation of capital. If money is the universal equivalent, whereby primarily labor
costs are measured, finance is the economic tool.

The definition of international finance is the combination of monetary relations that develop in
process of economic agreements - trade, foreign exchange, investment - between residents of the
country and residents of foreign countries.

Financial management is mainly concerned with how to optimally make various corporate
financial decisions, such as those pertaining to investment, capital structure, dividend policy, and
working capital management, with a view to achieving a set of given corporate objectives.

When a firm operates in the domestic market, both for procuring inputs as well as selling its
output, it needs to deal only in the domestic currency. When companies try to increase their
international trade and establish operations in foreign countries, they start dealing with people
and firms in various nations. On this regards, as different nations have different currencies,
dealing with the currencies becomes a problem-variability in exchange rates have a profound
effect on the cost, sales and profits of the firm.

Globalization of the financial markets results in increased opportunities and risks on account of
overseas borrowing and investments by the firm.

Reason for growth in international business

International business has growth dramatically in recent years because of strategic imperatives
and environmental changes. Strategic imperatives include the need to leverage core

NOTES BY:
SAMEENA GHAZAL
FACULTY
UNIVERSITY OF LUCKNOW
competencies, acquire resources, seek new markets, and match the actions of rivals. Although
strategic imperatives indicate why firms wish to internationalize their operations, significant
changes in the political and technical environment have facilitated the explosive growth in
international business activity that has since World War 2. The growth of the internet and other
information technologies is likely to redefine global competition and ways of doing international
business.

There are many reasons why international business is growing at such a rapid pace. Below are
some of those reasons:

Saturation of Domestic Markets

In most of the countries due to continuous production of similar products over the years has led
to the saturation of domestic markets. For example in Japan, 95% of people have all types of
electronic appliances and there is no growth of organization there, as a result they have to look
out for new markets overseas.

Opportunities in Foreign Markets

As domestic markets in some countries have saturated, there are many developing countries
where these markets are blooming. Organizations have great opportunities to boost their sales
and profits by selling their products in these markets. Also countries that are attaining economic
growth are demanding new goods and services at unprecedented levels.

Availability of Low Cost Labor

When we compare labor cost in developed countries with respect to developing countries they
are very high. As a result, organizations find it cheaper to shift production in these countries.
This leads to lower production cost for the organization and increased profits.

Competitive Reasons

Either to stem the increased presence of foreign companies in their own domestic markets or to
counter the expansion of their domestic markets, more and more organizations are expanding
their operations abroad. International companies are using overseas market entry as a counter
measure to increase competition.
NOTES BY:
SAMEENA GHAZAL
FACULTY
UNIVERSITY OF LUCKNOW
Increased Demands

Consumers in counties that did not have the purchasing power to acquire high-quality products
are now purchasing them due to improved economic conditions

Diversification

To counter cyclical patterns of business in different parts of the world, most of the companies
expand and diversify their business, to attain profitability and uncover new markets. This is one
of the reasons why international business is developing at a rapid pace.

Reduction of Trade Barriers

Most of the developing economics are now relaxing their trade barriers and opening doors to
foreign multinationals and allowing their companies to set-up their organizations abroad. This
has stimulated cross border trade between countries and opened markets that were previously
unavailable for international companies.

Development of communications and Technology

Over last few years there has been a tremendous development in communication and
technology, which has enabled everyone to know about demands, products and services offered
in other part of the world. Adding to this is the reducing cost of transport and improved
efficiency has also led to expansion of business.

Consumer Pressure

Innovations in transport and communication has led to development of more aware consumer.
This has led to consumers demanding new and better goods and services. The pressure has led to
companies researching, merging or entering into new zones. Global Competition More
companies operate internationally because

– New products quickly become known globally

– Companies can produce in different countries

– Domestic companies, competitors, suppliers have becomes international

NOTES BY:
SAMEENA GHAZAL
FACULTY
UNIVERSITY OF LUCKNOW
As international companies venture into foreign markets, these companies will need managers
and other personals who understand and are exposed to the concepts and practices that govern
international companies. Therefore the study of international business may be essential to work
in global environment.

1.2 Importance of IFM

All the major economic functions-consumption, production and investment-are highly

globalized. Hence it is essential for financial managers to fully understand vital international
dimensions of financial management. Proper management of international finances can help the
organization in achieving same efficiency and effectiveness in all markets. Hence without IFM,
sustaining in the market can be difficult.

