1.The appearance of international finance and banking

1.The appearance of international finance and banking

Economic activity began when the principle of division of labour evolved. One person was more able to perform some activity than another, and therefore each person concentrated on what he did best. While one hunted, another fished. The hunter then traded his surplusto the fisherman, and thus each benefited from the variety of diet.

In today's complex economic world, neither individuals nor nations are self-sufficient. Nations have utilized different economic resources; people have developed different skills. This is the foundation of world trade and economic activity. As а result, international finance and banking have evolved. For example, the United States is a major consumer of coffee, yet it does not have the climate to grow any of his own. Consequently, the United States must import coffee from countries (such as Brazil, Colombia, and Guatemala) that grow coffee efficiently. On the other hand, the United States has large industrial plants capable ofproducing а variety of goods, such as chemicals and aeroplanes, which can be sold to nations that need them. If nations traded item foritem, such as one automobile for 10,000 bags of coffee, foreign trade would be extremely cumbersome and restrictive. But instead of barter (or countertrade), which is the trade of goods without an exchange of money, the United States receives money in payment for what it sells. It pays for Brazilian coffee with dollars, which Brazil can use to buy wool from Australia, which in turn can buy textiles from Great Britain, which can then buy tobacco from the United States.

For most nations, exports and imports are the most important international activity. When nations export more than they import, they are said to have a favourable balance of trade. When they import more than they export, an unfavourable balance of trade exists. Nations try to maintain a favourable balance of trade.

2.Visible and invisible trade

Foreign trade is the exchange of goods between nations. We have 2 kinds of foreign trade. In addition to visible trade, which involves the import and export of goods and merchandice,there is invisible trade, which involves the exchange of services between nations.

Sоmе nations possess little in the way of exportable commodities or manufactured goods, but they have а mild and sunny climate. During the winter the Bahamas attract large numbers of tourists, particularly from northeastern United States, who spend money for hotel accommodation, meals, taxis, and so on. Tourism, therefore, is another form of invisible trade.

In the past twenty-five years, а tremendous demand has grown for the construction of large-scale development projects around the world, including dams, highway networks, and so on. The technical skills to build these projects are purchased when а nation hires engineers and construction supervisors, usually from another country. The commissions and salaries that are paid to these people represent another form of invisible trade.

The United States has been described as а nation of immigrants. Many Americans send money back to families and relatives in the "old country". In the past fifteen years, millions of workers from the countries of southern Europe have gone to work in Germany, Switzerland, France, the Benelux nations, and Scandinavia. The workers send money home to support their families. These are called immigrant remittances. They are an extremely important kind of invisible trade for some countries, both as imports and exports.

Invisible trade can be as important to some nations as the export of raw materials or commodities is for the others. In both cases, the nations earn money to buy necessities.

3.А Nation's Balance оf Payments

The different kinds of trade that nations engage in are varied and complex, а mixture of visible and invisible trade. Most nations are more dependent on exports than on any other activity. The earnings from exports pay for the imports that they need and want. A nation's balance of payments is а record of these complex transactions.

The two most important categories in any nation's balance of payments are its visible and invisible trade. А third important category is investments.

Investments are the means by which nations utilize the capital to build factories and develop mines for their own industrial base.

Investments can have а crucial impact on а nation's balance of payments. When an investment is made, capital enters а country enabling it import manufactured materials to build а new manufacturing plant and to рау workers to build it. In this way, investments actsas а catalystin economic growth for the developing countries throughout the world.

After calculating all of the entries in its balance of payments, а nation has either а net inflow or а net outflow оf money.

The most direct means of correcting а deficit in the balance of payments and having an immediate impact is by reducing imports. This can be accomplished by imposing tariffs (taxes), quotas (import restrictions), or both. If successful, the cost of imports rises in the local market, and the imported goods are comparatively more expensive to the consumer than locally made goods. When а quota is imposed, the quantity previously imported and paid for is reduced.

