The document discusses the agenda for a lecture on international business management. The agenda includes a case study on investing in Russia, international financial management, the balance of trade and balance of payments, the International Monetary Fund, Asian Development Bank, World Bank, export and import finance methods of payment in international trade, and international financial instruments.

1. Mrs. Charu Rastogi, Asst. Prof.
BALANCE OF PAYMENTS, INTERNATIONAL
MONETARY FUND, ASIAN DEVELOPMENT
BANK
International Business Management

2. AGENDA
 Case Study on Investing in Russia
 International Financial Management
Mrs. Charu Rastogi, Asst. Prof.
 Balance of trade and Balance of payment
 International Monetary fund
 Asian Development Bank
 World Bank
 Introduction to export and import finance
 Methods of payment in international trade
 International financial instruments

3. CASE STUDY: INVESTING IN RUSSIA
 Since the end of the Cold War in 1989, Russia has
been making overtures towards a free market
economy. During the early 1990s annual economic
growth rates among developed countries such as
Mrs. Charu Rastogi, Asst. Prof.
the US, Germany, and Japan dropped from an
average of 5% down to 2%.
 At the same time Eastern European and the
Russian economies fell much more sharply, with
annual growth rates tumbling from 4 per cent in
1988 to - 10 in 1991 ! Clearly, the Russian economy
was in big trouble.

4.  Investment from the West was seen as a way to improve the
economy. However, significant changes needed to take place
to reduce political risk in Russia. Initially, five steps were
recommended by outside experts:
 (1) change the relationship between the national government and
the republics in order to set up a federal political system in which
central powers are limited;
Mrs. Charu Rastogi, Asst. Prof.
 (2) eliminate or slash most state subsidies, including defense
spending, and create a uniform sales tax and personal and
corporate income tax system;
 (3) establish a commercial banking system, boost interest rates,
and create an independent bank that will halt current inflationary
practices;
 (4) break up state monopolies and industrial cartels: and
 (5) free the price of most goods immediately and gradually add to
this list those changes that must be phased in more slowly:
energy, public transportation, housing, and basic consumer
goods such as milk, bread, and meat.

5.  By the mid-1990s things looked good; the republics had
become more autonomous from the Central Government and
new private banks had begun to emerge. Most importantly, by
1997, the private sector accounted for more than half of
Russia‘s output. Some 18,000 industrial firms had been
privatized and over 1 million new businesses were created.
The old Russia, its ideology and institutions, had ceased to
Mrs. Charu Rastogi, Asst. Prof.
exist.
 Yet the late 1990s proved to be a wake-up call to foreign
investors in Russia. The Asian crisis left many feeling Russia
could be next and it would have been had the IMF and the
World Bank not been ready to bail the country out. The
Russian Government had pegged the ruble to the US dollar
and used interest rates to defend the exchange rate. This led
to skyrocketing interest rates that reached over 50 per cent in
peak periods. When the government allowed the ruble to float,
investors lost on the devaluation what they had earned on
interest rates.

6.  What brought this about? While Russia‘s steps towards
liberalization have been significant, the country is only mid-
way to becoming a truly democratic free market. The new
private banks are not real banks. They offer no real credit
system. They lack credibility, which makes Russians more
likely to hold currency or send their savings to foreign banks
than to deposit them in these new banks. A large bureaucratic
Mrs. Charu Rastogi, Asst. Prof.
web still exists and a small corrupt mafia is proving difficult to
police.
 Despite all setbacks, Russia is bound to turn itself around. In
2001, for the first time since the end of communism Russia
had a balanced budget, a trade surplus, reserves, and a
growing economy. In 2000, the economy grew by 8 per cent.
This growth, however, has done little to lure foreign investors
who would rather flock to the Chinese market than face the
volatility and corruption of the Russian economy.

7. QUESTIONS
 What political risks do MNEs face in Russia? Identify and
describe three of them.
What strengths would a consumer goods manufacturing firm
Mrs. Charu Rastogi, Asst. Prof.

bring to the country ? What Russian needs would it help to
meet?
 How could this manufacturer employ integrative or protective /
defensive techniques in the country ? Identify and describe
one approach that could be used for each.