Six aspects provide importance to IFM

i) Specialization of some goods and services

ii) Opening of new economies
iii) Globalization of firms
iv) Emergence of new form of business
v) Growth of world trade
vi) Development process of Nations
1.3 Nature and Scope Of International Financial Management

International finance-the finance function of a multinational firm has two functions-treasury and
control. The treasurer is responsible for financial planning analysis, fund acquisition, investment
financing, cash management, investment decision and risk management. Controller deals with
the functions related to external reporting, tax planning and management, management
information system, financial and management accounting, budget planning and control, and
accounts receivables etc.

Multinational finance is multidisciplinary in nature. While an understanding of economic

theories and principles is necessary to estimate and model financial decisions, financial
accounting and management accounting help in decision making in financial management at
multinational level.
NOTES BY:
SAMEENA GHAZAL
FACULTY
UNIVERSITY OF LUCKNOW
Because of changing nature of environment at international level, the knowledge of latest
changes in forex rates, volatility in capital market, interest rate fluctuations, macro level changes,
micro level economic indicators, savings, consumption pattern, interest preference, investment
behavior of investors, export and import trends, competition, banking sector performance,
inflationary trends, demand and supply conditions etc. is required by the practitioners of
international financial management.

Nature of the financial Management

 IFM is concerned with financial decisions taken in international business.

 IFM is an extension of corporate finance at international level.

 IFM set the standard for international tax planning and international accounting

 IFM includes management of exchange rate risk.

Scope of the financial Management:

 IFM includes working capital management of multinational enterprises. Scope of IFM includes

 Foreign exchange markets, international accounting, exchange rate risk management etc.

 It also includes management of finance functions of international business.

 IFM sorts out the issues relating to FDI and foreign portfolio investment.

 It manages various risks such as inflation risk, interest rate risks, credit risk and exchange rate
risk.

 It manages the changes in the foreign exchange market.

 It deals with balance of payments in global transactions of nations.

 Investment and financing across the nations widen the scope of IFM to international accounting
standards.

 It widens the scope of tax laws and taxation strategy of both parent country and host country.

 It helps in taking decisions related to international business.

NOTES BY:
SAMEENA GHAZAL
FACULTY
UNIVERSITY OF LUCKNOW
1.4 International Financial Management Different From Financial Management At
Domestic Level

The important distinguishing features of international finance from domestic financial

management are discussed below:

1.4.1 Foreign exchange risk

An understanding of foreign exchange risk is essential for managers and investors in the modern
day environment of unforeseen changes in foreign exchange rates. In a domestic economy this
risk is generally ignored because a single national currency serves as the main medium of
exchange within a country. When different national currencies are exchanged for each other,
there is a definite risk of volatility in foreign exchange rates. The present International Monetary
System set up is characterized by a mix of floating and managed exchange rate policies adopted
by each nation keeping in view its interests. In fact, this variability of exchange rates is widely
regarded as the most serious international financial problem facing corporate managers and
policy makers.

At present, the exchange rates among some major currencies such as the US dollar, British
pound, Japanese yen and the euro fluctuate in a totally unpredictable manner. Exchange rates
have fluctuated since the 1970s after the fixed exchange rates were abandoned. Exchange rate
variation affect the profitability of firms and all firms must understand foreign exchange risks in
order to anticipate increased competition from imports or to value increased opportunities for
exports. Thus, changes in the exchange rates of foreign currencies results in foreign exchange
risks

1.4.2 Political risk

Another risk that firms may encounter in international finance is political risk. Political risk
ranges from the risk of loss (or gain) from unforeseen government actions or other events of a
political character such as acts of terrorism to outright expropriation of assets held by foreigners.
The other country may seize assets of the company without any reimbursements by utilizing their
sovereign right, and some countries may restrict currency remittances to the parent company.
MNCs must assess the political risk not only in countries where it is currently doing business but
NOTES BY:
SAMEENA GHAZAL
FACULTY
UNIVERSITY OF LUCKNOW
also where it expects to establish subsidiaries. The extreme form of political risk is when the
sovereign country changes the ‗rules of the game‘ and the affected parties have no alternatives
open to them.

Example: In 1992, Enron Development Corporation, a subsidiary of a Houston based Energy

Company, signed a contract to build India‘s longest power plant. Unfortunately, the project got
cancelled in 1995 by the politicians in Maharashtra who argued that India did not require the
power plant. The company had spent nearly $ 300 million on the project. The Enron episode
highlights the problems involved in enforcing contracts in foreign countries.

