International Finance

Chapter no 3
International Finance
Countries across the world have been trading goods and services for centuries. No country is is self-sufficient
in the production of all goods. Therefore, exchange of goods and services amongst each other is a natural
choice. Every country has its own national currency India uses Indian Rupee (INR), South Africa has Rand,
Japan uses Yen, United States of America uses Dollar (USD), European Union has Euro etc. These currencies
are legal tender in their respective countries. However, many of these currencies cannot be used as legal
tender outside the geographical boundaries of the country. Currency conversion thus becomes essential for
international trade.
In contrast to the simple trading of goods that took place centuries ago, complexity in trading and
foreign exchange have intensified. Modes of international payment and credit have become complicated.
Foreign exchange market, recording and reporting of international financial transactions and agencies
involved in international trade have also expanded.
This chapter discusses nuances of international trade and international finance. It will help students to
understand how exchange rates are determined and draw awareness to the terms used in context of
international trade. This chapter will also discuss how reporting and recording of international financial
transactions take place in the Balance of Payments. proposes to examine the various financial institutions
involved in promotion and development of trade. Lastly, it discusses the objectives and functions of global
financial institutions such as World Bank and International Monetary Fund.
Foreign Exchange:
Meaning In simple words foreign exchange means currency of a foreign country. Foreign money and
other instruments denominated in foreign currency are also called foreign exchange. In India, foreign
exchange has been defined under section 2(n) of the Foreign Exchange Management Act. It includes the
following:
1. Deposits, credits and balances payable in any foreign currency.
2. Drafts, traveller's cheques, letters of credit or bills of exchange, expressed or drawn in Indian currency
but payable in any foreign currency.
3. Drafts, traveller's cheques, letters of credit or bills of exchange drawn by banks institutions or persons
outside India, but payable in Indian currency.From the above definition it follows that foreign exchange
refers to foreign money which includes notes, cheques, bills of exchange, bank balances and deposits in
foreign currency.

Foreign Exchange Market

The market where one currency is traded for another is called foreign exchange market is not a
localized market or one which is located at a specific place. It is a 24x7 market which exists through a
network of information systems. The infrastructure of the market comprises of banks engaging in foreign
exchange transactions which are connected by telecommunication networks. It is the largest market in the
whole world as far as volume of transactions are concerned. It extends in all continents.
Transactions in the foreign exchange market are derived from international transactions happening in
the market for commodities, services and assets. For every international sale or purchase of commodities,
services or assets there is a corresponding international sale or purchase of foreign exchange.
Players of the Foreign Exchange Market
There are various participants in the foreign exchange market. The major ones being commercial banks,
central banks, non-banking financial institutions, exporters, importers, foreign investors etc. Individuals also
participate in this market. For example, international students, tourists travelling abroad also engage in
demanding and selling foreign exchange. Some of them have been discussed below.
1. Authorized Dealers :- All scheduled commercial banks have been authorized in India by the Reserve
Bank of India (RBI) to deal in purchasing and selling foreign exchange to end users of foreign exchange.
In fact, RBI issues a license to commercial banks to conduct such transactions. All authorized dealers
conduct transactions in accordance to the norms of exchange control regulations of the RBI. Commercial
banks can play various roles in the foreign exchange market. Some of them include the following:
(a) On account of trade transactions, banks provide foreign exchange to Importers (sell forex) and accept
foreign exchange from exporters (buy forex).
(b) Mediate between importers and exporters.
(c) Buy and sell foreign exchange to tourists, students travelling abroad.
(d) Generate profits from trading in the foreign exchange markets taking advantage of fluctuating rates.
(e) Inter-bank transactions.

2. Central Bank :- The Reserve Bank of India is the central bank of the country. The primary responsibility
of a Central bank in a country is to maintain the external value of a country's currency. It manages the
exchange rate and also maintains foreign exchange reserves. For this purpose, it may choose to intervene in
the foreign exchange market.
3. Customers :- Customers are the ultimate users and providers of foreign exchange in the market. They
include exporters, importers, tourists, international students, foreign investors among others For example,
an importer, may want to pay his supplier in US dollars and therefore will require the services of a bank
to convert his Indian Rupees into dollars, Similarly, an American tourist visiting the Taj Mahal, may want
to convert his dollars into Indian Rupees to spend the same in India.

4. Foreign Exchange Brokers :- Dealing in forex markets can be done in the inter-bank market through
dealers, though authorized dealers are now allowed to deal directly among themselves without the
services of a broker.

5. Speculators :- Speculators are participants in the foreign exchange market who transact to make profit
arising out of fluctuations in the foreign exchange rates in different countries. Banks, MNCs, NBFL
Governments and other corporate entities can speculate in the market.All these entities can either make
profits or incur losses depending on the movement of foreign exchange currency invested in.
Foreign Exchange Rate
A foreign exchange rate is a rate at which one currency is exchanged for another. It is a value of one currency in
terms of the other currency. A foreign exchange rate (usually called as forex rate) is the price a person would pay to buy a
unit of currency of another country .
For example, 1-EUR 90.6011. $1 = 75VSD: 86.It shows the relative value of US Dollar in Indian Rupees and vice versa.
If an Indian wished to purchase 1 unit of US dollar, he would have to pay 75 in order to procure it. Millions of
international transactions get carried out across the globe every single day. As discussed above, they could be exports,
imports and foreign investments. These transactions change the demand and supply of different currencies in the foreign
exchange market. This occurs on an ongoing basis which results in a change in the value of the relative currencies. The
forex rate is published in most financial sections of newspapers. It can also be viewed real time on the internet.

