INTERNATIONAL FINANCIAL SYSTEM
INVESTMENTS IN UKRAINE
The main Regulatory legal act regulating the issues on investment activity in the territory of Ukraine is the Law of Ukraine № 1560-XII “On investment activity”, dated August 18, 1991. Foreign investment regulations in the territory of Ukraine with consideration for its peculiarities is regulated by the Law of Ukraine № 93/96-ВР “On foreign investment regulations”, dated March 19, 1996, (herein after – “the Law”). According to the Law foreign investors are the subjects executing investment activity in the territory of Ukraine, namely:
- Legal entities founded according to other legislation rather than Ukrainian;
- Individuals – foreigners without permanent residents in the territory of Ukraine and are not incapacitated;
- Foreign states, international governmental and non-governmental organizations;
- Other foreign subjects of investment activity confessing those according to the legislation of Ukraine.
Foreign investments are values which are invested in objects of investment activity according to the legislation of Ukraine with the view of income receiving or social effect achieving.
The enterprise with foreign investments is an enterprise (organization) of any legal organizational form founded according to the legislation of Ukraine, foreign investment of which in charter fund is not less than 10%.
The enterprise gains status of the enterprise with foreign investment from the day of the foreign investment placing to its balance. Foreign investment can be conducted in forms of:
- Foreign currency which is acknowledged convertible by National Bank of Ukraine;
- Currency of Ukraine under reinvestment into the initial investing object or any other investment objects according to the legislation of Ukraine under condition of income (profits) tax payment;
- Any movable and real estate and property rights related to them;
- Shares, bonds, other securities as well as corporate rights (right to possess a fund unit in a charter fund of the legal entity founded according to the legislation of Ukraine or legislation of other countries) denominated in;
- Monetary claim and rights to claim execution of agreement obligations which are guaranteed by reputable banks and have value in convertible currency confirmed according to the laws (procedures) of the investor’s country or international customs of merchants;
- Any rights of intellectual property value of which is confirmed in convertible currency, according to the laws (procedures) of the investor’s country or international customs of merchants, and is also confirmed by expert estimation in Ukraine, including legalized copyright laws, invention rights, useful models, industrial patterns, labels for goods and services, know-how and so on;
- Rights to execution of economical activity including rights to use subsurface resources and natural resources given according to the legislation or agreements value of which is confirmed in convertible currency according to the laws (procedures) of the investor’s country or international customs of merchants;
- Other values, according to the legislation of Ukraine.
Foreign investment in Ukraine
At present, Eastern Europe countries are one of the most attractive direct and portfolio investment destinations with exciting opportunities for business development and expansion. Among these countries Ukraine for sure is one of the leaders due to a number of reasons:
- Ukrainian soil is the richest in the world (great opportunities for agricultural business);
- Ukraine has very tender and agro-friendly climate (no tornado, tsunami, deserts, dangerous insects, natural disasters);
- Ukrainian workers are skilled and lower-paid comparing to highly developed countries;
- Ukrainian market is huge – around 50 million consumers;
- Ukraine has extensive well-developed infrastructure (transportation, communication, hotels, etc);
- Ukraine is a net exporter of electricity (entrepreneur may save a lot on electricity though);
- Ukraine enjoys great discount on gas from Russia (gas price in Ukraine is much lower than in the EU);
- Ukraine enjoys very favourable location (between Europe and Asia, North and South Europe) and geographical proximity to the EU market;
- Ukrainian income and corporate taxes are the lowest in Europe (you can also switch to flat tax);
- Ukrainian environmental protection laws are very liberal comparing to highly developed countries;
- Ukrainian economy is steadily growing up to 6% from year-to-year;
Ukraine joined the WTO at the beginning of 2008.
When President Yushchenko took office in January 2005, he made improving the investment climate one of his top economic policy goals. This led to a number of new government initiatives, such as creation a State agency for investment and innovation and a number of investor councils chaired by the President. Over the past few years, Ukraine has liberalized its markets, reduced regulation, eliminated most licensing requirements, eliminated most restrictions on foreign exchange and begun the transformation of the agricultural sector from state-run farms to private agriculture. After years of hyperinflation and plummeting currency values, the national currency, the hryvnia, has been stable against the U.S. dollar for over four years.
