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INNOVATIVE INTERNATIONAL FINANCIAL PRODUCTS & MARKETS & FUTURE OF INTERNATIONAL FINANCE

Name (Group -8)


Smriti Dwivedi Manojkumar Jaiswar

Roll No
08 18

Ganesh Nagarkar
Sandeep Rokade Vikram Thakur Rakesh Valve

28
38 48 58

WHAT IS INTERNATIONAL FINANCE

International finance activities help organizations engage in crossborder transactions with foreign business partners, such as customers, suppliers and lenders. Government agencies and non-profit institutions also use international finance tools to meet operating needs.

International finance (also referred to as International Monetary economics or international Macroeconomics) is the branch of financial broadly concerned with monetary and macroeconomic interrelations between two or more countries
International finance examines the dynamics of the global financial system, international monetary system, payment, foreign direct investment, and how these topic relate to international trade

International finance is important because it is directly related to international trade, providing policy and oversight.

Companies and individuals can raise funds, invest money, buy inputs, produce goods and sell products and services overseas.

With these increased opportunities comes additional risks. We need to know how to identify these risks and then how to control or remove them.

WHAT IS DIFFERENT?
Concept International Domestics Each country has a know base case Each foreign country is unique and Culture, History and institutions not always understood by MNE Management Foreign countries regulation and Corporate governance institutional practices are all uniquely different MNEs face foreign exchange risks due to their subsidiaries as well as Foreign exchange Risk import/ export and foreign competitors MNEs face political risks because Political Risk of their foreign subsidiaries and high profile MNEs must modify finance Modification of domestics finance theories like capital budgeting and theories cost of capital because of foreign complexities

Regulations and institutional are well known


Foreign exchange risks from import/export and foreing competition (No subsidiaries) Negligible political risks

Traditional financial theory applies

MNEs untilise modified financial Limited use of financial instruments Modification of domestics financial instruments such as options, and derivative because of fewer instruments futures, swaps and letters of credit forieng exchange and political risks

TYPES OF FINANCIAL PRODUCT


TYPE PRODUCT ENTITIES THAT TRADE THEM

Fixed Income: Public Debt Private Fixed Income Preference Shares 1.Marketable Securities

Equities : Listed & Unlisted Shares Subscription rights & free allocation of Shares Units or shares in foreign Co.

Brokers & Dealers Management Entities Foreign ESIs National Credit Entities Authorised Foreign Credit Entities

TYPES OF FINANCIAL PRODUCT

TYPES OF FINANCIAL PRODUCT


Fixed Income: Public Debt Private Fixed Income Preference Shares

Entities
Brokers & Dealers Management Entities Foreign ESIs National Credit Entities Authorised Foreign Credit Entities

Marketable Securities

Equities : Listed & Unlisted Shares Subscription rights & free allocation of Shares Units or shares in foreign Co

Traded in regulated markets

Derivative Products

Financial Futures & Options Warrants Structured Products

Brokers & Dealers

Authorised Foreign ESIs


National Credit Entities

OTC Derivative Products

Products not traded on secondary Markets OTC Forwards FRAs Swaps Options

Authorised Foreign Credit Entities

TYPES OF FINANCIAL PRODUCT


Continue.. Traded in regulated markets Derivative Products Financial Futures & Options Warrants Structured Products Brokers & Dealers Authorised Foreign ESIs National Credit Entities Authorised Foreign Credit Entities Brokers & Dealers Authorised Foreign ESIs National Credit Entities Foreign Authorised Credit Entities.

Products not traded on secondary Markets OTC


OTC Derivative Products Forwards FRAs Swaps Options

FINANCIAL PRODUCT LIFE CYCLE

FINANCIAL PRODUCT LIFE CYCLE

Why is Innovative

Finance
needed in Developing Countries?

Low- and middle-income countries need resources for essential development needs. They need these resources in a timely and predictable manner, and they need to maximize their use of them. The current global economic crisis has increased the challenges of providing timely, predictable funding. For much of the past decade, financial conditions for development assistance were quite favorable. Interest rates and interest-rate premiums were low, and from 2003 to 2007, global credit expanded twice as fast as nominal GDP. Using a range of new financial instruments, banks were able to leverage equity capital as never before, allowing them to fund significant parts of their loan portfolios through the capital and money markets. Partly as a result, developing countries enjoyed a sustained investment boombut that boom came to an abrupt halt in the fall of 2008. Going forward, the challenge is to restore healthy aid levels in the uncertain environment of the continued

HOW DID INNOVATIVE FINANCE TAKE OFF?


