IMBA 520 Week 5

1
IMBA 520 - Week 5

• International Finance and Operations

2
Agenda

• Admin
• Research and procrastinating
• Visualizing information Part 1
• International Trade and Finance
• Call centers in India - video

3
Research Finding stuff and procrastinating

• Challenge Find information on the Political,
  Economic, Social, and Technological environment
  of the business you are studyingOK, but HOW?
• Why is it so hard to get started on the project
  research?

4
Visualizing information

• Essay style NO !!
• Business report style YES !!
• Goal Make the information you are presenting on
  paper to be as clear and illuminating as
  possible.

5
International Trade and Finance

• For your case exam and project you will need to
  ask some simple questions
• Are there legal barriers to doing business in the
  target country ? If yes, how do I deal with them?
• How much capital should I invest?
• Can I get my profits back to my home country and
  currency easily and safely?

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Trade Barriers

• Price-based barriers - tariffs.
• Quantity limits - quotas, embargos.
• International price fixing - cartels.
• Non-tariff barriers
• Rules, regulations, red tape
• Slow processing of import permits
• Quality standards that are hard to meet
• Buy local policy
• Financial limits
• Foreign investment controls

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Tariffs

• Tax on goods shipped internationally
• Import, export, transit
• Specific (Fixed), ad valorem (percentage)

8
Non-Tarriff Barriers

• Quotas
• Buy national restrictions
• Customs valuations
• Technical barriers
• Antidumping legislation, subsidies, and
  countervailing duties
• Agricultural products
• Export restraints

9
Foreign Exchange

• Ping needs to transfer 40,000 to Germany for the
  payment of a piece of equipment, payment for
  which will be due in 30 days. She has U in her
  bank right now.
• She can do this now (spot market) at the
  current rate of 0.78852 for 1 U or in 30 days
  on the forward market at 0.78750.
• Why would she do this now rather than in 30 days?

10
Calculating Annualized Premiums and Discounts of
forward FX transactions

• Annualized forward premium/discount
• ( ( Pf - Ps) / Ps) x n
• Pf 0.78750
• Ps 0.78852
• n number of periods per year (12 in this case)
• Answer -0.0155 or -1.5 forward discount
• She could also have bought an option

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How FX rates change

• Purchasing power parity - arbitrage
• Interest rates (and inflation)
• Confidence in a currency
• Political stability?
• Economic stability?
• Social stability?
• Market manipulators
• Governments?
• Speculators?

12
How should we pay for and receive when doing
business internationally?

• Which currency should we use?
• U is default, but also Euros or local currency
  if no controls and country is stable and you want
  to leave money in that country.
• When and how should we check credit?
• Always and regularly! How?
• Which form of payment should we use?
• (Next week)
• How do we arrange financing?
• Triad? OK. Elsewhere Risk, risk, risk. Use
  export development trade financing

13
What is the difference from a trade and finance
perspective?

• Shipping a container of toys from China to
  Vancouver
• Setting up a call center in India?

14
Call Centers in India

• What are the challenges for the business owner?
• What are the challenges for the employees?
• How sustainable are these call centers in India?
• What comes next after call centers for India?
• How would you feel working in a call center in
  India?