Licensing Principles
The worldwide marketplace for all types of electronic information resources is rapidly being developed as publishers and vendors who create electronic information seek to attract libraries of all types (public, academic, special, national) as their customers. Today, libraries around the world continue in their role as mediators between citizens, including those affiliated with specific institutions, and information and cultural expression roles that persist even more – energetically, it appears, for electronic information than for print. And, just as libraries advance the archiving and preservation of traditional media, so they are seeking ways to ensure that electronic resources will be archived and preserved to be accessible over a long period of time. Pricing also remains an issue: libraries continue to express concerns about the fact that a number of electronic resources appear to be priced higher than were their print counterparts.
While the library community strongly supports the continuation into the digital environment of exceptions that have been granted under copyright law, there are some areas where different procedures and policies need to be developed to handle electronic publications. Of particular interest to IFLA in the development of licenses is the following:
Use of electronic information everywhere in the world is, at this time, usually defined and described by contractual agreements, otherwise known as licenses. These licenses describe comprehensively the terms of the provider/library relationship. Contracting is a comparatively new (1990s) way of doing business for most parties in the information chain.
Licenses are pure marketplace arrangements in which a willing information provider and a willing purchaser of information access come together to make arrangements, deal by deal, resource by resource.
User rights are defined within the terms and conditions of the licenses. They are not governed by (comparatively well understood) copyright legislation to the same extent as is the use of "fixed" or traditional information formats.
Libraries generally provide patron access to such information via access to remote publisher or vendor sites, rather than library-controlled sites. Yet, the tasks and costs of libraries and information providers with regard to long-term archiving and preservation of electronic resources are disturbingly unclear. While a license cannot resolve this complicated set of electronic archiving issues, it will, generally, recognize them and express a set of commitments or expectations on the part of the contracting parties.
IFLA views the licensing arena positively, although key issues remain to be resolved. In particular, licensing is showing itself responsive to the complex business arrangements being entered into between information providers and library consortia of different types and sizes. IFLA encourages and supports the evolution of all types of libraries negotiating as consortia. Nonetheless, even with the current move to licensing as a complementary means of regulating the use of electronic information, libraries and their users need effective, well-balanced national copyright laws that recognize not only the copyright owners' need for remuneration and recognition, but also the critical purposes of public information, education and research. This balance, struck in carefully crafted copyright legislation, must find expression in all information resource licenses.
INTERNATIONAL MANAGEMENT
The economic independence of nations fosters the growth of multinational firms that conduct business on a global scale where markets are more important than political boundaries. Managers operating in an international environment deal with a variety of unique challenges growing out of such factors as politics, economics, and cultures.
Each foreign country is different from all other countries where a firm might do business. So, when the first consideration of a company is to get established in a foreign country it is the environment's current state that gets more attention. It has to learn local laws, customs, and languages. It must learn to deal with foreign patterns of economic growth, investment, and inflation. The company must also concern itself with various aspects of international trade, such as the value of a country's currency relative to other currencies (the foreign – exchange rate) and its balance of payments, as well as extent of controls on imports and exports, on foreign investors.
Equally important is the multinational company's ability to choose the right strategy and organization applicable to individual companies operating in the international business arena. There are four strategies involved in international management. They include globalization, rationalization, national responsiveness, and the multifocal approach. Whether or not these strategies are implemented depends on a company's size and the number of countries in which it operates. For example, a small export company is not likely to employ a rationalization program. On the other hand, an MNC might utilize all four strategies.
Firms that wish to expand into a foreign country must also assess its political stability, political risks inherent in particular countries. Developed countries tend to be relatively stable from a political and an economic standpoint, while less developed countries may be more susceptible to political strife. Governments may come and go or may decide to nationalize companies. Such was the case in the 1960s when Chile's President Eduardo Frey "Chileanized" the country's copper mines. Many American companies lost their holdings, although they were compensated for their losses.