Thus, political risk associated with international operations is generally greater than that
associated with domestic operations and is generally more complicated.

1.4.3 Expanded opportunity sets

When firms go global, they also tend to benefit from expanded opportunities which are available
now. They can raise funds in capital markets where cost of capital is the lowest. In addition,
firms can also gain from greater economies of scale when they operate on a global basis.

1.4.4 Market imperfections

The final feature of international finance that distinguishes it from domestic finance is that
world markets today are highly imperfect. There are profound differences among nations‘ laws,
tax systems, business practices and general cultural environments. Imperfections in the world
financial markets tend to restrict the extent to which investors can diversify their portfolio.
Though there are risks and costs in dealing with these market imperfections, they also offer
managers of international firms abundant opportunities.

1.4.5 Tax and Legal system

Tax and legal system varies from one country to another country and this leads to complexity in
their financial implications and hence give rise to tax and legal risks.

1.4.6 Inflation

NOTES BY:
SAMEENA GHAZAL
FACULTY
UNIVERSITY OF LUCKNOW
 Inflation rate differs from country to country. Higher inflation rates in few countries denote
inflation risks.

International Monetary System: Evolution and gold standard

International Monetary System: An Overview

International monetary system is defined as a set of procedures, mechanisms, processes,

institutions to establish that rate at which exchange rate is determined in respect to other
currency. To understand the complex procedure of international trading practices, it is pertinent
to have a look at the historical perspective of the financial and monetary system.

The whole story of monetary and financial system revolves around 'Exchange Rate' i.e. the rate
at which currency is exchanged among different countries for settlement of payments arising
from trading of goods and services. To have an understanding of historical perspectives of
international monetary system, firstly one must have a knowledge of exchange rate regimes.
Various exchange rate regimes found from 1880 to till date at the international level are
described briefly as follows:

Monetary System Before First World War: (1880-1914 Era of Gold Standard)

The oldest system of exchange rate was known as "Gold Species Standard" in which actual
currency contained a fixed content of gold. The other version called "Gold Bullion Standard",
where the basis of money remained fixed gold but the authorities were ready to convert, at a
fixed rate, the paper currency issued by them into paper currency of another country which is
operating in Gold. The exchange rate between pair of two currencies was determined by
respective exchange rates against 'Gold' which was called 'Mint Parity'.

Three rules were followed with respect to this conversion:

• The authorities must fix some once-for-all conversion rate of paper money issued by them into
gold.

• There must be free flow of Gold between countries on Gold Standard.

NOTES BY:
SAMEENA GHAZAL
FACULTY
UNIVERSITY OF LUCKNOW
• The money supply should be tied with the amount of Gold reserves kept by authorities. The
gold standard was very rigid and during 'great depression' (1929-32) it vanished completely. In
modern times some economists and policy makers advocate this standard to continue because of
its ability to control excessive money supply.

The Gold Exchange Standard (1925-1931)

With the failure of gold standard during First World War, a much refined form of exchange
regime was initiated in 1925 in which US and England could hold gold reserve and other nations
could hold both gold and dollars/sterling as reserves. In 1931, England took its foot back which
resulted in abolition of this regime.

Also to maintain trade competitiveness, the countries started devaluing their currencies in order
to increase exports and demotivate imports. This was termed as "beggar-thy-neighbour " policy.
This practice led to great depression which was a threat to war ravaged world after the second
world war. Allied nations held a conference in New Hampshire, the outcome of which gave birth
to two new institutions namely the International Monetary Fund (IMF) and the World Bank,
(WB) and the system was known as Bretton Woods System which prevailed during (1946-1971)
(Bretton Woods, the place in New Hampshire, where more than 40 nations met to hold a
conference).

The Bretton Woods Era (1946 to 1971)

To streamline and revamp the war ravaged world economy & monetary system, allied powers
held a conference in 'Bretton Woods', which gave birth to two super institutions - IMF and the
WB. In Bretton Woods modified form of Gold Exchange Standard was set up with the following
characteristics :

• One US dollar conversion rate was fixed by the USA as one dollar = 35 ounce of Gold

• Other members agreed to fix the parities of their currencies vis-àvis dollar with respect to
permissible central parity with one per cent (± 1%) fluctuation on either side. In case of crossing
the limits, the authorities were free hand to intervene to bring back the exchange rate within
limits.