8. 1. POLITICAL RISKS IN RUSSIA
• Political risks
 Arises due to events or actions by host governments
Mrs. Charu Rastogi, Asst. Prof.
● Loss of assets
● Loss of earning power
● Loss of managerial control
● Government takeovers
● Acts of violence
• Government takeovers
• Tariffs, quotas, taxes
• Terrorism, political instability
• Laws, regulations

9. POLITICAL RISKS
Macro risk factors:
 Freezing the movement of assets out of the host
Mrs. Charu Rastogi, Asst. Prof.
country
 Placing limits on the remittance of profits or capital
 Devaluing the currency
 Refusing to abide by the contractual terms of
agreements previously signed with the MNC
 Industrial piracy (counterfeiters)
 Political turmoil
 Government corruption

10. POLITICAL RISKS
Micro risk factors:
 ―Some MNCs are treated differently than others‖
 Industry regulation
Mrs. Charu Rastogi, Asst. Prof.
 Taxes on specific types of business activity
 Restrictive local laws
 Impact of WTO and EU regulations on American MNCs
 Government policies that promote exports and
discourage imports
 Expropriation
 The seizure of businesses by a host country with little, if any,
compensation to the owners
 Indigenization laws
 Laws that require nationals to hold a majority interest in an
operation

11. STRENGTHS THAT CONSUMER GOODS
MANUFACTURING FIRM WOULD BRING AND NEEDS
IT WOULD HELP TO MEET IN RUSSIA
 Lesser need to import from foreign countries: Preserve
precious foreign exchange
 Employment to local population
Mrs. Charu Rastogi, Asst. Prof.
 Development of ancillary industry
 Standard of living of locals rises due to access to better
goods
 Russia has the world's largest reserves of mineral and
energy resource and is the largest producer of oil and
natural gas globally : better utilization of the same and
monetary benefit would accrue to the country
 Oil, natural gas, metals, and timber account for more
than 80% of Russian exports abroad. A consumer goods
industry would enable Russia to diversify its exports

12. INTEGRATIVE OR PROTECTIVE / DEFENSIVE
TECHNIQUES
 Political risk is the likelihood that a business‘s foreign
investment will be constrained by a host government‘s
policy
Mrs. Charu Rastogi, Asst. Prof.
 Integrative, protective, and defensive techniques are a way
of managing political risk
 Integrative techniques help the overseas operation become a
part of the host country‘s infrastructure
 Developing good relations with the host government and
other local political groups
 Producing as much of the product locally as possible with
the use of in-country suppliers and subcontractors
 Creating joint ventures and hiring local people to manage
and run the operation
 Doing as much local research and development as possible
 Developing effective labor–management relations

13. INTEGRATIVE OR PROTECTIVE / DEFENSIVE
TECHNIQUES
 Protective and defensive techniques discourage the host government
from interfering in operations
 Doing as little local manufacturing as possible and conducting all
Mrs. Charu Rastogi, Asst. Prof.
research and development outside the country
 Limiting the responsibility of local personnel and hiring only those who
are vital to the operation
 Raising capital from local banks and the host government as well as
outside sources
 Diversifying production of the product among a number of countries

14. BALANCE OF PAYMENTS
 Balance of payments (BoP) accounts are an
accounting record of all monetary transactions
Mrs. Charu Rastogi, Asst. Prof.
between a country and the rest of the world.
 These transactions include payments for the
country's exports and imports of goods, services,
financial capital, and financial transfers.
 Sources of funds for a nation, such as exports or
the receipts of loans and investments, are recorded
as positive or surplus items. Uses of funds, such as
for imports or to invest in foreign countries, are
recorded as negative or deficit items.