One of the most critical factors in the success of a company's international success is its hiring program. Generally, hiring production workers is not a major problem, companies recruit locals to perform the daily work. In all likelihood, first-level supervisors and possibly some of the middle managers will also be members of the local community. Hiring upper-level management, however, is another matter—one that must be handled with care and sensitivity.
Individuals searching for careers in the field of international management will find numerous opportunities available to them. The field is becoming a specialty of its own. Virtually every management textbook being used in business curricula today has at least one chapter devoted entirely to international management. Colleges and universities are offering degrees ranging from associates to Ph.D.s in the field. As more and more companies enter the international business arena, the number of management opportunities will grow.
RISK MANAGEMENT
The term risk management is applied in a number of diverse disciplines. People in the fields of statistics, economics, psychology, social sciences, biology, engineering, toxicology, systems analysis, operations research, and decision theory, to name a few, have been addressing the field of risk management.
Risk management is activity directed towards the assessing and monitoring of risks. It is a logical process or approach that seeks to eliminate or at least minimize the level of risk associated with a business operation. Essentially, the process identifies any type of situation that could result in damage to any resource within the possession of the company, including personnel, then take steps to correct factors that are highly likely to result in that damage.
At the core of effective risk management strategies is the desire to find ways to manage the degree of uncertainty that exists within any business enterprise. The first step in the process has to do with evaluating the utilization of resources as they current stand. This step involves understanding the logical flow of the production process and how it relates to the successful manufacturing of goods and services for sale to consumers. Once there is a solid grasp of how the organization functions, it is then possible to move on to refining that process with an eye toward managing that uncertainty factor.
Once the business model is understood, it is possible to identify specific risks that are present throughout the production process, including the delivery of goods and services to buyers. As those risks are identified, they are analyzed for ways to alter the process so that the end result is still achieved, but the degree of risk is minimized or removed altogether. Risk management may be an extremely complicated process or require nothing more than making a few minor adjustments.
For example, risk management as it relates to the production process may include action items such as reworking the maintenance schedule for machinery to ensure there is less opportunity for a breakdown or malfunction. Employees may be required to wear safety goggles, gloves, or earplugs in order to ensure safety and thus minimize the chances of injury through company negligence.
Risk management not only seeks to minimize the potential for injury to employees, but also reduces the opportunity for money and other forms of finance to be abused or utilized ineffectively. By making sure that all resources are utilized in a manner that is safe, logical, and efficient, the profit margin for the company will increase and everyone associated with the company is motivated to continue production.
The actual process of risk management will vary from company to company. The focus may be on employee safety measures, or machinery maintenance. In other companies, risk management can demand revamping policies and procedures in order to rid the company environment of potential risk situations. Risk management normally requires the support of owners and the management team in order to refine the overall operation and achieve the lowest degree of risk possible.
LEASING. TYPES OF LEASES
Almost any asset that can be purchased can be leased, from aircraft to zithers. When we take vacations or business trips, renting a car for a few days frequently seems a convenient thing to do. This is an example of a short-term lease. After all, buying a car and selling it a few days later would be a great nuisance.
Corporations lease both short-term and long-term more than five years. Long-term leasing is a method of financing property, plant, and equipment. More equipment is financed today by long-term leases than by any other method of equipment financing.
Every lease contract has two parties: the lessee and the lessor. The lessee is the user of the equipment, and the lessor is the owner. Typically, the lessee first decides on the asset needed and then negotiates a lease contract with a lessor. From the lessee -standpoint, long-term leasing is similar to buying the equipment with a secured loan. The terms of the lease contract are compared to what a banker might arrange with a secured loan. Thus, long-term leasing is a form of financing.
Many questionable advantages are claimed for long-term leasing, such as "leasing provides 100-percent financing," or "leasing conserves capital." However, the principal benefit of long-term leasing is tax reduction. Leasing allows the transfer of tax benefits from those who need equipment but cannot take full advantage of the tax benefits associated with ownership to a party who can. If the corporate income tax were repealed, long-term leasing would virtually disappear.
