Q what is a spot transaction ?

A- Spot transaction. A foregin exchange transaction in which each party promises to pay a certain amount of
currency to the other on the same day or within one or two days.

Key features of a spot transaction include:

1. Immediate settlement:. 2. Current market price: 3. No future delivery:

Examples of Spot Transactions:

 Currency Exchange: 2. Commodities: 3. Stock Trades

Q what are payment systems?

A The 'payments system' refers to arrangements which allow consumers, businesses and other organisations
to transfer funds usually held in an account at a financial institution to one another.

Example- cash payments, bank transfer , credit and debit cards , online payment system

Q meaning of FDI

A Foreign direct investment (FDI) is an investment made by a company or an individual in one country into
business interests located in another country.

Q what is inflation

A inflation is the rate of increase in prices over a given period of time. Inflation is typically a broad measure,
such as the overall increase in prices or the increase in the cost of living in a country.

Q IMF’s funding sources

A IMF funds come from three sources: member quotas, credit arrangements, and bilateral borrowing
agreements.

Q what is the domestic foreign exchange market ?

A This market determines foreign exchange rates for every currency. It includes all aspects of buying, selling
and exchanging currencies at current or determined prices. In terms of trading volume, it is by far the largest
market in the world, followed by the credit market.

Q domestic foreign exchange market purposes:

1. Facilitating international trade and investment by enabling currency exchange.

2. Establishing exchange rates based on market supply and demand.

3. Providing liquidity for currency transactions.

4. Hedging currency risk through financial products.

5. Helping central banks implement monetary policies to stabilize the economy.

6. Promoting capital flows and supporting economic development.

Q what is free trade ?

A free trade, also called laissez-faire, a policy by which a government does not discriminate against imports
or interfere with exports by applying tariffs (to imports) or subsidies (to exports).
Q what is the foreign exchange market ?

A The foreign exchange market or the forex market, is the largest and most liquid financial market in the
world. It is where different currencies are bought and sold, with the exchange rate determining the value of
each currency relative to another.

Q Purpose of global foreign exchange market ?

A 1 Facilitating international trade by enabling currency conversion.

2 Providing liquidity and helping with price discovery.

3 Supporting investment and capital flows across borders.

4 Allowing participants to hedge against currency risk.

5 Helping central banks manage monetary policy and stabilize currencies.

6 Contributing to global economic stability through efficient exchange rate adjustments.

7 Enabling speculation and enhancing market liquidity.

8 Providing a platform for currency conversion and cross-border remittances.

Q define transnational corporation

A A transnational corporation (TNC) is a company that has operations in multiple countries. TNCs are also
referred to as multinationals. These companies are usually registered in all countries they operate in, and
hold large amounts of revenue-generating assets

Q what is the primary role of the bank for international settlements ?

A Bank for International Settlements (BIS) is an international financial institution that plays a crucial role in
promoting global monetary and financial stability. Established in 1930 and headquartered in Basel,
Switzerland, its primary role is to serve as a bank for central banks, providing a platform for international
cooperation in the field of central banking and monetary policy.

Role—1. Fostering International Monetary and Financial Cooperation:

2 Supporting Central Banks' Operations:

3 Conducting Research and Analysis:

4 Promoting Financial Stability:

5 Providing Technical Assistance and Advisory Services:

6 Developing Global Standards and Guidelines:

Q what is a balance of payment

A The Balance of Payments (BOP) is a comprehensive record of all financial transactions made between a
country and the rest of the world over a specific period, typically a year or a quarter. It tracks the flow of
goods, services, income, and capital into and out of the country, reflecting its economic relationships with
other countries. The BOP is divided into two main accounts:

1. Current Account 2. Capital and Financial Account

Q international monetary fund ?

A The International Monetary Fund (IMF) is an international financial institution established in 1944 with
the primary aim of promoting global monetary cooperation, ensuring financial stability, facilitating
international trade, fostering high employment, and contributing to sustainable economic growth around
the world. The IMF provides financial assistance, policy advice, and technical assistance to its member
countries, particularly during times of economic crisis or when facing balance of payments problems.

main purposes of the IMF:

1. Promote International Monetary Cooperation

2. Ensure Financial Stability

3. Provide Financial Assistance

4. Promote Economic Growth and High Employment

5. Provide Policy Advice and Technical Assistance

6. Reduce Global Poverty

Q how do MNCs determine their capital structure

A Multinational Corporations (MNCs) determine their capital structure (the mix of debt and equity used to
finance their operations) based on several factors, each of which depends on the company's goals, financial
situation, market conditions, and risk tolerance. Capital structure decisions are critical because they affect
the MNC's financial stability, cost of capital, and ultimately, shareholder value.

influencing MNC Capital Structure:

 Cost of capital and financial risk.

 Cash flow stability and market conditions (interest rates, stock market conditions).

 Tax considerations and regulatory environment.

 Flexibility (control vs. cost of financing) and access to international capital markets.

 Agency costs and corporate governance considerations.

Q key components of capital structure for MNCs

A The components of capital structure for MNCs are similar to those of any corporation, but they are
influenced by unique factors such as international financing, currency risks, tax considerations, and the need
for flexibility across different markets.

key components of capital structure for MNCs:

1. Debt Financing

2. Equity Financing

3. Hybrid Instruments

4. Internal Financing (Retained Earnings)

Aspect Foreign Direct Investment (FDI) Foreign Institutional Investors (FII)

Definition Investment in physical assets or business Investment in financial assets (stocks,

Aspect Foreign Direct Investment (FDI) Foreign Institutional Investors (FII)

operations in a foreign country. bonds, etc.) in foreign markets.

Nature of Long-term, involves control or significant Short-term or medium-term, financial

Investment influence over business operations. assets only, no control.

High level of control or ownership in the

Control No control, purely financial investment.
foreign business.

Investment
Long-term, intended for sustained operations. Short-term, market-driven decisions.
Duration

Direct impact on employment, infrastructure, Indirect impact, often limited to boosting

Economic Impact
and technology transfer. financial markets.

More stable, but subject to political and More volatile, sensitive to market
Risk
economic risks. conditions.

Corporations, businesses, and wealthy Investment funds, mutual funds, pension

Source of Capital
individuals. funds, hedge funds.

Q Summary of Differences:

Aspect Domestic Financial Management International Financial Management

Single country, uniform legal and Multiple countries, diverse legal and
Scope
economic environment. regulatory environments.

Deals with multiple currencies and

Currency Risk Deals with one currency.
exchange rate fluctuations.

Regulatory One set of regulations, accounting Multiple regulatory and tax systems across
Environment standards, and tax laws. different countries.

Financial risk within the domestic Political risk, economic risk, currency risk,
Risk
economy (e.g., interest rates, credit risk). and legal risks across borders.

Based on domestic market conditions and Considers global financing sources,

Capital Budgeting
financing availability. exchange rates, and international risks.

Primarily domestic banks, bond markets, International markets, foreign banks, and
Funding Sources
and stock exchanges. cross-border investments.

More straightforward, based on domestic More complex, involving multiple countries'

Capital Structure
factors. financial and economic environments.

Global diversification across regions and

Diversification Limited to the domestic economy.
markets.

Market and Domestic economic conditions (e.g., Global factors (e.g., international trade
Economic Factors inflation, GDP growth). policies, foreign market conditions).