Flow of Capital - Prospects and Consequences.ppt

International flow of fund

1. Mobility of Capital
Flow from capital surplus region to capital
Deficit region

2. Interest Rate
Canada-2.7 %
USA -3.5 %
France-3.5 %
India-9 % to 12 %

3. Difference Leads to
Inflow as FDI and FII/FPI
ECB (External Commercial Borrowing) at
Competitive rates from banks in Developed
countries

4. Pros
We get investment. They get returns. Both
are benefitted
Our Companies raise Loans and bonds at a
lesser rate. The investors get better returns.
Stock Market Boom. Wealth Increases

5. Stock Market Crash in 2008
Sensexdown from 20,000 to 9000
Stock Prices fell by 70 % to 90 %
Wiped off $ 1.3 trillion within 3 months

6. Effect
FPI Flight-More than 30 Billion
dollars
INR -Depreciation by 25 %
Indian Export down by 21 %
About 5 lakhworkers were Laid down.
Gems & Jewellery sector alone disengaged
3 lakhworkers

7. Why it happened ?
Sub-Prime Crisis
Housing Boom in USA
BOP surplus of many countries were parked
in USA
Housing Loan without Proper credit
checking
Liberal Screening by Associates (Financial
Deregulation)
Loans Converted to Investment(Financial
Innovation

8. Investment Banks
Lehmann Brothers
Merrill Lynch
Goldman Sachs
Morgan Stanley

9. Credit Rating Agencies
Standard and Poor
Moody’s
Fitch

10. COLLAPSE OF US
FINANCIAL SYSTEM

11. EUROPEAN CRISIS
Effect on European Financial market

12. ASIA AND OTHER
CONTINENTS
Impact on Asia and Africa