The Basics
A lease is a contractual agreement between a lessee and a lessor. The agreement establishes that the lessee has the right to use an asset and in return must make periodic payments to the lessor, the owner of the asset. The lessor is either the asset's manufacturer or an independent leasing company. If the lessor is an independent leasing company it must buy the asset from a manufacturer. Then the lessor delivers the asset to the lessee, and the lease goes into effect.
As far as the lessee is concerned, it is the use of the asset that is most important, not who owns the asset. The use of an asset can be obtained by a lease contract.
Because the user can also buy the asset, leasing and buying involve alternative financing arrangements for the use of an asset. This is illustrated in Figure 1.
The specific example in Figure 1 happens often in the computer industry. Firm U, the lessee, might be a hospital, a law firm, or any other firm that uses computers. The lessor is an independent leasing company who purchased the equipment from a manufacturer such as IBM or Apple. Leases of this type are called direct leases. In the figure, the lessor issued both debt and equity to finance the purchase.
Of course, a manufacturer like IBM could lease its own computers, though we do not show this situation in the example. Leases of this type are called sales-typeleases. In this case, IBM would compete with the independent computer-leasing company.
INSURANCE AND RISKS
Insurance technology is a means chosen for funding of losses, incurred by individuals and companies as a result of various adverse conditions. The character of risks reimbursed through the mechanism of insurance, way of action of this mechanism depend upon the needs and wishes of a given society. The need in funds for indemnification for damages also differs. In one society a risk is taken by the state, in another - by private companies. However, the risks of large damages which cannot be covered by private structures must by always ensured by the government through taxation or by other means. Examples of risks covered by the government include risk related to the use of nuclear power or risk of unemployment. Systems of organization of insurance also differ across various countries.
Thus, this type of financial-economic activity is extremely important for provision of endless economic life of a society. In addition, it helps individuals to deal with consequences of adverse events. Insurance companies are a kind of regulators of society's attitude to risks. Pre –back office
There are two major types of insurance companies. A stock insurance company is owned by stockholders, just like any other investor-owned company. A mutual insurance company is owned by its policy-holders. These companies are more popular today as more firms join together to start new mutual companies. They do so because stock companies (which are investor-owned) cannot or will not sell policies at "reasonable" prices.
The factor that makes insurance an effective way to cover risk is the Law of large numbers. It states that if a large number of people or organizations are exposed to the same risk, a predictable number of losses will occur during a given period of time.
What are some key terms used by insurance companies? An insurance policy is a written contract between the insured and an insurance company that promises to pay all or part of a loss. A premium is the fee charged by the insurance company. The rule of indemnity says an insured person cannot collect more than the actual loss. A deductible clause says that the insurance company will pay only the part of a loss that exceeds the deductible amount. A coinsurance clause requires businesses to carry insurance equal to 80 % of a building's value.
Business carries a variety of insurance coverage including fire auto and truck, liability, health, life criminal loss, and worker's compensation.
Property insurance includes fire insurance and its rider, which covers wind, hail, smoke and other damage. It also includes an insurance (including bodily injury, property damage, collision a comprehensive coverage), marine and aviation insurance.
Liability insurance provides protection against losses resulting from personal injuries or damage to the property of others. A variety f liability policies are available, including an umbrella liability policy that covers virtually everything. Workers' compensation is a form liability insurance for on-the-job injuries.
INTERNATIONAL FINANCIAL SYSTEM
Finance is the provision of money at the time when it is needed. It is a system of monetary relations leading to formation, distribution and use of money in the process of its turnover between economic entities.
The financial system is the network of institutions through which firms, households and units of government get the funds they need and put surplus funds to work.
Savers and borrowers are connected by financial intermediaries including banks, thrift institutions, insurance companies, pension funds, mutual funds, and finance companies.
Finance in an economic system comprises two parts: public finance and finance of economic entities.
Public finance is the provision of money (by the community through taxes) to be spent by national and local government authorities on1 projects of national and local benefit. It is a collective term for the financial flows and also the financial institutions of the public sector.
Public finance has the following four functions:
a) the provision of essential services;
b) the encouragement or control of particular sectors of the economy;
c) the implementation of social policy in respect of social services;
d) the encouragement of the growth of the economy as a whole.