15. COMPONENTS OF BOP : CURRENT ACCOUNT
 Current Account
 Goods – exports (credits)
 Goods are tangibles. In this case, sold to overseas nations and
Mrs. Charu Rastogi, Asst. Prof.
produced in India
 Goods – imports (debits)
 Goods are tangibles. In this case, produced overseas and
purchased by Indians.
 = Net goods (X-M)
 Service – exports (credits)
 Services include transport, travel, insurance charges, telephone
calls, tourist accommodation, education, computer information
services, etc.
 In this case, provided by Indians and sold to overseas nations.
 Service – imports (debits)
 As above, but provided by other nations and purchased by
Indians.
 = Net services (X-M)
 Balance of Trade = net goods + net services

16. COMPONENTS OF BOP : CURRENT ACCOUNT
 Factor income credits
 Incomes paid to Indians from overseas sources, Earnings on investment i.e. income
(rent, profits, dividends), Royalties, Interest
Mrs. Charu Rastogi, Asst. Prof.
 Factor income debits
 As above, but incomes paid by Indians to overseas sources
 Net factor income = credits – debits
 Current transfer credits
 Transfers of funds into India for things such as:
 payouts on insurance claims, aid from overseas governments/nations, pensions
received from foreign governments to Indian residents, money sent from overseas
relatives, gifts from charities in other countries, work remittances from people
working overseas.
 Current transfer debits
 As above, but transfers of funds out of India.
 Net current transfers = credits – debits
 Balance on Current Account = Balance of trade + Net income + Net
transfers

17. COMPONENTS OF BOP : CAPITAL ACCOUNT
 Capital transfers, direct / portfolio investments – credits
 Money coming in to India for things like:
 people migrating and bringing money with them
Mrs. Charu Rastogi, Asst. Prof.
 aid from overseas where addition is made to the capital stock of the
recipient
 purchase and sale of intellectual property rights, including patents,
copyrights, trademarks, franchises, works of art
 movements of government savings offshore (into Indian reserves).
 Capital transfers, direct / portfolio investments…debits
 As for credits, but money going out of India
 Reserve Assets (Money moved by RBI)
 Includes: monetary gold, Special Drawing Rights (―paper gold‖.
Created by the IMF to improve the foreign reserves of member
nations), IMF transactions.
 Total on capital account = credits – debits

18. Mrs. Charu Rastogi, Asst. Prof.

19. BOT VS BOP
Basis Balance of Trade (BOT) Balance of Payment (BOP)
Mrs. Charu Rastogi, Asst. Prof.
Balance of trade may be Balance of payment is flow of cash
defined as difference between domestic country and all other
Definition between export and foreign countries. It includes not only
import of goods and import and export of goods and services
services. but also includes financial capital transfer.
BOP = BOT + (Net Earning
on foreign investment - payment made to
foreign investors) + Cash
BOT = Net Earning on Transfer + Capital Account +or -
Formula Export - Net payment for Balancing Item
imports or
BOP = Current Account + Capital
Account + or - Balancing item ( Errors
and omissions)

20. BOT VS BOP
Basis Balance of Trade (BOT) Balance of Payment (BOP)
• Balance of Payment will be favourable, if
Mrs. Charu Rastogi, Asst. Prof.
you have surplus in current account for
paying your all past loans in your capital
If export is more than
account.
import, at that time, BOT
• Balance of payment will be
Favorable or will be favourable. If
unfavourable, if you have current
unfavorable import is more than
account deficit and you took more loan
export, at that time, BOT
from foreigners.
will be unfavourable.
• After this, you have to pay high interest
on extra loan and this will make your
BOP unfavourable.
Solution of To buy goods and
To stop taking of loan from foreign
unfavorable services
countries.
problem from domestic country

21. BOT VS BOP
Basis Balance of Trade (BOT) Balance of Payment (BOP)
Following are main
Mrs. Charu Rastogi, Asst. Prof.
factors
which affect BOT Following are main factors
a) cost of production which affect BOP
Factors b) availability of raw a) Conditions of foreign lenders.
materials b) Economic policy of Govt.
c) Exchange rate c) all the factors of BOT
d) Prices of goods
manufactured at home

