A look at what’s on International Treasurer’s radar screen this week.
Several topics were discussed in this week’s International Treasurer editorial meeting, among them a continued exploration of China’s evolving capital markets and its receptiveness to more foreign investment. Also a look at issues related to FX hedging in India. Finally, we’ll give an update on FBAR, which remains an issue for treasury as indicated by the interest in the subject at a recent NeuGroup Global Cash & Banking Group meeting (GCBG).
China.
International Treasurer will explore two recent developments on China. One is Chinese Premier Wen Jiabao recent rebuke of Chinese banks, calling them monopolies that must be broken up. According to the Wall Street Journal, this was “blunt appeal for a shake-up of the creaky financial system of the world’s No. 2 economy.” How will that have an impact on foreign banks doing business in China? Another recent development is that those foreign banks will now be allowed to “play a more active role in China’s equity markets if the new reformist head of the country’s securities regulator gets his way,” according to a report in the Financial Times. China’s new Securities Regulatory Commission chairman indicated China was moving in this direction after he more than doubled the amount of money that FIs can invest in China’s capital markets.
India.
The BRICs – Brazil, Russia, India and China – always present challenges to treasurers. In India they’ve had to deal with FEMA, India’s Foreign Exchange Management Act of 2000, which doesn’t leave a lot of room for creativity. The Indian rupee fluctuates according to a “market determined managed float” against a basket of currencies and the FX market is regulated by FEMA. Meanwhile, the onshore market for options and forwards is limited to onshore entities and only vanilla options can be bought. Companies must verify that FX trades have underlying commercial transactions. It’s important to note that unlike other laws where everything is permitted unless specifically prohibited, under FEMA everything is prohibited unless specifically permitted.
FBAR.
It’s tax season and FBAR has bubbled to the surface again. FBAR, or the Report of Foreign Bank and Financial Accounts, is a byproduct of the Bank Secrecy Act of 1970 and later the US Patriot ACT of 2001, and was first introduced as a device to assist in cracking down on tax evaders as well as exposing criminal activity such as terrorist funding. But now treasurers, whose names are often on foreign bank accounts for their companies, are finding themselves caught up in the requirement in their personal filings. We’ll discuss what some treasurers are doing to comply with the measure. (See related story here.)