Special economic zone (SEZ)

A Special Economic Zone (SEZ) is a geographical region that has economic and other laws that are more free-market-oriented than a country's typical or national laws. "Nationwide" laws may be suspended inside a special economic zone.

The category SEZ covers, including free trade zones (FTZ), export processing Zones (EPZ), free Zones (FZ), industrial parks or industrial estates (IE), free ports, free economic zones, urban enterprise zones and others..

Usually the goal of a structure is to increase foreign direct investment by foreign investors, typically an international business or a multinational corporation (MNC), development of infrastructure and to increase the employment.

India was one of the first countries in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asia's first EPZ set up in Kandla in 1965. In order to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000.

The SEZ Act, 2005, was an important bill to be passed by the Government of India in order to instill confidence in investors and signal the Government's commitment to a stable SEZ policy regime and with a view to impart stability to the SEZ regime thereby generating greater economic activity and employment through their establishment, a comprehensive draft SEZ Bill prepared after extensive discussions with the stakeholders. A number of meetings were held in various parts of the country both by the Minister for Commerce and Industry as well as senior officials for this purpose. The Special Economic Zones Act, 2005, was passed by Parliament in May, 2005 which received Presidential assent on the 23rd of June, 2005. The draft SEZ Rules were widely discussed and put on the website of the Department of Commerce offering suggestions/comments. Around 800 suggestions were received on the draft rules.

 Exports from Indian SEZ totalled INR 2.2 Trillion in 2009-10 fiscal. It grew by a stupendous 43% to reach INR 3.16 Trillion in 2010-11 fiscal. Indian SEZs have created over 840,000 jobs as of 2010-11. Despite all odds, exports through Indian SEZs grew further by 15.4% to reach INR 3.64 Trillion (roughly US$ 66 billion). As of 2011-12 fiscal, investments worth over US$ 36.5 billion (INR 2.02 Trillion) have been made in these tax-free enclaves. Exports of Indian SEZs have experienced a phenomenal growth of 50.5% for the past eight fiscals from a meager US$ 2.5 billion in 2003-04 to about US$ 65 billion in 2011-12 (accounting for 23% of India's total exports).

Corporate finance

Corporate finance is the area of finance dealing with monetary decisions that business enterprises make and the tools and analysis used to make these decisions. The primary goal of corporate finance is to maximize shareholder value. Although it is in principle different from managerial finance which studies the financial decisions of all firms, rather than corporations alone, the main concepts in the study of corporate finance are applicable to the financial problems of all kinds of firms.

The discipline can be divided into long-term and short-term decisions and techniques. Capital investment decisions are long-term choices about which projects receive investment, whether to finance that investment with equity or debt, and when or whether to pay dividends to shareholders. On the other hand, short term decisions deal with the short-term balance of current assets and current liabilities; the focus here is on managing cash, inventories, and short-term borrowing and lending (such as the terms on credit extended to customers).[citation needed]

The terms corporate finance and corporate financier are also associated with investment banking. The typical role of an investment bank is to evaluate the company's financial needs and raise the appropriate type of capital that best fits those needs. Thus, the terms “corporate finance” and “corporate financier” may be associated with transactions in which capital is raised in order to create, develop, grow or acquire businesses.

Financial market

A financial market is a market in which people and entities can trade financial securities, commodities, and other fungible items of value at low transaction costs and at prices that reflect supply and demand. Securities include stocks and bonds, and commodities include precious metals or agricultural goods.

There are both general markets (where many commodities are traded) and specialized markets (where only one commodity is traded). Markets work by placing many interested buyers and sellers, including households, firms, and government agencies, in one "place", thus making it easier for them to find each other. An economy which relies primarily on interactions between buyers and sellers to allocate resources is known as a market economy in contrast either to a command economy or to a non-market economy such as a gift economy.

 In finance, financial markets facilitate:
•    The raising of capital (in the capital markets)
•    The transfer of risk (in the derivatives markets)
•    Price discovery
•    Global transactions with integration of financial markets
•    The transfer of liquidity (in the money markets)
•    International trade (in the currency markets)
– and are used to match those who want capital to those who have it.
Typically a borrower issues a receipt to the lender promising to pay back the capital. These receipts are securities which may be freely bought or sold. In return for lending money to the borrower, the lender will expect some compensation in the form of interest or dividends. This return on investment is a necessary part of markets to ensure that funds are supplied to them.

Trade finance

                      Trade finance is related to international trade.

While a seller (the exporter) can require the purchaser (an importer) to prepay for goods shipped, the purchaser (importer) may wish to reduce risk by requiring the seller to document the goods that have been shipped. Banks may assist by providing various forms of support. For example, the importer's bank may provide a letter of credit to the exporter (or the exporter's bank) providing for payment upon presentation of certain documents, such as a bill of lading. The exporter's bank may make a loan (by advancing funds) to the exporter on the basis of the export contract.