Different Types of Quotations

One of the major functions of a Foreign Exchange Market in any country is to provide various types of Quotations, also
called Quotes. A quote is given in pairs of two currencies. Some of the major quotes are as follows:

1. Direct and Indirect Quote :- A direct quote is one, which represents the units of domestic currency in terms of one
unit of foreign currency. For example, $175.123 is a direct quote. An Indirect quote is one, which represents the units
of a foreign currency in terms of one unit of domestic currency. For example, 1 = US $0.0012 in an indirect quote.
2. Bid Rate and Ask Rate :- Bid rate is the rate at which an authorized dealer is willing to buy a currency at. Ask rate
is the rate at which an authorized dealer is willing to sell a foreign currency for. Often, Bid Rate and Ask Rate are
quoted in pairs such as 75.0723/75.9876. The difference between Bid and Ask rate is called a spread.
3. Cross Quotes :- A cross rate in a nation is a quote involving two foreign currencies. Neither of the two should be the
official currency of the country in question. For example, US $1 = £ 0.768
Determination of Exchange Rate Fixed, Flexible and Managed
As discussed in the previous section, an exchange rate is the rate at which one currency is exchanged
for the other currency. It is thus the value of one currency in terms of the other. Cross-border transactions
require exchange of one currency into other. This is so because every country has its own national currency
which may not be an internationally acceptable one. For example, Indian Rupee or Bangladesh Taka is not
an internationally acceptable currency for payment abroad. A supplier may demand to receive his payment in
US dollars or Euros rather than in Bangladesh Taka. Therefore, to facilitate these foreign transactions, local
currencies may be converted to acceptable currencies such as US dollar, Great British Pound or Euro among
others . Cross border transactions such as tourism, international trade, foreign investments and monetary
movements have increased significantly over the years. Hence, the need of a robust yet transparent exchange
rate conversion mechanism has assumed importance.
The mechanisms to determine foreign exchange rates have evolved. Prior to World War 1, Gold
standard was followed. In this system, exchange rates remained fixed. The value of a currency was linked to
Gold Reserves. The more the gold reserves held by a country, the stronger would be the currency value and
vice versa. Moreover, the gold reserves dictated the amount of money in circulation by the monetary
authorities in a country.
A. Fixed Exchange Rate System :-
Under this system, the relative exchange rates remained constant. Introduced before the world war periods, the
objective of this system was to maintain stability and certainty. To achieve the required stability in the external
value of a currency, the government would maintain large reserves of gold and/or foreign currencies. Two
methods under the fixed exchange rate system that were adopted in the past have been briefly discussed below.

1. Gold Standard :- The Gold Standard was introduced in England in 1821. It was later adopted in 1870s by
United States, Germany and France. By the late 1800s, several other countries followed suit. The system of
Gold Standard was used until the beginning of World War L Under this system, the exchange rates remained
constant. The value of a currency was linked to Gold Reserves that were in possession of a country. Higher
the reserves of gold, higher the amount of money in circulation. Smaller the reserves of gold with a country,
central bank would have to adjust the money in circulation, keeping the exchange rate fixed . To illustrate
with an example , To fix the foreign exchange rate between $ and £, both England and USA would have to
declare the amount of gold reserves in possession that would be backing every unit of their currency. Let us
take for instance, that in USA, every $1 has 1/20 ounces of gold; and in England for every £1 has ¼ ounce of
gold backing every unit of currency. The exchange rate will now be fixed on the ratios of the gold backing
each of these currencies in their respective countries.
Gold Standard posed numerous challenges. One, it required all trading countries to maintain gold reserves. Also,
settlement of payments in gold during war periods became difficult. This system was finally given up by Britain
and many other European countries by 1931, and by 1934, USA left this system too.
2. Bretton Woods System of Exchange Rates :- After World War II, newly established International Monetary Fund was given the
charge of coming up with an Exchange rate conversion mechanism. The exchange rates were to remain stable. The system is
commonly known as IMF system of exchange rate or the Gold-Bullion Standard . Under this exchange rate system, all currencies
were pegged to the US Dollar. Only USA was expected to maintain gold reserves. Hence, the dollar became a reserve currency. The
dollar value was fixed to quantity of gold in the USA. It was fixed at $35 for an ounce of gold. Each country had to declare the
pegged value. Once declared, monetary authorities had to maintain the exchange rate with a variation of 1% if required.

Arguments in Favour of Fixed Exchange Rate System :-

1. Stability of Exchange Rates: It was often pointed out that stability of exchange rates brought about certainty and stability in
trade transactions. Exporters would know exactly how much they would receive for goods exported. Similarly, importers would
know the amount to be paid in due course, eliminating risk in future. This led to the orderly development of trade.
2. Prevention of Speculation :- Speculation is an activity carried out to earn money arising due to fluctuations in exchange rate.
Under the fixed exchange rate system, relative values of currencies remained constant. This prevented speculation activity in the
foreign exchange market.
3. Prevention of Capital Flight: Capital flight refers to a process of excessive capital outflow. This process often happens during
an economic crisis, when people lose confidence in a currency, and value of a currency depreciates rapidly. However, since
under the fixed exchange rate system, exchange rates remained stable, such capital outflow would not happen.
4. Monetary Discipline: Under this system, monetary authorities had to maintain discipline to ensure that exchange rates
remained stable. For this, they were required to keep a check on the amount of money in circulation and keep the currency-gold
reserve ratio constant.
5. Suitable for Small Countries: It was argued that fixed exchange rate system was suitable for smaller nations, whose
development and growth was dependent on foreign trade. Flexible exchange rate if moving frequently could create issues of
inflation in such countries.
6. Promotion of Capital Markets: Fixed exchange rate system reduced the uncertainty in capital markets. Fluctuations in
exchange rates could result in capital loss. However, this system ensured that foreign investors did not lose money on account of
the exchange rate movement. This led to promotion of capital movement and capital market.
Arguments Against Fixed Exchange Rate System
1. Monetary Disturbance: This system required central banks to maintain the gold reserve-currency ratios
stable. This resulted in sudden expansion and contraction of currency in circulation, leading to monetary
disturbance such as inflation and deflation within the country.

2. Need of Strict Exchange Controls: Fixed exchange rate system required every country to adhere to strict
exchange controls. This was often not conducive to their growth and development.

3. Requirement of Gold Reserves: The most fundamental problem with this system was that every country
following this system had to maintain large reserves of gold. If a country did not have gold, they would not be
able to participate in trade.

4. Impossible during War Periods: The fixed exchange rate system under gold standard, required
movements of gold to settle payments. This method was therefore not suitable during war times.