NOTES BY:
SAMEENA GHAZAL
FACULTY
UNIVERSITY OF LUCKNOW
Post Bretton Woods Period (1971-1991)

Two major events took place in 1973-74 when oil prices were quadrupled by the Organisational
of Petroleum Exporting Countries (OPEC). The result was seen in expended oils bills, inflation
and economic dislocation; thereby the monetary policies of the countries were being overhauled.
From 1977 to 1985, US dollar observed fluctuations in the oil prices which imposed on the
countries to adopt a much flexible regime i.e. a hybrid between fixed and floating regimes. A
group of European Nations entered into European Monetary System (EMS) which was an
arrangement of pegging their currencies within themselves.

2.3.4 Flexible exchange rate regime

The flexible exchange rate regime that replaced the Bretton Woods system was ratified by the
Jamaica Agreement. Following a spectacular rise and fall of the US dollar in the 1980s, major
industrial countries agreed to cooperate to achieve greater exchange rate stability. The Louvre
Accord of 1987 marked the inception of the managed-float system under which the G-7 countries
would jointly intervene in the foreign exchange market to correct over- or undervaluation of
currencies. On January 1,1999, eleven European countries including France and Germany
adopted a common currency called the euro. The advent of a single European currency, which
may eventually rival the US dollar as a global vehicle currency, will have major implications for
the European as well as world economy.

Flexible exchange rate regimes were rare before the late twentieth century. Prior to World War
II, governments used to purchase and sell foreign and domestic currency in order to maintain a
desirable exchange rate, especially in accordance with each country‘s trade policy. After a few
experiences with flexible exchange rates during the 1920s, most countries came back to the gold
standard. In 1930, before a new wave of flexible rate regimes started, prior to the war, over 50
countries were on the gold standard. However, most countries would abandon it just before
World War II started.

In 1944, with the war almost over, international policy coordination was starting to make sense
in everybody‘s mind. Along with other international organisations created during those years, the
Bretton Woods agreement was signed, putting in place a new pegging system: currencies were

NOTES BY:
SAMEENA GHAZAL
FACULTY
UNIVERSITY OF LUCKNOW
pegged to the dollar, which in turn was pegged to gold. It was not until 1973, when Bretton
Woods completely collapsed, that countries started to implement flexible exchange rate regimes.

Flexible exchange rates can be defined as exchange rates determined by global supply and
demand of currency. In other words, they are prices of foreign exchange determined by the
market, that can rapidly change due to supply and demand, and are not pegged nor controlled by
central banks. The opposite scenario, where central banks intervene in the market with purchases
and sales of foreign and domestic currency in order to keep the exchange rate within limits, also
known as bands, is called fixed exchange rate.

Within this pure definition of flexible exchange rate, we can find two types of flexible exchange
rates: pure floating regimes and managed floating regimes. On the one hand, pure floating
regimes exist when, in a flexible exchange rate regime, there are absolutely no official purchases
or sales of currency. On the other hand, managed (also called dirty) floating regimes, are those
flexible exchange rate regimes where at least some official intervention happens.

The Current Exchange Rate Arrangements

At present IMF (International Monetary Fund) categories different exchange rate mechanism as
follows:

1 Exchange arrangement with no separate legal tender

The members of a currency union share a common currency. Economic and Monetary Unit
(EMU) who

have adopted common currency and countries which have adopted currency of other country. As
of 1999,

37 IMF member countries had this sort of exchange rate regime.

2 Currency Board Agreement

In this regime, there is a legislative commitment to exchange domestic currency against a

specified

currency at a fixed rate. As of 1999, eight members had adopted this regime.
NOTES BY:
SAMEENA GHAZAL
FACULTY
UNIVERSITY OF LUCKNOW
3 Conventional fixed peg arrangement

This regime is equivalent to Bretton Woods in the sense that a country pegs its currency to
another, or to a basket of currencies with a band variation not exceeding ± 1% around the central
parity. Upto 1999, thirty countries had pegged their currencies to a single currency while
fourteen countries to a basket of

currencies.

4 Pegged Exchange Rates Within Horizontal Bands

In this regime, the variation around a central parity is permitted within a wider band. It is a
middle way

between a fixed peg and floating peg. Upto 1999, eight countries had this regime.

5 Crawling Peg

Here also a currency is pegged to another currency or a basket of currencies but the peg is
adjusted

periodically which may be pre-announced or discretion based or well specified criterion. Sixty
countries

had this type of regime in 1999.