          Other forms of trade finance can include Documentary collection, trade credit insurance, export factoring, and for faiting. Some forms are specifically designed to supplement traditional financing.  In many countries, trade finance is often supported by quasi-government entities known as export credit agencies that work with commercial banks and other financial institutions.

            Since secure trade finance depends on verifiable and secure tracking of physical risks and events in the chain between exporter and importer, the advent of new methodologies in the information systems world has allowed the development of risk mitigation models which have developed into new advanced finance models. This allows very low risk payment advances to exporters to be made, while preserving the importers normal payment credit terms and without burdening the importers balance sheet. As the world progresses towards more flexible, growth oriented funding sources post the global banking crisis, the demand for these new methodologies has increased dramatically among exporters, importers and banks.

    Trade finance refers to financing international trading transactions. In this financing arrangement, the bank or other institution of the importer provides for paying for goods imported on behalf of the importer.

Learn how Interest Rates affect Equity Markets.

How interest rates affect equity markets :-

Interest rates are set by central banks all over the world. In India, Reserve Bank of India sets the repo rate. This is the rate at which RBI lends to commercial banks. This becomes the benchmark rate. Commercial banks decide borrowing rates for businesses and people like us based on this benchmark rate. On 29 January 2013, RBI will conduct its quarterly review of monetary policy. According to a survey of 10 economists polled by The Economic Times, a business daily, it is expected that RBI would cut repo rates by 0.25 per cent to 7.75 per cent.

Equity markets would watch out for steps taken by the Reserve Bank of India. Here are pointers that highlight the relationship between interest rates and equity markets:

            •    High interest rates hurt company profits: In the first half of the financial year 2012-13, companies across sectors paid 3.7% of their sales as interest, according to RBI’s monthly bulletin for January 2013. This was just 1.6% four years ago. This ate into company profits. The net profit as a percentage of sales for companies stood at 6.4% in the first half of 2012-13 against 9.2% four years ago.

               •    Small companies hit most: The RBI study of small, medium and large listed companies suggests that small and medium sized companies are hit hardest due to high interest rates. Banks make small companies pay higher interest rate than large companies. The interest paid as a percentage of sales was 9.2% for small companies, 5.8% for medium companies and 3.3% for large companies. RBI defines small companies as those with sales of less than Rs 100 crore. Medium sized companies have sales between Rs 100 crore to Rs 1,000 crore. Large sized companies are those with sales of over Rs 1,000 crore.

               •    High interest rates reduce domestic participation in stock markets: Investors tend to keep their money in fixed deposits or fixed return assets when interest rates are high. Indian investors pulled out money from equity markets in 2012. For January 2013, mutual funds were net sellers to the tune of Rs 2,770 crore, according to Securities and Exchange Board of India. This means investors in India do not feel the need to take any risk and bet on equity markets. In contrast, low interest rates in US and others markets drove foreign institutional investors to risky assets in emerging markets. In January 2013 so far, FIIs have injected $ 3bn in Indian equity markets.

               •    High interest rates slow growth: Future growth of companies and expansion is also affected due to persistent high interest rates. Companies struggle to repay existing loans and put on hold expansion plans. This results in fewer jobs than before. Companies also cut spending and consume less. This reduces the demand for goods and services and slows economic growth.

International trade

                           International trade is the exchange of capital, goods, and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product (GDP). While international trade has been present throughout much of history (see Silk Road, Amber Road), its economic, social, and political importance has been on the rise in recent centuries.

                         Industrialization, advanced transportation, globalization, multinational corporations, and outsourcing are all having a major impact on the international trade system. Increasing international trade is crucial to the continuance of globalization. Without international trade, nations would be limited to the goods and services produced within their own borders.

                           International trade is, in principle, not different from domestic trade as the motivation and the behavior of parties involved in a trade do not change fundamentally regardless of whether trade is across a border or not. The main difference is that international trade is typically more costly than domestic trade. The reason is that a border typically imposes additional costs such as tariffs, time costs due to border delays and costs associated with country differences such as language, the legal system or culture.

                         Another difference between domestic and international trade is that factors of production such as capital and labor are typically more mobile within a country than across countries. Thus international trade is mostly restricted to trade in goods and services, and only to a lesser extent to trade in capital, labor or other factors of production. Trade in goods and services can serve as a substitute for trade in factors of production. 

                          Instead of importing a factor of production, a country can import goods that make intensive use of that factor of production and thus embody it. An example is the import of labor-intensive goods by the United States from China. Instead of importing Chinese labor, the United States imports goods that were produced with Chinese labor. One report in 2010 suggested that international trade was increased when a country hosted a network of immigrants, but the trade effect was weakened when the immigrants became assimilated into their new country.