5. Non-clarity of Comparative Advantage: Since exchange rates were fixed in this system, identifying
comparative advantage in pricing of exports was difficult to point out.
 Flexible Exchange Rate System
The IMF devised a lucid mechanism of exchange rate determination in 1973 which is referred to as the
Balance of Payment method or flexible exchange rate system. This is currently in use. This mechanism of
exchange rate determination is primarily a market driven one. Under the Balance of Payment system,
exchange rate is determined by the market forces of demand and supply of a foreign currency in a domestic
foreign exchange market . For example, the value of US$ 1 in India is determined by the demand and supply
of US dollars in the foreign exchange market in India. Since the demand and supply of dollars can fluctuate in
India daily, the exchange rate can also fluctuate. Therefore, exchange rate is flexible under this system and
commonly termed as a free-float rate system . If there is an excess supply of foreign currency in a country, the
value of foreign currency will fall (or depreciate). In contrast, if there is an excess demand of foreign currency
in a country, the value of foreign currency will rise (appreciate). The value of foreign exchange will be
determined by the interaction of demand and supply of foreign exchange in a country.
1. Free float system
i) Demand of Foreign Exchange
In Fig. 3.2 (a) curve DD represents the demand curve of US $ foreign
exchange in India. This demand curve DD is a downward sloping curve
suggesting that less dollars will be demanded at higher $ value and more
dollars will be demanded when $ value is low. The demand of foreign
exchange in a country arises owing to all international transactions which
result in an outflow of foreign exchange. They are listed below:(a) Value of
Imported goods and services (payments made to importers).(b) Foreign
Direct Investment Outflows.(c) Forex demanded by Indian tourists travelling
abroad.(d) Institutional investors/ Portfolio investing abroad.(e) Forex
demanded by Indian students wishing to study abroad.
ii) Supply of Foreign Exchange
In the above Fig 3.2 (a), SS represents the supply curve of US $ in the Indian foreign exchange market. The supply curve
SS is an upward sloping curve suggesting that more dollars will be supplied at a higher value and vice versa . The supply
of foreign Exchange, in this case US S. arises owing to all international transactions which result in an inflow of foreign
exchange.
They are listed below:
(a) Value of exported goods and services (payments received on account of exports).
(b) Foreign Direct Investment inflows.
(c) Foreign Indirect investment/Portfolio inflows.
(d) Foreign Assistance by IMF, World Bank and other international financial institutions.
(e) Expenses made by Foreign tourists visiting India.
(f) Moneys brought in by foreign students studying in India.
2. Managed Flexibility
Ordinarily the monetary authorities and Government do not interfere in the working of the foreign exchange market in
any country. However, if circumstances demand, the Central Bank in any country may influence the demand and supply
of foreign exchange. This will result in change of exchange rate. In common practice, when monetary authorities
influence exchange rates by altering demand and supply of foreign exchange in the forex market, they are said to be
managing the exchange rates . In India, for example, if need arises, RBI participates in foreign exchange market. It can
buy and sell forex in the Foreign Exchange market in India. This system is therefore termed as Managed Flexibility.
Managed flexibility system lies between the two extreme systems of Free Float and Fixed Exchange Rate system. Since
the monetary authority interferes in the free float exchange rates, the system is also termed as a Dirty Float . The RBI
may want to participate in the Forex market for a variety of reasons. Some of them being the following :
• To conserve foreign exchange reserves in the country
• To improve the imbalance of payments
• To support the falling of a currency (reduce depreciation)
• To maintain exchange rate stability and external value of currency
Arguments in Favour of Flexible Exchange Rates
1. No need to maintain Gold Reserves: In the flexible exchange rate system, no country is required to maintain
massive gold reserves.
2. Automatic adjustment: The fundamental advantage of the flexible system is that this system is self-
adjusting. For example, an excess of demand of dollars in the foreign exchange market, depreciates the Indian
rupee. The depreciation makes imports costlier and discourages them. This results in lower imports
consequently
3. Prevents the problem of International Liquidity: Under the flexible exchange rate system, a deficit in the
Balance of Payment of a country can be removed automatically if the currency is allowed to depreciate.
4. Less impact on internal policies: The system allows countries to have an independent domestic policy with
respect to prices, income, fiscal policy.

Arguments Against Flexible Exchange Rate System

1. Indirect Government Intervention: Under the system, Government may indirectly intervene in influencing
the foreign exchange market. It could do so by offering subsidies to encourage exports, alter interest rates to
attract more foreign indirect investments etc.
2. Uncertainty and Risks: Frequent variation in exchange rates can result in exchange risks and impede foreign
trade and investments.
3. Speculation: Flexible exchange rates across countries caused due to changing demand and supply conditions,
results in speculative activities by foreign exchange market players.
4. Less Developed Countries worst affected: The flexible exchange rate system is not well suited for less
developed nations. Considering the level and expanse of imports, LDCs are continuously running deficits in
BOPs. LDCs find it difficult to correct this deficit without external assistance especially in the early stages of
development.
Concept of Spot Rate, Forward Rate and Futures