At the United Nations Millennium Summit in September of 2000, 189 nations adopted the Millennium Declaration, which set eight Millennium Development Goals to be met by 2015.

These goals brought together in a single platform many of the most important

Commitments made separately at international conferences during the previous decade.

To help assure the achievement of the Millennium Development Goals, a variety of development partners began searching for new sources of fundingfor innovative financing to complement traditional Official Development Assistance.

Development banks began issuing new types of bonds, ones that linked resource mobilization with specific development objectives: for instance, certain debt offerings for sustainable investments were tied to climate-change goals. Sovereign and private donors championed an array of initiatives.

The World Banks vigorous engagement in Innovative Finance stems from 2003.

HOW IMPORTANT IS INNOVATIVE FINANCE IN THE OVERALL DEVELOPMENT PICTURE?


Generating additional funds Making funds more efficient Linking funds to results

IMPACT OF INNOVATIVE FINANCIAL PRODUCT


A Sub-prime loan: Sub-prime mortgage loans (or housing loans or junk loans) are very risky. But since profits are high where the risk is high, a lot of lenders get into this business to try and make a quick buck.
Low Interest rates in 20002001 Triggered borrowing & availability of cheap money Growing demand lead to irrational increase in price

Price fell & the housing bubble collapsed

Lending industry resorted to exotic loans & riskier practices(to keep this booming)

Assumption that the situation will remain same and refinancing would be possible

Default/ Foreclosure

IMPACT OF INNOVATIVE FINANCIAL PRODUCT


Mortgage-backed securities (MBS) A type of asset-backed security that is secured by a mortgage or collection of mortgages. These securities must also be grouped in one of the top two ratings as determined by a accredited credit rating agency, and usually pay periodic payments that are similar to coupon payments. Furthermore, the mortgage must have originated from a regulated and authorized financial institution.

Collateralized debt obligation(CDO) An investment-grade security backed by a pool of bonds, loans and other assets. CDOs do not specialize in one type of debt but are often non-mortgage loans or bonds.

IMPACT OF INNOVATIVE FINANCIAL PRODUCT


Credit default swap(CDS)
A swap designed to transfer the credit exposure of fixed income products between parties. A credit default swap is also referred to as a credit derivative contract, where the purchaser of the swap makes payments up until the maturity date of a contract. Payments are made to the seller of the swap. In return, the seller agrees to pay off a third party debt if this party defaults on the loan. A CDS is considered insurance against non-payment. A buyer of a CDS might be speculating on the possibility that the third party will indeed default.

Adjustable rate Mortgage (ARM)


A type of mortgage in which the interest rate paid on the outstanding balance varies according to a specific benchmark. The initial interest rate is normally fixed for a period of time after which it is reset periodically, often every Month.

HISTORICAL OVERVIEW OF THE INTERNATIONAL MONETARY SYSTEM

The Gold Standard Era Bretton Woods Implications

FUTURE OF INTERNATIONAL FINANCE


The recent past: growth driven by credit, leverage and deregulation.

Deleveraging and a global economic slow down

Increased government intervention

A threat to the pace of globalization`

LONG-TERM SCENARIOS FOR THE FUTURE OF THE GLOBAL FINANCIAL


SYSTEM

CURRENCY UNCERTAINTIES: A BUSINESS ISSUE


It explains why uncertainties related to international currencies create important challenges for businesses, and calls for an assessment of possible alternative future developments of the international monetary system.

THE MAIN CURRENCIES: ANCHORS FOR GLOBAL STABILITY?


It focuses in turn on each currency, assessing the internal adjustment challenges that influence their future international roles as anchors for global stability. It also provides a deep dive on the dynamic interaction of these adjustment challenges at the global and regional levels.

SCENARIOS: THE INTERNATIONAL MONETARY SYSTEM IN 2030


It explains how different combinations of more or less successful adjustments within each currency area form a set of challenging scenarios for the international monetary system in 2030.

WHAT ARE SCENARIOS?

They aim to shift the focus away from preferences and the false security of predictability. They are not predictive in terms of assigning any likelihood or probability to individual scenarios. They aim to raise awareness about the fact that opportunities and risks in each scenario depend on the context, who is involved and how they relate to the overall system. They are not normative in terms of depicting a clear best- or worst-case scenario. They aim to induce creativity in thinking about these challenges and stretch the boundaries of what people perceive as possible futures for which to prepare. They are not exclusive in terms of being the only possible futures.

THANK YOU...