4.Documents needed in international trade and the mining of incoterms. International bank services

Gold, and to а lesser extent silver, have been the traditional reserves. At one time, gold moved freely from country to country, but successive constraints have been imposedin the past fifty years. Today, gold counts as only one form among many in the reserves of а country. А number of countries have an agreement with the Federal Reserve Bank of New York to hold their gold in safe keeping. This makes it possible for these countries to buy gold from or to sell gold to other countries by merely moving the gold from one custodian vault to another at the Federal Reserve Bank of New York.

Countries may value their gold reserves at or near the current free market price. Generally, the gold that nations hold as reserves is separate from the gold that is traded in а free market. Today, United States citizens can legally own gold, although very few think it worth the time or trouble. In other countries, such as France and India, there exists а strong tradition of gold ownership.

Because all these international activities are conducted by companies аnd individuals, а need for international banking services has developed.

Documents needed for import and export

• Bill of Lading

• Sea Waybill

• Shipping Note • Dangerous Goods Note

• Air Waybill

• Certificate of Insurance

Iucoterms

CFR This price includes Cost and Freight, but not insurance, to а named port of destination in the buyer’s country.

CIF This price covers Cost, Insurance and Freight to а named port of destination in the buyer’s country.

СРТ The cost and transportation of the goods, Carriage Paid to а named destination in the buyer' s country.

CIP The cost and transportation of the goods, Carriage and Insurance Paid, to а named destination in the buyer’s country.

DAF The cost, insurance and transportation of the goods Delivered At Frontier.

DES The cost, insurance and transportation of the goods Delivered Ex- Ship.

DKQ The cost, insurance and transportation of the goods, unloaded from the ship and Delivered Ex-Quay.

DDU The cost, insurance and transportation of the goods Delivered Duty Unpaid.

DDP The cost, insurance and transportation of the goods Delivered Duty Paid.

KXW This price is the Ex-Works cost of the goods. The buyer arranges collection from the supplier and pays for freight carriage and insurance.

FCA The Free Carrier price includes all costs to а named point of loading onto а container. The buyer pays for onward shipment and insurance.

FAS This price includes all costs to а named port of shipment Free Alongside Ship. The buyer pays for loading, onward shipment and insurance.

FOB This price includes all costs of the goods Free On Board а ship (or aircraft) whose destination is stated in the contract. The buyer pays for onward shipment and insurance.

5. Main types of trade restrictions: tariffs, subsidies, quotas and cartels

Many nations impose limits on trade. There are four main types of trade restrictions: tariffs, subsidies, quotas and cartels. A tariff is a tax placed on imported goods. Tariffs are of two kinds - revenue and protective. А revenue tariff raises money for the government. For this reason, revenue tariffs are generally low so that consumers will continue to purchase the taxed goods. Protective tariffs taxes an imported good so that the рriсе becomes as high as, or higher than, the similar domestic manufactured product.

Then а subsidy can be thought of as а tariff in reverse. Instead of taxing the foreign product, the government gives а subsidy to the industry that is suffering from foreign competition. Definitely а nation can limit the amount of goods that can be imported into the country. It’s called а quota. Usually, quotas are imposed when tariffs and subsidies have failed to protect domestic industries from foreign competition.

Sometimes а group of companies or countries band together to restrict competition. It’s called а cartel. The members of the cartel agree to limit the supply and control the рriсе of а particular good. Members meet regularly to decide how much to sell and how much to charge for their product.

6. Contracts in international trade

Usually contracts are signed in international trade. Let’s consider one such contract. It is the contract between Eduardo and the government of Nigeria. The contract was for building of a new Nigerian capital. The president General Mohammed considered it as a private tender. To sign this contract Eduardo went to Nigeria. So the merits of the contract were:

it was potentially profitable;

it was very prestige;

But there were the demerits or disadvantages: Eduardo couldn’t get money in time, because usually the Minister of finance delayed payments for several months.

The next of demerits was the leak of labour, especially the skilled labour. And at the end was the coup.

For several days Eduardo couldn’t get in touch with his family and his business partners.

From the conversation with Manuel Rodriguez he understood that his project would be a fiasco, because as the matter of fact no money would be paid, no skilled labour he would employed, but from the other side his visit to Nigeria was the triumph, because he didn’t make dubious deal and he got a friend for a long time, who was for a long time his rival. So that was the triumph for Eduardo and Manuel Rodriguez that being not rival but partners they signed the contract the contents of which concerned the Pan-American road project, an eight-lane highway that would stretch from Brazil to Mexico.

