FINANCIAL GLOBALISATION

Prepared by:

Ashish kumar-19

Fahad arifee-26

Venkata prasad-35

Lalit chaudhary-38

Sumit singh-80

Anurag sharma-

Financial Globalization

Financial globalization, by definition, means the integration of financial markets of all countries of the world into one

The Globalization of Finance means the flow of capital and corporate investments between various countries

The need for a single currency

Main agentsGovernmentsBorrowers and investorsFinancial institutions

BENEFITS OF FINANCIAL GLOBALIZATIONIncrease of fundsIncreased capital flowsPrevention against financial crisisInternational living standards

EURO – The currency of Europe

The effect of the introduction of the euro

Trade - The introduction of the euro is that it has increased trade within the euro area by 5% to 10%

Investment - Physical investment increased by 5% The intra-Eurozone FDI stocks have increased by about

20% Financial integration - It has “significantly reshaped the

European financial system, especially with respect to the securities markets”

Exchange rate riskEffect on interest ratesTourism

Financial globalization and financial sector development

Two main channels through which financial globalization promotes financial development.

new type of capital and more capital are available to developing countries

financial globalization leads to a better financial infrastructure

Foreign Direct Investments

Foreign direct investment (FDI) in its classic form is defined as a company from one country making a physical investment into building a factory in another country. It is the establishment of an enterprise by a foreigner.

For an investment to be regarded as an FDI, the parent firm needs to have at least 10% of the ordinary shares of its foreign affiliates. The investing firm may also qualify for an FDI if it owns voting power in a business enterprise operating in a foreign country.

Does Foreign Direct Investment Help Emerging Economies?Bridges the gap between the world’s rich and

poor countriesFDI’s StabilityFDI and TradeFDI, Savings and Investment

Examples of FDIPOSCO setting up a steel plant in Orissa (in-

bound FDIAlliance InsuranceMetLifeBarclaysBank of americavodafone which has a 52% stake in

hutch(now vodafone)

Types of FDI

By DirectionInwardoutward

By TargetGreenfield investmentMergers and Acquisitions

CURRENT FINANCIAL GLOBALISATION INVESTMENT SCENARIO IN INDIAINWARDS-

India is being ranked as the second most favored destination for foreign investments after China by showing a growth year after year.

As per the figures released by Department of Industrial Policy and Promotion (FDI) inflows during 2008-09 (from April 2008 to March 2009) stood at approx. US$ 27.3 billion and inflows for the last quarter alone of 2008-09 stood at approx. US$ 6.2 billion

OUTWARDAs per the figures released by Reserve Bank of

India the total outward investment from India, excluding that were made by individuals and banks, rose 29.6 per cent to US$17.4 billion in 2007-08. The second highest foreign employer in the UK is India after the US

With various mergers and acquisitions Indian businessmen are expanding their horizons and creating a mark in the International arena. Companies like Apollo Tyres, Eveready Industries etc are among some of the companies which are investing abroad.

ADR & GDRAmerican depository receipt

Global depository receipt

American Depository Receipt (ADR)

An American Depository Receipt (ADR) is a stock which trades in the United States (US) but represents a specified number of shares in a non-US corporation (like Infosys, etc). ADRs are bought and sold on American stock markets just like regular stocks, and are issued/sponsored in the U.S. by a bank or brokerage.

Global Depository Receipt - GDR

If the depository receipt is traded in a country other than USA, it is called a Global Depository Receipt, or a GDR

CONCEPT OF ADR & GDRThe company deposits a large number of its

shares with a bank The bank issues receipts against these

sharesEach receipt having a fixed number of shares

as an underlying (Usually 2 or 4)These receipts are then sold to the people of

this foreign country (and anyone who is allowed to buy shares in that country). These receipts are listed on the stock exchanges.

Company ADR GDR

Bajaj Auto No Yes

Dr. Reddys Yes Yes

HDFC Bank Yes Yes

Hindalco No Yes

ICICI Bank Yes Yes

Infosys Technologies Yes Yes

ITC No Yes

L&T No Yes

MTNL Yes Yes

Patni Computers Yes No

Ranbaxy Laboratories No Yes

Tata Motors Yes No

State Bank of India No Yes

VSNL Yes Yes

WIPRO Yes Yes

INDIAN COMPANIES HAVING ADR/GDR-

Countries can benefit from globalization

Advanced countries and financial globalization

Aid or Trade Doing Good Is Also Doing WellHypocrisy of Rich Countries

FOREIGN INSTITUTIONAL INVESTORS

FII is used to denote an investor, who invests money in the financial markets of a country different from the one in which that investor is incorporated

INTRODUCTION

Investments made by residents of a country in

financial assets and production processes of

another country

Foreign Investments

FIIs

Who are they ?

Institutions like pension funds ,mutual funds, investment trusts, asset management companies, nominees companies and incorporated portfolio managers

FIIs

Where they can invest?

Under securities such as shares, debentures and warrants issued by Indian companies which are listed /to be listed on the Stock exchange in India

The schemes floated by domestic mutual funds, traded on the primary and secondary markets.

In government securities including treasury bills and debt securities of Indian companies.