22. Mrs. Charu Rastogi, Asst. Prof.
INTERNATIONAL MONETARY FUND

23. IMF
 The International Monetary Fund (IMF) is an
organization of 188 countries, working to foster global
monetary cooperation, secure financial stability, facilitate
Mrs. Charu Rastogi, Asst. Prof.
international trade, promote high employment and
sustainable economic growth, and reduce poverty
around the world.
 Goals of IMF:
 promoting international monetary cooperation;
 facilitating the expansion and balanced growth of international
trade;
 promoting exchange stability;
 assisting in the establishment of a multilateral system of
payments; and
 making resources available (with adequate safeguards) to
members experiencing balance of payments difficulties
 More Details: IMF at a Glance

24. ROLE OF IMF IN CURRENT ECONOMIC
SCENARIO
 The global economic crisis created the worst recession
since the Great Depression of the 1930s. The crisis
began in the mortgage markets in the United States in
Mrs. Charu Rastogi, Asst. Prof.
2007 and swiftly escalated into a crisis that affected
activity and institutions worldwide.
 The IMF mobilized on many fronts to support its
member countries, increasing its lending, using its
cross-country experience to advise on policy solutions,
and introducing reforms to modernize its operations and
become more responsive to member countries‘ needs.
As the apex of the crisis shifted to Europe, the Fund has
become actively engaged in the region and is also
working with the G-20 to support a multilateral approach

25. ROLE OF IMF IN CURRENT ECONOMIC SCENARIO
 A partner in Europe: The IMF is actively engaged in Europe as a provider of
policy advice, financing, and technical assistance
 Reinforcing multilateralism: The crisis highlighted the tremendous benefits
from international cooperation. Without the cooperation spearheaded by the
Mrs. Charu Rastogi, Asst. Prof.
Group of Twenty industrialized and emerging market economies (G-20) the
crisis could have been much worse.
 At the request of the G-20, the IMF provides the technical analysis needed to
evaluate how members‘ policies fit together—and whether, collectively, they
can achieve the G-20‘s goals.
 Rethinking macroeconomic principles: In this context, the IMF is
encouraging a wholesale re-examination of macroeconomic policy principles
in the wake of the global economic crisis.
 Stepping up crisis lending: IMF has approved a major overhaul of how it
lends money by offering higher amounts and tailoring loan terms to countries‘
varying strengths and circumstances.
 Strengthening the international monetary system
 Supporting low-income countries: The IMF has upgraded its support for
low-income countries, reflecting the changing nature of economic conditions
in these countries and their increased vulnerabilities due to the effects of the
global economic crisis.

26. FUNCTIONS OF IMF
 Providing short terms credit to member countries
for meeting temporary difficulties due to adverse
Mrs. Charu Rastogi, Asst. Prof.
balance of payments.
 Reconciling conflicting claims of member countries.
 Providing a reservoir of currencies of member-
countries and enabling members to bor-row on
another's currency.
 Promoting orderly adjustment of exchange rates.
 Advising member countries on economic, monetary
and technical matters.

27. ASIAN DEVELOPMENT BANK
 ADB is a multilateral development finance institution
dedicated to reducing poverty and improving living
standards of people in Asia and the Pacific. It was
Mrs. Charu Rastogi, Asst. Prof.
established in 1966, currently comprising 67 members,
mostly from the Asia-Pacific region. Its headquarters is
located in Manila, Philippines.
 Whether it be through investment in infrastructure,
health care services, financial and public administration
systems, or helping nations prepare for the impact of
climate change or better manage their natural
resources, ADB is committed to helping developing
member countries evolve into thriving, modern
economies that are well integrated with each other and
the world.
 The main devices for assistance are loans, grants,
policy dialogue, technical assistance and equity
investments.

28. POSSIBLE QUESTIONS
 Explain all the modes of payment used in international business.
Discuss various types of L/Cs.
 Write short notes on:
Mrs. Charu Rastogi, Asst. Prof.
 Balance of payment vs. balance of trade
 Asian Development Bank
 Balance of payment
 Types of Letter of Credit
 Explain the role played by ‗International Monetary Fund‘, ‗Asian
Development Bank‘ and World Bank in promotion of International
Trade
 Explain the functions of International Monetary Fund.
 What are various methods of payment in International Trade?
 Discuss the role of World Bank in International Financial
Management.

29. Mrs. Charu Rastogi, Asst. Prof.