7. Negotiations in international trade

Before signing the contract the parties usually have negotiations. It is for both domestic contracts and international contracts. Manuel Rodrigues’ was the heir to the second most powerful fortunes in Brazil, for many years he was the rival for Eduardo de Silveria. Manuel Rodriguez came to Nigeria to tender for the contract to construct a new port in Lagos and was trying to arrange a meeting with a president.

During his visit he got the information that usually the Minister of finance delayed the payments and didn’t fulfill the followers of the contract. He understood that in Nigeria it was very difficult to organise the building of the new port, because workers will need feeding, salaries, housing even a school and a hospital. So that was the triumph for Eduardo and Manuel Rodrigues’ that being not rival but partners they signed the contract the contents of which concerned the Pan-American road project, an eight-lane highway that would stretch from Brazil to Mexico.

8. Barter: a mixed blessing.

Economic activity began with a caveman, who was economically self-sufficient. He did his own hunting, found his own shelter, and provided for his own needs. One person was more able to perform some activity than another, and therefore each person concentrated on what he did best. While one hunted, another fished. The hunter then traded his surplus to the fisherman, and thus each benefited from the variety of diet.

Countertrade is actually a form of a currency exchange. It may even be considered as a form of bartering between a developed country and developing countries. Such trading entails a high level of risk and requires a through understanding of markets in all countries involved.

9.The Firm and Its Invironment

Any business entity such as a corporation, partnership, limited liability company, sole proprietorship, or "private equity" "investment (firm) organization" called firm.

Let’s describe such entities of economy like partnerships, joint stock companies and liability companies.

A partnership is a type of business entity in which partners (owners) share with each other the profits or losses of the business. Partnerships are often favored over corporations for taxation purposes, as the partnership structure does not generally incur a tax on profits before it is distributed to the partners

Full partnership

In the commercial and legal parlance of most countries, a general partnership or full partnership, refers to an association of persons or an unincorporated company with the following major features:

· Created by agreement, proof of existence and estoppel.

· Formed by two or more persons

· The owners are all personally liable for any legal actions and debts the company may face

Limited partnership

It is a partnership in which partners share equally in both responsibility and liability.

A limited partnership is a form of partnership similar to a general partnership, except that in addition to one or more general partners (GPs), there are one or more limited partners (LPs). It is a partnership in which only one partner is required to be a general partner.

Limited liability company

A limited liability company (LLC) is a flexible form of business enterprise that blends elements of partnership and corporate structures. It is a legal form of business company that provides limited liability to its owners. An LLC, although a business entity, is a type of unincorporated association and is not a corporation. The primary characteristic an LLC shares with a corporation is limited liability, and the primary characteristic it shares with a partnership is the availability of pass-through income taxation.

Additional liability companies

An additional liability company is a company with chartered capital divided into participatory shares as determined by company's founding documents. Participants primarily become responsible for the company's commitments to the extent of their contributions to the chartered capital. However, if these sums are insufficient, participants shall bear additional liability pro rata to each participant's contribution. The limits of such liability of participants are provided in the foundation documents.

Joint stock companies

A joint stock company (JSC) is a type of business entity: it is a type of corporation or partnership involving two or more legal persons. Certificates of ownership (or stocks) are issued by the company in return for each financial contribution, and the shareholders are free to transfer their ownership interest at any time by selling their stockholding to others.

In most countries, a joint stock company offers the protection of limited liability; a shareholder is not liable for any of the company's debt beyond the face value of their shareholding.

There are two kinds of joint stock company: private and public companies. The shares of the former are usually only held by the directors and Company Secretary. The shares of the latter are bought and sold on the open market.

10.The management of company’s capital

There are four primary indicators if major work-place change. They are a change to the organizational structure, a new product or service, new management and new technology.

Structural change occurs when there is an alteration in the company’s organizational structure. This reorganization may occur due to a merger or acquisition, or it may be the result of a restructuring. For example if the company wants to increase its innovation, it may reorganize its traditional functional structure into a more flexible matrix structure where small teams works.