POSITIVE ASPECTS OF FII Improving capital marketsFIIs as professional bodies of asset

managers and financial analysts enhance competition and efficiency of financial markets

Equity market development aids economic development. By increasing the availability of riskier long term capital for projects, and increasing firms’ incentives to provide more information about their operations, FIIs can help in the process of economic development.

POSITIVE ASPECTS OF FII Improved corporate governanceFIIs constitute professional bodies of asset

managers and financial analysts, who, by contributing to better understanding of firms’ operations, improve corporate governance.

Bad corporate governance makes equity finance a costly option.

Institutionalization increases dividend payouts, and enhances productivity growth.

EXAMPLES OF FII INVESTMENTS J P Morgan Securities and Morgan Stanley & Co have jointly invested

US$ 103 million in the ADS (American Depositary Shares) offering of Sterlite Industries.

Shareholding pattern (April-June quarter) of public sector unit (PSU) companies reveal that FIIs have been big buyers in PSU banks. FII holdings in Central Bank, Vijaya Bank, Union Bank, IDBI Bank, Indian Overseas Bank, SBI and term lenders IFCI and IDFC have gone up significantly during the first quarter of FY 2009-10.

A clutch of foreign and domestic institutional investors and mutual funds have acquired stakes in engineering firm Texmaco—a K K Birla group company—through a recently completed US$ 37.3 million qualified institutional placement (QIP).

Canadian investment firm, Urbana Corporation, is likely to buy a 5 per cent stake in the National Stock Exchange, India’s largest bourse.

The US-based private equity fund major, Fire Capital, has earmarked US$ 500 million equity investment to be spent over a period of five years on various realty projects, particularly on integrated townships, across the country.

Investors, such as ATE Enterprises, Denmark-based Best Seller, Sequoia Capital, the Netherlands-based Cordaid etc., from the US and European countries are keen to invest around US$ 420.84 million to promote and equip small and medium enterprises engaged in green business, according to New Ventures India (NVI).

Established in 1944Organization of 184 countriesSurveillance Medium turn loansTechnical assistanceDecision’s are taken by 24 member boardU.S,U.K,France,Japan ,Germany, China,Russai and Saudi

Arabia

INTERNATIONAL MONETORY FUND

IMF taken the role as a international lender of government (LATIN AMERICA)

The role of IMF increased during the financial crises in

ARGENTINA in 2001 -2002

MEXICO in 1994-1995

EAST ASIA in 1997-1998

Major shifts in economic policy

THE ADAPTION OF CONVERTIBILITY PLAN

Convertibility plan fails to make labor and product market flexible and also fails to promote fiscal responsibility

Convertibility plan is the main reason for down fall of argentine economy

ARGENTINA 2001-2002

• With the help of IMF

WHAT HAPPENED TO ARGENTINA ECONOMY?

• Economic growth rate was 10%• Unemployment had fallen to below 15%

APEC:Asian Pacific Economic Cooperation

Formed in 1989

Members of APEC “16 countries”

APEC: AN ENGINE FOR GLOBAL ECONOMIC GROWTH

FDI role in host APEC Countries and for APEC members investors

Highly benefited countries like Indonesia , Malaysia,

and Thailand

• FLYING GEESE PATTERN OF FIVE TIGERS

Poor nation --------Newly industrialize Economy

1% in FDI = Income raises by 0.5992%

Gains are used in java island

The number of people living below the poverty line is decreased

INDONESIA ECONOMY

Employment from mnc’s

CHINA

SANYO

VOLVO It is Swedish company

Founded in 1927

Mainly known for heavy commercial vehicles

Total worth- 44.33 USD billion (World wide)

Total employees-101,400 (World wide)

Employees in China- 10,433

BRAZIL

HSBC

It is Hong Kong based bank Founded in 1865 Have 9500 offices in 85 countries Total assets- 2.527 trillion USD In Brazil, it was founded in 1952 No. of employees- 3,31,458 ( World wide) No. of employees- 28000 (Brazil) Total assets-65.13 billion USD(Brazil)

INDIA

IBM It is U.S based IT company

Founded in 1911

It is 243.63 billion USD company

It has invested 19 billion USD in India

No. of employees- 3,98,455 (World wide)

No. of employees- 1,29,990 (India)

SAMSUNG It is Korean company Founded in 1938 Turnover is 1 billion USD Total worth- 350 USD billion(World wide) No. of employees- 2,76,000(World wide) No. of employees- 1600( India) In India, they have 20 branch offices and 40 area

sales offices They are going to add 950 employees

LG It is Korean company

Founded in 1958

2nd biggest TV maker

3rd biggest mobile maker

Turnover in India is 2.2 billion USD

No. of employees- 82,772 (World wide)

No. of employees- 5000( India)

HONDA It is Japan based company

Founded in 24 sept 1948

Total assets of company- 124.98 billion USD

It has invested 800 crore rupees

No. of employees – 1,18,876( World wide)

No. of employees – 5300 (India)

NOKIA It is Finland based company

Founded in 1865

Total assets – 59.0405 billion USD (world wide)

Total revenue-75.6569 billion USD(world wide)

No. of employees- 1,23,347 in 120 countries

No. of employees- 5600(India) Sales- Rs.10,900 crore(India)