6 Crawling bands

The currency is maintained within a certain margins around a central parity which 'crawls' in
response to

certain indicators. Upto 1999, nine countries enjoyed this regime.

7 Managed float

In this regime, central bank interferes in the foreign exchange market by buying and selling
foreign

currencies against home currencies without any commitment or pronouncement. Twenty five
countries
NOTES BY:
SAMEENA GHAZAL
FACULTY
UNIVERSITY OF LUCKNOW
have this regime as in 1999.

8 Independently floating

Here exchange rate is determined by market forces and central bank only act as a catalyst to
prevent

excessive supply of foreign exchange and not to drive it to a particular level. Including India, in
1999,

forty eight countries had this regime.

Now-a-days a wide variety of arrangements exist and countries adopt the monetary system
according to

their own whims and fancies. That's why some analysts are calling is a monetary "non-system".

What is the European Monetary System (EMS)?

The European Monetary System (EMS) refers to an arrangement established in 1979, whereby
members of the European Economic Community (now the European Union) agreed to link their
currencies to encourage monetary stability in Europe.

The EMS aimed to create a stable exchange rate for easier trade and cooperation among
European countries through an Exchange Rate Mechanism (ERM). The ERM was based on the
European Currency Unit (ECU) – a currency unit composed of a basket of 12 European
currencies weighted by gross domestic product (GDP).

History of the European Monetary System

Beginning from the Second World War, the Bretton Woods System was used to try and maintain
stability among major currencies. However, it was dropped in 1971. European countries then
launched the European Monetary System in 1979, and leaders sought to achieve monetary
stability through a stable exchange rate.

The EMS launched the European Currency Unit and the European Exchange Rate Mechanism in
order to achieve the overarching goal of monetary stability and work towards the idea of a single
NOTES BY:
SAMEENA GHAZAL
FACULTY
UNIVERSITY OF LUCKNOW
market in Europe. It stayed in place until 1999 and was then succeeded by the European
Monetary Union (EMU) and the Euro.

How Did It Work?

The European Monetary System mainly relied upon the ECU and the existing exchange rate
mechanism then. Exchange rates were only allowed to deviate within a certain range from the
fixed central point, which was determined by the ECU.

In the EMS, exchange rate fluctuations of member countries’ currencies were limited to 2.25%
from the fixed central point, which was determined by the European Economic Community.

Goals of the European Monetary System

The European Monetary System aimed to achieve various macroeconomic goals:

Encouraging trade within Europe

Exchange rate stability among trading members

Controlled inflation within Europe

The 1992 Crisis

The EMS established a common monetary policy among member states and fixed the exchange
rates. In 1992, Germany raised its interest rates to combat inflation – it placed upward pressure
on the exchange rates of member countries at a time when they needed low interest rates and
higher exports, resulting in a crisis.

Each country demonstrated different economic characteristics – some relied on cheap labor
costs, while others were export-oriented economies – the increase in interest rates resulted in a
different impact on each economy.

With exchange rates fixed, many countries experienced turmoil and ultimately eliminated their
pegging system with the ECU, allowing exchange rates to float. Over time, the EMS changed the
bandwidth for exchange rate volatility from +/- 2.25% to +/- 15%.

NOTES BY:
SAMEENA GHAZAL
FACULTY
UNIVERSITY OF LUCKNOW
Benefits of the European Monetary System

1. Ensuring currency stability

The EMS ensured currency stability in Europe during times of international market volatility.

2. Working towards a single market

The EMS was considered an important step towards the establishment of the EU and the single
market in Europe.

3. Unity in Europe

The EMS promoted political and economic unity across Europe at a pivotal time in European
history.

Drawbacks of the European Monetary System

1. Fixed exchange rates

Fixed exchange rates affected different members of the EMS in different ways, which were not
beneficial to all economies. It became evident in the 1992 crisis.

2. Common monetary policy

The EMS promoted a common monetary policy; therefore, raising or decreasing interest rates
affected all economies differently – just like the exchange rate system.

The End of the European Monetary System

Following events in 1988, the EMS was set to undergo a three-stage reform that eased the
transition to a common European monetary union. The first stage introduced free capital
movements across Europe and was a part of the 1992 crisis. It continued functioning under the
Maastricht Treaty, which was signed in 1992 and laid the foundation for the European Union.