Spot Rate
A Spot transaction in the foreign exchange market, as stated above, in one, that comprises of a
bilateral contract between two parties, in which the party settles the payment on the spot, or for practical
purposes within 2 business days or 48 hours of the transaction. This time gap of 48 hours is provided, due to
differences in time zones and other banking and administrative delays that could happen while making
payment to a party situated in another part of the globe.
For example, during a trade transaction between an American seller and an Indian buyer which is carried on
Saturday, foreign exchange rate applicable for payment if made either on same day or latest by Monday, will
be considered as Spot Rate.
Spot rate is therefore a foreign exchange rate applicable to transactions, where the parties agree to and finalize
an exchange rate and the deal is executed immediately or within two business days. The importance in such
transactions is given to delivery of foreign exchange - which means settlement or payment. A 2-day period also
allows the parties to go through the paperwork and other details of the respective company, before they settle
the payment.
Transactions of Spot market can be effectively discharged as most transactions are carried out electronically
without delay. The most traded currency in the Spot market is the US Dollar.
Forward Rate
A Forward transaction in the foreign exchange market, in one, that comprises of a bilateral contract
between two parties, in which the party settles the payment in the future, or for practical purposes past the spot
date, for a transaction that is carried out in the present. Therefore, a foreign exchange rate that applies to
transactions where the settlement or payment is made beyond two business days, is called as a Forward Rate.
This rate is agreed upon by the contracting parties when the transaction happens, but the payment is settled at an
agreed date in the future. It could range up to a year. Although, forward rates in the foreign exchange markets
are quoted for 3, 6 and 9 months .
Forward rates are an important facility used by importers and exporters, who enter Forward contracts with
each other, to cover exchange risks arising out of fluctuations in forex rates in the future, when the payments
have to be settled .
For example, let us assume that a trade deal between an American Supplier and Indian Buyer is struck on 20
July 2020. The goods will be delivered in the month of December. Now comes the question of when the
payment has to be made. Either the payment can be made in advance on July 20th itself, that is the date of
transaction, or the payment can be made after the goods are delivered in the month of December. If in case the
payment is settled on the transaction date, the foreign exchange rate applicable will be a spot rate. However, the
Indian buyer runs a risk in this case. What if the goods do not meet the standard, or the specifications?
Therefore, the two parties enter into a contract on July 24th, and agree on a date in the future when the payment
will be settled. Let us assume December 28th. Here again, the question is what foreign exchange rate will be
applicable on December 28th when the settlement and delivery of forex has to be done? Does the spot rate of
December 28th apply or spot rate of July 24th? Both importer and exporter run the risk, because in this period
the exchange rate could have changed in either direction causing loss to either parties. To limit this risk, the
contract also mentions the rate at which payment will be settled. Both parties have to honor the obligations in
the forward contract.
Futures
A Foreign exchange Futures are a forex contract where the buyer and seller agree to transact at a
predetermined date in future at a pre-agreed price. A Future contract differs from a forward rate. While a
forward rate applies to over the counter (OTC) transactions, a Future contract is necessarily transacted on an
established exchange .
Since Futures contract are traded on exchanges, their formats are more standardized as compared to
Forward contracts. The latter are more customized to the needs and specifications of the parties entering a
forward contract. While the Futures contract has standard features of contract size and maturity dates etc.
Another feature of the Futures contract is that the transacting party must maintain a margin in a bank
account to enter a futures position. Since the value of Futures is derived from Spot rate, Futures are also
termed as a Derivative instrument . The purpose of a Futures contract is twofold. One, it allows speculators to
earn profits arising out of fluctuations in the foreign exchange rates. Two, it allows parties to Hedge Hedging
reduces exposure to risk arising from currency fluctuations.
Futures contract is used extensively by central banks, commercial banks, corporate firms and currency
traders for hedging purpose .
Futures as an instrument differs from Options (another hedging instrument) in the sense that Options
gives the buyer or seller of forex the right, but not the obligation to buy or sell the foreign exchange at a
specific price at any time during the life of contract. A Future differs, as it confers the buyer or seller the
obligations to buy or sell the foreign exchange at a specific price on a specific future date unless the position
is closed prior to expiry of contract.
Balance of Trade and Balance of Payments

According to the Reserve Bank of India, "The Balance of Payments of a country is a

systematic record of all economic transactions between the 'residents' of a country and
the rest of the world. It presents a classified record of all receipts on account of goods
exported, services rendered and capital received by 'residents' and payments made by
them on account of goods imported and services received and from the capital
transferred to 'non-residents' or 'foreigners.“

The above definition implies the following points:

1. The BOP is summary account of all foreign transactions.

2. All economic transactions which are made between residents and foreign entities are
recorded.
3. The BOP is prepared on an annual basis.
The main features/characteristics of a Balance of Payment are stated below:

1. Financial Statement: A BOP is a summary record of financial transactions between residents of one
country and the residents/entities of another country. Hence a BOP is a financial statement of a
country.
2. Double Entry System: A BOP works on the double entry system of accounts, with two sides - a
debit side and a credit side. It records all receipts which relate to inflow of foreign exchange; and
records all-payments which relate to outflow of foreign exchange.
3. Time Period: Most countries prepare a balance of payment for a period of one year. Though many
countries also prepare them on a quarterly basis too.
4. Structure: To maintain international compatibility and statistical comparability, the International
Monetary Fund has put forth rules and structure of how every country must prepare a Balance of
Payment.
5. Accommodating and Autonomous Flows: Ordinarily, in the accounting sense, debit side and credit
side should equalize in a financial statement. However, in a Balance of Payment this does not happen
automatically. All commercial and market transactions (international) are autonomous flows in a
BOP, Balances of autonomous transactions may not match. Therefore, the balance may not be zero.
The monetary authority must step in to accommodate the balance from its reserves.
6. Components: A Balance of Payment is divided into two major accounts. A Current Account - which
records transactions related to import and export of goods and services; and a Capital Account -
which records transactions related to long term assets and liabilities.
Structure and Components of Balance of Payments
As stated earlier, the International Monetary Fund issues guidelines to member countries on the
compilation of Balance of Payment through its BOP Manual published from time to time. The Manual
advises countries to prepare its BOP in a particular format to maintain uniformity. This uniformity in
presentation of BOP helps maintain comparability of statistics across nations. IMF advises reporting style
with respect to components, structuring and other details. The Reserve Bank of India, which is the central
bank prepares the Balance of Payment in India. It publishes the BOP periodically in the Annual Reports and
RBI Bulletins.
Every transaction in a Balance of Payment can broadly be either a debit or a credit transaction. Debit
transactions, which result in an outflow of foreign exchange; and Credit transactions which result in the
inflow of foreign exchange.
Examples of Debit Side Transactions:
• Payments made on account of import of Goods and Services.
• Outward Foreign Direct investments.
• Loan Repayments made to foreign country Governments, World Bank, IMF etc.
• Interest Payments made abroad.
Examples of Credit Side Transactions:
• Amounts received on account of export of goods and services.
• Inward Foreign Direct Investments.
• Inward Foreign Portfolio Investments.
• External Assistance received.
The Balance of Payment is divided into two major components:
A. Current Account
B. B. Capital Account

A. Current account :- A Current account in a Balance of Payment records all transactions relating to
imports and exports of goods and services including all unilateral transfers during a financial year. Current
Account can be further subdivided into two components.
(a) Trade Account/Merchandise Account
This account records all transactions related to import and export of goods (visible items). Goods are
tangible visible, and their trade can be recorded on ports (airports, seaports and at the borders). Hence this
account is also known as Visible or Merchandise Account.Receipts from Export of goods are recorded on the
credit side and results in inflow of foreign exchange in the Trade account. Payments for imported goods are
a debit item and result in an outflow of foreign exchange in the Trade account. Since the value of export of
goods may not always be equal to value of imported goods, the difference is known as Balance of Trade.
• Receipts from Exported Goods > Payments for Imported Goods - Surplus in Trade Account
• Receipts from Exported Goods < Payments for Imported Goods Deficit in Trade Account
• Receipts from Exported Goods = Payments for Imported Goods - Trade Account is Balanced
In India, for example, the receipts from exports goods are lower than the payments made for imported
goods. Therefore, India runs a Deficit in the Trade Account. In 2019-20, the trade balance was US $ -
157.506 Billion. In other words, there is a Deficit in the Balance of Trade. Countries such as China and
Germany have consistently had surplus in their Trade Account. Balance of Trade is an important indicator of
the size and composition of trade in a country and its international position in the global dynamics.
(b) Invisibles :- The Invisibles record export and import of Services. Since services are intangible and not
visible, they are classified in the Current Account under the Invisibles. The Invisibles also records transactions
related to unilateral transfers made abroad or received from abroad, interest from investment and other
incomes. There are several services that are traded internationally.
Most of them include the following:
• Software Services
• Financial Services including banking and insurance
• Transportation
• Education and Health services
• Scientific services
• Research and Consultancy services
• Courier Services
• Business and Commercial Services
• Tourism
The Invisibles also records Unilateral Transfers. They are one-sided payments or receipts for which
no services have been rendered. Unilateral transfers could include Pensions, unemployment allowances paid
to citizens residing abroad, donations to charities located abroad etc.
B. Capital Account
All international financial transactions between residents of one country with entities of the rest of the world that
change the assets (claims) and liabilities of the said country are recorded in the Capital Account. The capital
account represents the international investment position of a country.Capital Account transactions are very critical.
This is because balances of capital account help to absorb the excess surplus of the current account or finance the
current account deficit.

