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Macro Economic Environment Of Global Business

Ashish Dwivedi
The New World Order
n Economic groupings replace military groupings
n Business leads the politics
n Enter the globalization and WTO regime
n Size of economy matters over military might

The Ranking of the Big Economies
n GDP Basis
n USA
n JAPAN
n GERMANY
n UK
n FRANCE
n ITALY
n CHINA
n SPAIN
n CANADA
n INDIA
n GDP on PPP basis
n USA
n CHINA
n JAPAN
n INDIA
n GERMANY
n FRANCE
n UK
n ITALY
n BRAZIL
n RUSSIA
Size of An Economy
n How do we measure the size of an economy?
GDP

n What is GDP?
n Flow of goods and services produced in a country in one year.

n Other related terms--
n NDP= GDP - Depreciation
n GNP= GDP + Income from abroad
n NNP= GNP - Depreciation
Indicators of Economic Health
n GDP on PPP basis
n Per Capita Income
n Human Development Index
n Level of Employment
n B.P.L. Population
Risk In International Business

n Regressive vs. Progressive policies

n Political stability

n Confiscation

n Domestication

Ratings…
n What is Rating?
Comparative ranking of countries, companies by independent agencies that reflects the promise/ risk involved in doing business with them.


n TYPES----
1- Sovereign Ratings
2- Economic Ratings


RATINGS… contd.
KEY PARAMETERS---

n Size of economy
n Growth Rate
n Current Account Deficit
n Debt Service Ratio
n Balance of trade
n GDP/ Fiscal Deficit Ratio
Ratings Of Companies
n Size of the company
n Top line growth rate
n Bottom line / Top line Ratio
n Industry’s life cycle
n Company’s goodwill
n R.O.N.A.
n R.O.C.

Monetory Policy
n Who decides this ?
n Central Bank Of a Country

n What it aims to achieve?
n Monetory policy regulates the money supply in an economy.



Tools of Monetory Policy

n Bank Rate
n Open market operations
n CRR and SLR
n Credit ceiling
n Differential Interest Rates
Fiscal Policy
n Who determines this?
n Finance Ministry/ Budget office

n What exactly is this?
n The part of govt. policy which is concerned with raising revenues through taxation and deciding on the level and patterns of expenditure.


Tools of Fiscal Policy

n Level of taxation
n Structure of taxation
n Control of govt. expenditure
n Subsidies and price controls
n Export/ Import Restrictions
Why?
n The whole world moves with repo rates declared by US Federal reserves?

n A large number of shipping companies sport the Liberian flag?

n Bahamas is home to some of the highest net worth individuals?
Foreign money in India
n FDI– FOREX investment in productive capacity, plant machinery etc.


n FII– Foreign pension and mutual funds parking funds in bonds and stocks.
Case in point
n Why FDI is such a preferred source of FOREX?


n Why does China get higher FDI than India?

RAISING FUNDS ABROAD
n Why go abroad?
n Size of Issue
n Cost of getting listed
n Global ambitions

n Who has gone abroad?
Reliance, Infosys, Ranbaxy, Bharti, TCS, TV today, DRL….. ICICI

RAISING FUNDS ABROAD… contd.
n Routes of raising funds abroad—
n GDR
n ADR
n ECB
n IPOs abroad

What must one know?
n Local laws to promote competition
n Local laws to prevent price fixing
n IPR regime of destination country
n Child labour , environmental and health concerns
n Immigration laws
n Peculiarities of host country
EXCHANGE RATE
n How is it determined?
Basket of currency
Role of RBI
n Impact of appreciation of Rupee Vs. USD

n FOREX reserves of 140 billion USD