The second and third stages came in 1998 and 1999 respectively, after the introduction of the
Euro. The EMS and its exchange rate system were replaced by the adoption of the Euro and the
formation of the European Central Bank, which has authority over the EU’s monetary policy.

Agencies that facilitate international flows (International financial institutions)

NOTES BY:
SAMEENA GHAZAL
FACULTY
UNIVERSITY OF LUCKNOW
1 International Monetary fund

The IMF is an organization of 183 member countries. Established in 1946, it aims

 to promote international monetary cooperation and exchange stability;

 to foster economic growth and high levels of employment; and
 to provide temporary financial assistance to help ease imbalances of payments.
 promote cooperation among countries on international monetary issues,
 promote stability in exchange rates
 provide temporary funds to member countries attempting to correct imbalances of
international payments
 promote free mobility of capital funds across countries
 Promote free trade.

Its operations involve surveillance, and financial and technical assistance. In particular, its
compensatory

financing facility attempts to reduce the impact of export instability on country economies. The
IM F uses

a quota system, and its unit of account is the SDR (special drawing right). It is clear from these
objectives

that the IMF‘s goals encourage increased internationalization of business

2 World Bank Group

 Established in 1944, the Group assists development with the primary focus of helping the
poorest people and the poorest countries.

 It has 183 member countries, and is composed of five organizations - IBRD, IDA, IFC, MIGA
and ICSID.

3 IBRD: International Bank for Reconstruction and Development

 Better known as the World Bank, the IBRD provides loans and development assistance to
middle-income countries and creditworthy poorer countries.
NOTES BY:
SAMEENA GHAZAL
FACULTY
UNIVERSITY OF LUCKNOW
 In particular, its structural adjustment loans are intended to enhance a country‘s long-term
economic growth.

 The IBRD is not a profit-maximizing organization. Nevertheless, it has earned a net income
every year since 1948.

 It may spread its funds by entering into cofinancing agreements with official aid agencies,
export credit agencies, as well as commercial banks.

4 IDA: International Development Association

 IDA was set up in 1960 as an agency that lends to the very poor developing nations on highly
concessional terms.

 IDA lends only to those countries that lack the financial ability to borrow from IBRD.

 IBRD and IDA are run on the same lines, sharing the same staff, headquarters and project
evaluation standards

5 IFC: International Finance Corporation

The IFC was set up in 1956 to promote sustainable private sector investment in developing
countries, by  financing private sector projects;

 helping to mobilize financing in the international financial markets; and

 Providing advice and technical assistance to businesses and governments

6 MIGA: Multilateral Investment Guarantee Agency

The MIGA was created in 1988 to promote FDI in emerging economies, by

 offering political risk insurance to investors and lenders; and

 Helping developing countries attract and retain private investment.

7 ICSID: International Centre for Settlement of Investment Disputes

NOTES BY:
SAMEENA GHAZAL
FACULTY
UNIVERSITY OF LUCKNOW
 The ICSID was created in 1966 to facilitate the settlement of investment disputes between
governments and foreign investors, thereby helping to promote increased flows of international
investment.

8 World Trade Organization (WTO)

 Created in 1995, the WTO is the successor to the General Agreement on Tariffs and Trade
(GATT).

 It deals with the global rules of trade between nations to ensure that trade flows smoothly,
predictably and freely.

 At the heart of the WTO's multilateral trading system are its trade agreements. Its functions
include:  administering WTO trade agreements;

 serving as a forum for trade negotiations;

 handling trade disputes;

 monitoring national trading policies;

 providing technical assistance and training for developing countries; and

 Cooperating with other international groups.

9 Bank for International Settlements (BIS)

 Set up in 1930, the BIS is an international organization that fosters cooperation among central
banks and other agencies in pursuit of monetary and financial stability.

 It is the ―central banks‘ central bank‖ and ―lender of last resort.‖

The BIS functions as:

 a forum for international monetary and financial cooperation;

 a bank for central banks;

 a center for monetary and economic research; and

 an agent or trustee in connection with international financial operations.

NOTES BY:
SAMEENA GHAZAL
FACULTY
UNIVERSITY OF LUCKNOW
10 Regional Development Agencies

Agencies with more regional objectives relating to economic development include

 the Inter-American Development Bank;

 the Asian Development Bank;

 the African Development Bank; and

 the European Bank for Reconstruction and Development.

NOTES BY:
SAMEENA GHAZAL
FACULTY
UNIVERSITY OF LUCKNOW