Capital Account can be further subdivided into the following components:

1. Foreign Investments
a. Direct Investments
b. Portfolio Investments
2. External Assistance
3. Commercial Borrowings
4. Banking Capital
5. Rupee Debt Service
6. Other Capital

1. Foreign Investments :- This component of Capital Account records all investments to and from rest of the
world. All foreign investment inflows are a positive item (credit item), whereas all foreign investment outflows
are a negative item (debit item). Foreign investments can be classified as Direct Investments and Portfolio
Investments.
(a) Direct Investments: Foreign Direct Investments (FDI) are investments made by entities abroad directly
into factors of production in another country. For example, Toyota Motors, a Japanese automobile
company, invests in Karnataka to manufacture Toyota cars in India; it invests in land, hires labourers,
arranges capital, and organizes the production process. This is an example of FDI inflows. On the other
hand, Airtel's purchase of Zain telecom in South Africa, is an example of FDI outflows.

(b) Portfolio Investments: Foreign investments made indirectly in companies through investments in
stocks, bonds and debentures are called as Portfolio investments. For example, the purchase of Reliance
Industries Ltd. shares by JP Morgan and Chase, an American Bank in the Bombay Stock Exchange will
amount to a positive credit item in Portfolio investment.

2. External Assistance :- All transactions relating to borrowing and lending at a concessional rate of
interest from governments, multilateral financial institutions such as World Bank and IMF, and other bodies
are recorded as external assistance. All inter-governmental loans, foreign aid and assistance related
transactions are recorded as external assistance. Students must note that International lending involves $
outflow and will be recorded as negative item. At the time of repayment (receipt) of such a loan, a country
will receive foreign exchange. $ inflows will take place. All transactions related to international borrowing
at concessional rates will result in S inflows and will be recorded as a positive item and so on.

3. Commercial Borrowings :- International borrowing and lending that takes place at the commercial rates
of interest are recorded under Commercial Borrowings. They are commonly referred to as ECB or External
Commercial Borrowing. Depending on the directionality of $ flows, ECBs can be a negative ($ outflow) or
positive ($ Inflow) entry. It is important to note that only the principal amount and its repayment is recorded
in Capital account. The interest component, both receipt and payment are recorded in the Invisibles.
4. Banking Capital :- Banking Capital records transfer of banking assets and liabilities It also records
Movement of NRI capital. Transfer of banking assets into banks in country amounts to inflow, whereas
transfer of liabilities in a domestic bank amounts to S outflow.

5. Other Capital and Foreign Exchange Position :- All foreign exchange reserves of the government
are maintained by the central bank of the country. They are an important financing item in the Balance
of Payment. They finance the current account deficit and absorb surplus if there is in the current account.
In addition, there is also an item termed as Errors and Omissions. This item is a balancing item. It
indicates that international transactions may not have been accurately recorded to the last digit of
decimals, resulting in small error.

Importance of Balance of Payments

The Balance of Payment is a crucial financial statement prepared by the Central Bank of any
country. The importance of this statement cannot be overstated for the following reasons:
1. It presents a clear picture of a country's economic and financial position.
2. It shows whether a country has excess of foreign exchange or runs a shortage of foreign exchange.
3. It helps to determine if the external value of a country's currency will appreciate or depreciate.
4. The Government can monitor the impact of tariffs on imports and take necessary action to regulate
trade and conserve the usage of scarce foreign exchange.
5. It allows the Government to take corrective action on trade, fiscal and monetary policy.
6. Since BOP are prepared by countries in a uniform manner, it facilitates international comparison.
India’s Overall Balance of Payments
Documentation in International Trade
International Trade has historically been and continues to be the primary economic interaction between
entities of two countries. Over the years, trade volumes have expanded. The participation of countries has also
intensified. As trade becomes a complex activity, with the increase in the number of players, trade size expansion
and documentation, importers and exporters are subject to a variety of risks.Some of them include the risk of
payment default, risk relating to supply and quality of goods, risk of honouring payments by bankers, inadequate
insurance of goods, delay in supply or payment, incomplete documentation, exchange rate risk, policy risks and
other legal risks. Trust deficit between exporters and importers is commonplace as they are situated in different
countries, following different business practices and could sometimes be complete strangers.

1. Bill of Lading :- Bill of Lading is a contract of carriage. It is a document provided by the shipping agency for
shipping of goods from one destination to another. It is prepared by representatives of the shipping company
which is the carrying vessel . This document is issued in sets. The set number is indicated on each bill of
lading. All sets must be accounted for. This is done to maintain safety and to ensure that bill of lading never
comes into unauthorized hands. This is so because only one original set is sufficient to take possession of
goods at port of discharge . The bank and shipping company are aware as to the number of signed originals
that are prepared. A bill of lading indicates details about whether the freight has been prepaid or whether
freight has still to be collected at the port of discharge.
2. Certificate of Origin :- Every product that is traded internationally must bear the details of its origin.
Certificate of Origin is an important document which is required by custom authority of importing country.
The customs authorities can decide to impose import duty depending on the origin of goods. Certificate of
origin is issued by the Chamber of Commerce . The Certificate of Origin contains information such as name
and address of exporter, details of the importer, seal of Chamber of Commerce, details of the goods,
packaging numbers, weights, seal and specifications among others.
3. Bill of Exchange :- A Bill of Exchange is a negotiable instrument in which an exporter asks the importer to
pay a certain amount of money in future. Importer agrees to pay the exporter the said amount on or before a
decided date. The bill of exchange involves the following parties. A drawer - who prepares or writes a bill of
exchange; a Drawee - who pays the bill; Payee - the party to whom payment shall be made and a Holder - who
has the possession of the bill. Most often bankers are involved in the process, who promise to pay to the
Payee, in case the drawee delays payment. This document is useful in those cases where the amounts dealt
with are large, and where the exporter may want to discount the bill to receive the money before the due date.