To properly implement charge, management must take a number of steps: involving key people developing a plan, supporting the plan and communicating. If the company has a plan to change the structure, it should remember about its personnel, because there will be a great impact on them. Some members of the company may feel threatened because they were able to perform so well under the organization structure.

But you should convince them that all changes aimed to the best

11. A private company. The structure of the authorised capital. Risk of a take-over.

A private company can be formed by two or more people. They sign a Memorandum of Association, stating the number of shares they agree to take, their signature is followed by a signature of another shareholder.

In a private company there cannot be more than 50 members, or shareholders. Each share carries a vote at the shareholders’ meeting.

The authorised capital consists of market value of all the shares issued.

If any person owns 51 per cent of the shares he would have a controlling interest, & would be in a good position to take over the firm. Person owning a large proportion of the shares could ask to join the Board.

H&G is a private company. The balance of power was upset after Ambrose Harper’s death. Wentworths, a large & successful firm, owining 10 per cent of H&G shares, had an opportunity of baying some of the shares belonging to Harper. If Wentworths owned 51 per cent of the shares they would be in a good position to take over H&G, making it a fully owned subsidiary.

Grant & Peter’s mother owned 20 % of the capital each & 50% after AH’s death came to form a trust (40%) & to his sister Caroline (10%). Caroline had got a very generous offer to her shares from the Wentworths. She couldn’t sell her shares without offering them first to the other shareholders.

Hector Grant was personally jealous of Alfred Wentworth & didn’t want him to own the controlling interest of the shares. He raised a personal short-term loan so that to postpone the possibility of a take-over by baying 250 shares (5%) in the company.

12. Private company: Raisung and granting loans (Harper & Grant LTD overcomes the risk of a take-over and ensures the favourable redistribution of the share capital).

Harper & Grant Ltd was a private company. So Caroline(Ambrose’s sister) can’t sell her shares without offering them first to the others shareholders. Peter advised HG to make an offer. But they hadn’t enough money to buy these shares. HG went to mr. Brewer to ask him to give a credit. At first the bank’s manager didn’t want to lend 25 000 pounds and HG had to threaten him. After it mr. Brewer offered to raise a second mortgage on the HG’s property. If the Head Office agreed, HG could have a straight loan and pay 2% above yhe bank rate, so the rate of interest would be about 9%. It was a short term loan of three years.

After Harper’s death Peter Wiles wanted John Martin on the board. John wasn’t sure, because Alfred Wentworth has been asked to join the Board now that he owns more shares. But Peter said that the Rules of Association state the qualification holding is only two shares. He wanted to put John in the picture and the next move was to get him made a director. At the Board Meeting Peter proposed John to be asked to join the Board. Nobody was against it and HG entrusted William Buckhurst to draft suiteble minutes about this proposal.

13. Auditing the accounts of a limited company

Every year the accounts of a limited company must be approved by auditors, acting on behalf of the shareholders. Their duty is to check reports about the state affairs of the company. They don’t judge the efficiency of the managing the company.

William Buckhurst, as Company Secretary, is responsible for seeing that the books and records for the period in question are ready for checking.

The auditors check the highlights, making up the Profit Statement, the Balance Sheet, the Directors’ Report.

The Profit Statement (Trading & Profit & Loss Account) shows how the profit for the year is arrived at.

Net Sales of Income – cost of materials, work, overhead charges = trading surplus – depreciation on plant & buildings – auditors’ fee – administration & selling costs = net profit (or loss)

The Balance Sheet is a summarized statement, showing the amounts of funds employed in the business (usually consist of the issued share capital, reserves & retained earnings) & the sources from which they derived.

The totals on the two sides of the Balance Sheet must agree. The total dividend to be paid for the year is a current liability.

14. The work in the Accounts Department. Debtors.

Collecting bad debts is one of the most difficult affairs in the work of the Accounts Department. Retail business is usually done on a cash basis, & wholesale business is done on credit, given for 30 days. Any company prefer to receive long credit from its suppliers.