The major instrument of any financial system is the budget. In a market-oriented economy, the budget is the most important tool for achieving national priority and goals through the allocation and distribution of resources, and the maintenance of stable macroeconomic environment.
The budget is an estimate of national revenue and expenditure for the ensuing fiscal year. When expenditure exceeds the revenue the budget has a deficit.
Revenue and expenditure forecasting is the most fundamental step in the process of budget preparation. Adequate planning of recurrent and capital expenditure depends critically on an accurate forecast of revenue availability. The determination of the expected overall deficit in the public sector and therefore the macroeconomic impact of fiscal policy requires accurate forecast of tax collection and expenditures.
In Ukraine, public finance is a sum of the budgets of all levels of subjects of the state, extrabudgetary and reserve funds.
An accurate revenue forecast is most critical at the national level of government but it is also important for all level governments because over the last several years they have worked with increasingly autonomous budgets.
Budget preparation at the national level involves a number of institutions. The Ministry of Finance (MoF) is the central coordinating institution in charge of compiling and presenting the budget. It has major inputs from2 ministries in various sectors of the economy and the state tax bodies.
CENTRAL BANKING SYSTEM
The central banking system is a major sector of any modern monetary system. It is of great importance to the fiscal policy of the national government and the functioning of the private sector.
Central banks such as the Bank of England, the Federal Reserve Board of the US, the Bundesbank of Germany, the National Bank of Ukraine function for the government and other banks, not for private customers. They are responsible for the implementation of monetary policy and supervision over the banking system.
In particular, they control the money supply, fix the minimum interest rate, act as lenders of last resort to commercial banks with liquidity problems, issue coins and bank notes, influence exchange rates by interventing in foreign exchange markets.
To ensure the safety of the banking system, central banks impose reserve requirements, obliging commercial banks to deposit a certain amount of money with the central bank at zero interest. Central banks in different countries also impose different “prudential ratios” on commercial banks such as capital ratio and liquid ratio.
In the course of market reforms in Ukraine the National Bank has been pursuing moderately tight monetary policy aimed at further reduction of inflation and putting an end to direct budget deficit crediting1. The NBU has been using the following main instruments of monetary policy:
< fixed targets for the money supply growth;
< refinancing of commercial banks;
< interest rates;
< open market operations;
< commercial banks reserve requirements;
< foreign currency control;
< direct quantity restrictions.
The Federal Reserve System of the USA or “Fed”, as it is known in financial circles, is an independent agency of Congress founded in 1913. The system consists of twelve federal reserve banks and a board of governors. The board of governors has its headquarters in Washington, D.C.
The Fed performs three major functions. It provides services to the banking system and federal government; it stabilizes the banking system; and it controls the quantity of money in circulation.
The most important service of the Fed is check clearing, i.e. making sure that checks written on one bank can be accepted at any other bank in the country.
The Fed performs a number of other services for banks and thrift institutions. It provides currency to banks and collects worn currency. It also provides safekeeping for securities.
Finally, the Fed performs banking services for the federal and foreign governments. It maintains US Treasury accounts from which all federal government payments are made. In addition, it assists in international transfers of funds by private firms and international agencies.
A second function of the Federal Reserve is stabilizing the banking system.
Banking panics often took place in the nineteenth century. Preventing such panics was the main reason for setting up the Federal Reserve System. With this mind, the Fed was given broad powers to regulate banks.
The Fed’s regulations are aimed at making sure that banks use sound business practices. For example, the Fed requires banks to hold a minimum fraction of their deposits as reserves.
The Fed was also given the power to supply extra reserves when needed. There are two ways in which the Fed can put reserves into the banking system. First, it can lend reserves to banks. Second, it can supply reserves to the banking system by buying government bonds from the public on the open market, in other words, by participating in open-market operations.
Fed has taken on another role as well, than of partner, with Congress and the executive branch, in the making of economic policy. The Fed’s power as an economic policymaker comes from its ability to control bank reserves and, hence, to control the total amount of money in circulation.