4. Invoice :- An invoice also referred to as commercial invoice or export invoice is a document provided by
the seller (exporter) to the buyer (importer). It is used by the customs authority of the importing country for
the purpose of imposing import duty.A commercial invoice must be issued and signed by the seller, it should
be addressed to the buyer, include a complete description of goods, its price, specifications, number of units
and price payable. The original copy should be marked as Original and the others as copies.

5. Insurance Certificate :- Since goods travel long distances and are subject to risks and damage, they need
to be adequately insured. Therefore, an insurance policy that covers these risks is mandatory. It is critical that
the insurance policy is effective on the date which is either the same or earlier than the date of transport
documents. Bankers may also insist that the insurance policy be taken in the same currency as that mentioned
in the payment documents and be taken for a value higher than the payment value.The insurance certificate
must contain details such as name of the parties, name of the ship/vessel/flight details, insurance policy
number/ details, insurance value, claim settlement agent, description of goods, number of units of goods, the
period of insurance and so on.
6. Inspection Certificate :- A certificate of inspection is prepared on the request of the exporter that is the
seller. This is usually prepared when the seller wants the consignment to be checked before final
transportation by a third party. The seller may be required to submit documents such as commercial invoice,
bill of lading, banking documents, packing list among others for the purpose of obtaining an Inspection
Certificate.

7. Air waybill :- An Air waybill is a consignment note which is issued by an international airline company
for the goods that they will be transporting. The air waybill is an evidence of the carriage contract. It aids in
the process of tracking and is enforceable by law, which means it is legally binding.

8. Letter of Credit :- A Letter of Credit also termed as LC, is prepared at the request of the buyer. It is a
letter issued by a bank guaranteeing a buyer's payment to a seller on or before a date. In case a buyer is
unable to make a payment to the seller on time, the bank will cover the full payment. A bank usually charges
a fee for preparing an LC, as it assumes the risks of the buyer defaulting on the payment on the due date.
Since the risks involved in international trade are Immense, LC becomes an important document and a
reliable payment mechanism.
Foreign Trade: Terms of Payment
Trade transactions require financing for a variety of reasons. Need of working capital for both importer
and exporter are crucial. An importer may require financing as he must make payment for importing goods,
while he generates revenue/money only after he sells goods. On the other hand, an exporter requires funds to
finance the manufacturing of goods and services. An exporter cannot receive payment until he sells goods and
services. In the meantime, they both require working capital. Though this working capital may be funded by
the importer and exporter themselves, this is seldom the case. Owing to risks involved in foreign trade and the
increasing volume of payments, often, exporters and importers choose a variety of ways to finance their trade
and make payments. Means of Payment for foreign trade can be classified into the following types:

1. Cash in Advance This term of payment offers maximum protection to exporters and minimum to
importers. Payment for exports is made in advance by the importers either upon the arrival of goods or
before the shipment of goods. This term of payment is usually made in the following cases:
• Importer's creditworthiness is unknown or questionable .
• Goods have been customized .
• Political risks in buyer's country are existent .
• Importer's country has imposed exchange controls.
• These terms of payment allow exporters to free up their funds, exposing them to least risks
2. Letters of Credit :- As discussed above an LC is a document prepared and signed by a banker on
behalf of importer. The bank promises to honor the payment obligations as mentioned in the LC. The
letter of credit exposes the exporters to least risk as the document is separate from the trade transaction.
For preparing the LC, the bank may charge an agreed fee from the importer. The LC eliminates credit
and political risk for the exporter.

3. Bill of Exchange :- A Bill of exchange also known as a Draft, is prepared or drawn by the Exporter
directing the importer to pay a certain sum of money on a specified date. It is signed by both parties and
submitted to a banker, who holds the bill. The banker is usually requested to collect payment from the
importer's bank and remit the payment to exporter's account.

4. Consignment Basis :- This form of shipping goods and collecting payment exposes exporter to more
risks Under this system, exporter ships the consignment to the importer. The importer makes the payment
only after the goods are sold. The title of goods remains with the exporter. The importer may also charge
a certain commission for the selling of goods. Since the exporter is at greater risk, consignments are
usually made within group companies or where exporters and importers are known to each other.

5. Open Account :- Under Open account, billing to importer is done after the goods are shipped. Goods
sold on open account are generally done with subsidiaries of companies, or in those cases where the
credit information of importer is adequately known.
Financing of Exports: Export Credit
Considering the importance of exports in the development of country, value is placed on making export
more robust. Export credit has an important role to play in the same process. Generally, export credit can
be extended at two levels:
1. Pre-shipment Credit - generally extended for financing production, processing, packaging and
procuring raw materials.
2. Post-shipment Credit - extended to fund overseas buyers (importers) in a bid to promote Indian
exports .

Classification of Export Credit

On the Basis of Tming of Credit Facility
1. Pre-shipment Credit
2. Post shipment Credit

On the Basis of Duration of Long Extended

1. Short term
2. Medium Term
3. Lom Term
Financing Techniques in Foreign Trade
• Bankers' Acceptance: Since payment risk looms for exporters, a Bank's acceptanceof a Bill of Exchange
or a Letter of Credit, provides the much-needed guarantee to an exporter that he will receive his payment
on the said date. Since the bank accepts the Bill of exchange, it becomes a negotiable instrument that can
be traded.

• Factoring: Factoring is a common practice among exporters to accelerate liquidity. Instead of waiting till
the end of the credit period extended to the buyer, the exporter can instead draw a significant chunk of the
value of commercial sales invoice either when he delivers the goods or raises an invoice. This is how it
works. A commercial bank (Factor) through an agreement with the exporter, purchases his short-term
account receivables at a discounted value. Therefore, the factor assumes the risk. It becomes the factor's
job to recover the money from the buyer. The exporter is benefitted as he avoids the risk of non-payment
and improves his own cash flow.