For each sale an invoice is sent to the customer. It’s the list of the goods delivered & amount owed. At the end of the month each customer is sent an account, showing the total amount due.

Sometimes debtors cannot repay a credit, for example, in case of bankrupt of the company or dishonesty the people, running it.

Accounts not paid in time are called overdue accounts. In very difficult cases a firm employs a professional debt collector. No company wants to get a reputation for being a bad payer, because it will be difficult to get supplies on credit. There are special agencies, which provide information about the financial situation of any company, so the suppliers can judge a credit risk.

15. Insurance for a private company

Every firm insures itself against loss or damage to its property. Blanked insurance means insurance which covers everything, a comprehensive police. The premium is a percentage of the total value of goods.

The underwriters employ adjusters, assessing the loss or damage. This sum usually less than the full insured value of the property.

Often companies & persons insures the goods or property against almost anything that could happen. But most insurance companies put in some exceptions, like war or Act of God.

First you take out a policy, then you put in a claim, & the insurance company, you hope, agrees to meet the claim.

16. Public finance and finance of economic entities. The uses of central and local government funds (DDM 4.3)

Finance is the provision of funds when they are needed. Finance falls into public finance and finance of economic entities. The financial system is the network of institutions through which firms, householders and units of government obtain the funds.

The term public finance stands both for the financial flows and the financial institutions of the public sector. Public finance has four major functions:

1. The provision of essential services;

2. The encouragement or control of particular sectors of the economy

3. The implementation of social policy in respect of social services

4. The encouragement of the growth of the economy as a whole

Public finance is the provision of money to be spent by national and local government authorities. Public finance is concerned with taxation, expenditure and borrowing by central and local governments and financing of public corporations. Central government raises money from individuals and companies by direct and indirect taxation. It spends money on goods and services, such as health, defense, social security and pensions. Local government receives substantial grants from central government and raises revenue mainly through rates. From these resources it provides services: education, police, fire services, etc.

17. Budgetary process (DDM 4.3)

One of the most important tasks of any government is to manage the public money efficiently. All government have budgets: money income and the expenditures. The period covered by a budget is usually a year, known as a financial or fiscal year.

The budget is a key instrument for the expression and execution (выражения и осуществления) of government economic policy.

The budgetary process is the means by which the executive and legislative branches together formulate a coherent set of taxing and spending proposals. The US has relatively относительно open budget, which is subjected to congressional scrutiny. In contrast, the government of the U.K. presents the budget in different documents, at different times and it is rarely change.

The U.S. budget is often substantially revised a sketchy report of the government's intentions is given in an Autumn Statement. This document contains expenditure plans for the forthcoming three years. Details of these plans are given in an annual White Paper in February or March.

18. Managing Public Funds (DDM 4.6)

The responsibility for managing public funds is divided among the three branches of government. The chief executive of each of the governments is responsible for drawing up the budget.

It's impossible to overestimate the importance of a good, balanced budget for a country. Different governmental bodies are involved in the budget process. Budget consideration and approval is the responsibility of the legislative branch. The executive branch is liable for the preparation and execution of the budget. The courts on the juridical branch settle disputes over the collecting and spending of the public money.

In Russia the Ministry of Finance is the central coordinating body in presenting the budget. The state bodies controlling the budget. In Russia it's the Accounts Chamber then the Federal treasury System. For instance, in the U.K. the government department responsible for control of public finance and expenditure is the Treasury headed by the Chancellor of the Exchequer. And beyond this, the Bank of England advises the Government on financial matters and acts as banker to the government.

In the U.S. government the budget process includes all activities of government bodies. The President asks the head of each department to prepare a budget. These budgets are sent to the President's Office of Management and Budget. At the hearings the department heads must defend their proposed expenditures. Finally, they are assembled into a budget, which the President sends to congress for approval.

The Congressional Budget Office analyzes the budget. After much debate Congress passes appropriations bills specifying how much money each government department may spend. The revised budget is then sent to the President for his signature or veto.

19. The presentation of the state budget in the UK and the USA (DDM 4.3 4.6 4.7)

The US has a relatively open budget, in contrast, the government of the UK presents the budgetin different documents, at different times and, although subjected to parliament scrutiny, it’s rarely changed.