• Forfaiting: The process of Forfaiting usually involves banks or financial firms (Forfaiter) to offer export
finance by purchasing medium to long term accounts receivables from the exporter. Forfaiting generally
relates to the export of capital goods, delivery of large projects, where the credit period lies between 6
months to 7 years. Once the commodity or project has been delivered as per terms, the forfaiting agency
assume risks. But since the risk is large, and credit payment is long, forfaiting necessarily requires bank
guarantee from the buyer's bank also. In this process, the exporter is benefitted as he can get access to
liquidity rather than wait for the credit period to get over.
Export Promotion Schemes
The Government of India has launched several schemes in the last few years to create an environment
conducive to exporters and provide support that can allow greater access to global markets. From export
financing, refinancing of banks providing export credit, export services, linkages and marketing facilities,
there are a large number of institutions from Government to affiliate bodies which are involved in these
activities.

Some of the agencies involved in Export Promotion in India include:

1. Government of India
2. State Governments
3. Directorate General of Foreign Trade (DGFT)
4. Export Promotion Councils
5. Ministry of Commerce and Industry
6. Central Board of Indirect Taxes and Customs
7. Reserve Bank of India
8. EXIM Bank
9. Commercial Banks (Authorized Dealers)
10. Port Authorities
11. Export Credit Guarantee Corporation
12. Commodity Boards
13. Chambers of Commerce
The above agencies have rolled out several policies with regard to export promotion in the past. Many of these
schemes and initiatives continue to help exporters. They are listed below:
1. Niryat Bandhu: Implemented by the DGFT, this scheme mentors potential exporters about the details of
export processes. It counsels, trains and builds capacities of exporters especially MSME enterprises. It also
runs outreach programs that help firms to utilize capacities and links them to financial institutions and
other agencies relating to export promotion.

2. Trade Infrastructure for Export Scheme (TIES): It is a scheme launched by the Government of India to
assist State Government agencies to create export infrastructure. It also provides financial assistance to
states which have a large export linkages for export services such as quality testing of exports, Border
Haats, cold chains, trade promotion, airport cargo and export warehousing.

3. Online Complaint and Monitoring system: A dedicated online help desk has been provided for exporters
to assist them in filing online applications and navigate them through complex procedures. Exporters can
lodge their complaints and receive an online reply.

4. Centre-State Dialogue: Continuous dialogue between Centre and State government ensures that states
play an active role in expanding exports and creating a conducive framework for export promotion.

5. FTP Schemes: The DGFT under the latest Foreign Trade Policy 2015-20, operates several export
promotion initiatives such as Advance Authorizations, Export Promotion of Capital Goods, Services Export
from India Scheme, Merchandise Exports from India Scheme, Duty Free Import Authorization among
others.
6. Issue of IEC: Import Export Code is an electronic code provided to each exporter and importer to keep a
track of their trade transactions. All trade documents bear the IEC.

7 . Online Filing of Application: The facility to fill applications online to all regional 7offices of the DGFT
and process these electronically has made export process simple. Thus, allowing more firms to export their
goods and services.

8. E-BRC: Electronic Bank Realization Certification is a novel initiative by the DGFT to help authorities
track the export realization directly from the banks as against collecting data from the exporters. This helps in
making export process more efficient.

9. Reduction in Documentation: To reduce the hassles involved in exports, the number of compulsory
documents that need to be submitted have been reduced.

10. Efficient Customs Clearance: A single window clearance for all exports and 24 x 7 customs clearance
facility has facilitated easy exports of goods and services at all airports and seaports. This has made the
systems and customs processes easy, transparent and efficient. Latest processes also allow exporters to self-
assess the duty if applicable.

The Government of India, Directorate General of Foreign Trade, Reserve Bank of India, State
Governments and affiliated agencies work hand in hand to promote exports and create a favourable export
climate.
Promotion of Exports: Role of Institutions
International trade is a critical component for the growth and development of India. Not only does foreign
trade result in increase in national income through foreign exchange earnings, but also acts as an engine for
overall economic development. Trade increases economic activity, provides employment and brings about
competitiveness among domestic businesses.
In India, there is a disequilibrium in the Balance of Payment with a consistent deficit in Balance of Trade.
This implies that inflow of foreign exchange on account of exports falls short of the foreign exchange outflow
for imports. It is for this purpose, that importance is given to providing a conducive environment for exporters.
This includes provision of finance, schemes, and incentives. The purpose is to provide every assistance that
will improve the export performance of the country.
Directorate General of Foreign Trade
Established in 1991, post liberalization, the Directorate General of Foreign Trade (DGFT) works towards
facilitating foreign trade in India. The overall objective is to promote exports. This organization is headed by a
Director, who is based in New Delhi. It comes under the Ministry of Commerce and Industry. The DGFT has
25 regional offices.
Directorate of Foreign Trade not only provides services, but also implements several trade promotions
schemes and initiatives of the Government of India from time to time. Some of them include:
1. Providing Import Export Code - To create a unique trader identification
2. Online Filing of Applications - To improve efficiency in trade
3. Monitoring of Trade - To keep a track of foreign trade
4. E-Bank Realization Statements - To bring in efficiency in the collection of data
5. Publication of data and reports - To provide access to trade related data
6. Advance Authorizations - To make the system more efficient
7. Export Promotion of Capital Goods
8. Services Export from India Scheme
9. Merchandise Exports from India Scheme
10. Duty Free Import Authorization
11. Capacity building of potential exporters through training, skill building and technology upgradation
12. Facilitating State Governments to provide better export infrastructure
13. Providing Updates on Regulations and provision of the Government and International Trade Bodies
14. Provide Transport and Marketing Assistance to Exporters
15. Dispute Resolution for Traders
16. Providing Certificate of Origins
17. Monitoring of Trading activity of importers and exporters
18. Providing services under Rebate of State and Central Levies and Taxes Schemes
 EXIM Bank: Objectives, Roles and Functions
EXIM Bank was established in 1982 with the intent to finance foreign trade. The goals of EXIM Bank have
evolved over the years. In the initial years the approach of EXIM bank was product-centric, where
importance was given to enhancing the export capability and providing export credit for specific goods
only. Post economic reforms and opening up of the economy, goals of EXIM Bank have widened to cover a
larger band of products and services and provide comprehensive services to businesses that can empower
them to internationalize their business.
According to EXIM Bank, their objectives include,.... Providing financial assistance to exporters and
importers, and... functioning as the principal institution for coordinating the working of institutions engaged
in financing export and import of goods and services with a view to promoting the country's international
trade...... act on business principles with due regard to public interest.“
Presently, EXIM Bank offers a wide variety of financial products and customized services for Indian
businesses to become truly global. Some of them are listed below.
Financial Products offered by EXIM banks are as follows:
1. Buyer's Credit: The purpose of providing credit facilities to foreign importers is to procure
Indian exports. An overseas importer opens a Letter of Credit (LC) in favour of Indian seller and
can make the payment on deferred terms. This way the Indian exporter can access foreign
markets and can scale his global operations. The LC is made on competitive and attractive rates.
Buyer's credit facility assists small and medium enterprises to export goods. It also allows smaller
enterprises to receive advance payment by encashing LC.
2. Corporate Banking: EXIM bank provides for all long-term financing needs of export units
especially for carrying out Research and Development, financing new projects, procuring new
equipment and so on. Lines of Credit: The aim of extending lines of credit is to allow as many
credible foreign importers to purchase Indian goods. Lines of credit are extended to regional
banks, financial institutions, governments that enable overseas buyers to pay on deferred terms of
payment.
3. Overseas Investments Finance: Foreign trade and Foreign investment are linked to each other.
In the quest to bring value to Indian business to expand their presence globally and become
efficient, Overseas investment finance provides Indian businesses with loans that allow them to
buy an equity stake in foreign companies to form Joint Ventures and subsidiaries.
4. Project Exports: Over the years, Indian exports have diversified in several project activities
including engineering, construction, procurement, and instruments among others. The EXIM
Bank helps in the form of finances and technical support, technology transfer, design and
building competitive strength.
Services Offered by EXIM Bank
The EXIM Bank provides a wide range of customized services to Indian importers and exporters. Some of
them include the following:

1. Marketing Advisory Services: The role of these services is to identify overseas opportunities for Indian
businesses in the areas of establishment of plant or acquisition of foreign businesses. It also helps Indian
exporters to locate foreign distributors and partners.

2. Research and Analysis: EXIM bank collects enormous trade related data. The purpose of this is to
monitor the latest trends in trade and provide insights on trade, investment and international economy to
Indian traders.

3. Export Advisory Services: This service is targeted for Indian exporters. It focusses onproviding a range
of advisory, support services and information regarding finance facilities, supplier identification, partner
search and distribution channels. It also conducts feasibility studies for interested companies and provides
information of trade fairs, exhibitions etc. to Indian exporters. In other words, knowledge building is a
key focus for providing these services. The section above discussed various aspects of foreign trade.
From exchange rates and foreign exchange market that facilitates trade, to trade financing techniques,
methods and organizations that promote exports in India. We shall now study the function of two
important financial institutions which shapes world development.
World Bank and International Monetary Fund
World Bank - Objectives and Functions
World Bank, formerly named as the International Bank for Reconstruction and Development (IBRD),
primarily aims to finance economic development. The World Bank's first loans were extended to war-
ravaged nations of Europe in the late 1940s. The purpose was to reconstruct these economies. Soon these
European economies recovered and became somewhat self-sufficient. It was then that the World Bank
turned its attention to supporting underdeveloped and developing nations. Since then, the World Bank has
extended loans over US $330 billion. The primary intent of the World Bank is to promote social and
economic development in the poorest countries. Through its focused loans, it seeks to achieve high
productivity, which will lead to increased incomes, so people can lead fuller. better, and healthier lives .

The World Bank comprises of two main bodies the International Bank for Reconstruction and
Development and the International Development Association. However, the World Bank Group comprises
of following arms.

1. The International Bank for Reconstruction and Development (IBRD).

2. International Development Association (IDA) - the development financing arm.
3. International Finance Corporation (IFC).
4. International Centre for Settlement of Investment Disputes (ICSID).
5. Multilateral Investment Guarantee Agency (MIGA).
The objectives of the World Bank can be summed up as follows:
1. To assist in reconstruction and development of member nations especially those devastated by war.
2. To channelize productive capital for development purposes
3. To promote long term balanced growth of international trade either directly or by providing guarantees.
4. To help raise productivity, standard of living and conditions of poorest of poor.
5. To finance structural adjustment programs of countries macroeconomic policy reforms which will lead
to long term development and growth of member countries.
6. To provide technical assistance to projects which it supports.
7. To reduce global poverty.
8. To promote a stable macroeconomic environment, encourage investment and long-term planning.

Functions of World Bank:

1. Finance Projects that result in development in poor countries.
2. Grant development loans in collaboration with National Governments, local agencies, and multilateral
financial organizations.
3. Grant reconstruction loans for war devastated nations.
4. Extend technical, economic and monetary assistance for projects supported by World Bank.
5. Encourage trade and industrial development through various activities.
6. Provide equity funding to private enterprises for specific infrastructure projects.
7. Extend loans to member nations for agriculture development, poverty alleviation. education and
healthcare, sanitation and sewage, power and transport and so on.
International Monetary Fund:
The formation of IMF was a response to the despondent situation post the Great Depression of the 1930s
resulting in a sudden dip in international trade. Bretton Woods Conference discussions were focused to
resolve the financial problems caused due to unpredictable and opaqueness in calculation of exchange rates.
The Articles of Agreement of the IMF contains financial rules and has been signed by all members. It
includes financial code of conduct for every member country.

Objectives of IMF
1. To promote international monetary cooperation. The IMF to provide a machinery and a platform for
consultation and collaboration on international monetary problems.
2. To promote exchange rate stability, avoid competitive exchange rate depreciation and maintain orderly
exchange arrangements.
3. To establish a multilateral system of payments in respect of international financial transactions.
4. To facilitate the expansion and balanced growth of international trade which will lead to expansion of
employment across member countries.
5. To finance member countries to correct their imbalance of payments.
6. To encourage members to form a pool of resources that can be used in times of need.
Functions of IMF
1. To operate as per the Articles of Agreement of the IMF and broad guidelines set forth under the Bretton
Woods Conference.
2. To provide short term loans to member countries to correct their temporary Balance of payments
disequilibrium.
3. To provide technical assistance to member countries to correct its macroeconomic and fiscal policy.
4. To conduct research studies, collect data and publish reports and studies for the development of
members.
5. To be a guardian of good conduct with respect to multilateral payment and monetary systems in the
world.
6. To provide short term training to staff of national governments and post technical personnel who can
train and advise ministries in member nations.