The US budget is presented as a coherent whole for lengthy consideration by Congress, during which it’s often substantially revised.

This joint consideration of revenue and expenditure is also common in most European countries. Practice in the UK and in other countries with a British parliamentary tradition, continues to reflect the historical separation of revenue and expenditure. The UK budget consists of a number of different documents, with only limited attempts being made to relate one to another. A sketchy report of the government's intentions is given in an Autumn Statement, usually published in November. This document contains expenditure plans for the forthcoming three years. Details of these plans and the aims of government expenditure and the output obtained are given in an annual White Paper in February or March. The documents concerned with

the revenue side are represented in a separate volume entitled the Financial Statement and Budget Report usually presented in March after the expenditure estimates. This gives a general outline of the economic policy, details of proposed tax changes and estimates of likely revenues, as well as details of such items as capital receipts from asset sales and the size of the contingency reserve of unallocated money to cover unforeseen events. It is very difficult to relate the public expenditure White Paper to the Financial Statement and Budget Report. The social security expenditure is presented in yet another document.

20. Financial regulation and supervision

In Ignatius's first major policy statement to Parliament he promised to end graft and corruption in public life and warned the electorate that no one holding an official position could feel safe unless he led a blameless life.

Ignatius, however, was not to be disheartened by the lack of confidence (доверие) shown in him, and set about this new task with vigour (решительность) and determination. Within days of his appointment he had caused a minor official at the Ministry lof Trade to be jailed for falsifying documents relating to the import of grain. The next to feel the fristles of Ignatius's new broom was a leading Lebanese financier, who was deported without trial (без суда) for breach (нарушение) of the exchange control regulations. A month later came an event, which even Ignatius considered a personal coup (переворот): the arrest of the Inspector General of Police for accepting bribes - a perk (привилегия) the citizens of Lagos had in the past considered went with the job.

When four months later the Police Chief was sentenced to eighteen months in jail, the new Finance Minister finally made the front page of the Lagos Daily Times. A leader on the centre page dubbed him Clean Sweep Ignatius', the new broom every guilty man feared. Ignatius's reputation as Mr Clean continued to grow as arrest followed arrest and unfounded (необоснованные) rumours began circulating in the capital that even General Otobi, the Head of State, was under investigation by his own Finance Minister.

Ignatius alone now checked, vetted and authorized all foreign contracts worth over one hundred million dollars. And although every decision he made was meticulously (тщательно) scrutinised by his enemies, not a breath of scandal ever became associated with his name.

When Ignatius began his second year of office as Minister of Finance even the cynics began to acknowledge his achievements. It was about this time that General Otobi felt confident enough to call Ignatius in for an unscheduled (внеплановая) consultation.

He said that he was alarmed by Ignatius's conclusion in the latest budget report that Exchequer (казначейство) was still losing millions of dollars each year in bribes paid to go-betweens by foreign companies. So he requested Ignatius to find out into whose pockets this money was falling and provided him with all necessary documentation. Three months later he was ready to start his investigation.

The Minister selected the month of August to make an unscheduled visit abroad, as it was the time when most Nigerians went on holiday, and his absence would therefore not be worthy of comment.

Having left his family in Florida, he secretly flew to Geneva. There he studied the list of banks he had so carefully drawn up after completing his research in Nigeria: each name was written out boldly in his own hand. Ignatius decided to start with Gerber et Cie. He called and agreed about meeting with chairman.

He wanted to discover which Nigerian citizens hold numbered accounts with mr Gerber's bank. But the chairman refused to give such information, referring to the policy of his bank to confidentiality. Ignatius used threats, saying that he would instruct Nigerian Ministry of Trade to halt all future dealings in Nigeria with any Swiss nationals until these names are revealed, promised that at his conference in London he would emphasise his Head of State's displeasure with the conduct of that bank, so in this case Gerber et Cie without doubt would lose its clients, when these warnings didn't work, he desided to set his pistol on them. The chairman and his assistant looked scared to death, but didn't reveal their secret. Ignatius was pleasantly surprised by such fidelity (преданность) to business and wished to open the account in their bank.

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