Foreign Investments in Russia

Foreigner: Speaking about investment you often say "capital investment". Do you use the two words interchangeably?

Ukrainian: Yes, investment is rather a new word for Russian economy. Under centrally planned economy we used the term "gross capital investments" meaning all spendings for reproduction of fixed assets, including spendings for their full recovery.

F.: I see. What does the term "investment", the way you use it now, embrace?

U.: Capital expenditure on property, tangible and intellectual assets, including entrepreneurial activities, with a view to income, capital gains or social benefits.

F.: Thank you for this clarification. But whatever term is used, you are not happy about the volume of foreign investment in Russia. It remains very small relative to the size of the economy and attractive opportunities available, doesn't it?

U.: Yes, in spite of the country's vast market, cheap labour and enormous mineral resources, foreign investors are not very active in this country.

F.: The reasons are only too well known, I'm afraid. They are: unstable macroeconomic environment, political uncertainties, and the lack of clarity and consistency in the legal and fiscal treatment of foreign investment.

U.: You are right. Unfortunately, all this has dampened interest among potential foreign investors towards Russia. But we need foreign investments badly. Our government is trying to attract investors, to facilitate foreigners' entry into Russian business.

F.: Well, but it's a fact that there are still many restrictions affecting foreign investors here. They range from minor restrictions to total interdiction. For example, foreign investors can own land only through joint ventures.

U.: That can't be denied. But the government is encouraging foreign participation, for example, in the privatization process.

F.: Yes, the start of auctions of enterprise shares and other measures are likely to increase the role of outside investors and may also have a positive effect on the volume of foreign investment in Russia.

U.: Hopefully, it will speed up the ongoing reforms and the structural adjustment.

F.: World experience has shown on many occasions that foreign investments can become a vital element of a country's economic progress. Through what channels are foreign investments coming to Russia?

U.: Mainly in the form of foreign direct investments and portfolio investments.

F.: Foreign direct investment in Russia is most typically in the form of joint ventures, isn't it?

U.: Yes, besides there are fully foreign-owned enterprises. The most important recipient sectors are: machine-building, metal processing, the fuel and energy sectors, trade and public catering. But we are not satisfied with the investment level, as I've said. The figures for portfolio investments are not encouraging either.

F.: Figures are figures, but some foreign investors believe that Russian stocks are worth buying and the market really offers good investment opportunities.

Words you may need:

Англійський варіант	Російський варіант	Український варіант
capital investment	капиталовложения	капіталовкладення
interchangeably	одно вместо другого	одне замість іншого
gross capital investment	валовые капиталовложения	валові капіталовкладення
reproduction	воспроизводство	відтворювання
full recovery	полное восстановление	повне відновлення
intellectual assets	интеллектуальные активы	інтелектуальні активи
clarification	разъяснение	роз'яснення
uncertainty	неопределенность	невизначеність
clarity	ясность	ясність
consistency	последовательность	послідовність
to dampen interest	ослаблять интерес	ослабляти інтерес
interdiction	запрет	замкне

UNIT 4

FOREIGN EXCHANGE MARKET.

GLOBAL FINANCIAL MARKETS

A. TEXT

TRADING IN THE FOREIGN EXCHANGE MARKET

Any one country's currency is a legal tender only within its national boundaries. To trade beyond these boundaries involves exchange of monies. Exchange of currencies is possible if national currencies are interchangeable. The terms on which one currency will exchange against another are referred to as rate of exchange. The rate of exchange is the value of one unit of the foreign currency expressed in the other currency concerned.

Currencies can be bought or sold in the Foreign Exchange Market. The Foreign Exchange Market is the oldest financial market in existence. It is also the largest international financial market in the world.

The Market performs two major functions: it facilitates the foreign exchange needs of exporters and importers, and it enables individuals, corporations and governments to obtain a desired currency mix of their portfolios.

Trading in the Market occurs 24 hours a day in various centres around the world. Deals are concluded bilaterally over telecommuni­cations networks by different counterparties, some of whom serve as market makers or dealers.

The exchange market is global in character, it does not have one centralized location; trading is heavily concentrated in a handful of centres: London, New York, Tokyo, etc. The great majority of foreign exchange trading takes place in the interbank market between traders or market makers who represent large commercial banks or other financial institutions. Foreign exchange departments of large commercial banks are linked across the world through a sophisticated network of communication systems. The market consists of three major sectors: the spot market, the forward and futures markets and the currency options market.

Somewhat more than half of all transactions are spot deals, 1ц other words, they are transactions which call for the delivery of the two currencies exchanged within two business days. The remainder of the deals can be classified as outright forwards, swaps, futures and options.

Such transactions are performed by customers who do not know when they will need foreign currency to overcome the growing exposure to currency risks in the conditions of foreign exchange rate volatility.

The cost of transacting in the wholesale market is reflected in the bid-ask (or bid-offer) spread. Prices in the market depend on the volume of transactions, exchange rate volatility, the availability of relevant information and the strength of competition in the Market.

As prices are different in different markets, professional dealers take advantage of it buying, say, US dollars for Yen in Singapore and selling them in London for sterling and then back into Yen in New York - all for a profit. The operation is called currency arbitrage.

The delivery of the individual currencies involved in a foreign exchange transaction typically takes place through the payment systems of the two countries whose currencies are traded.

The reliance on the domestic currency payment system of individual countries for the clearing and settlement of foreign exchange transactions means that the stability and integrity of the global foreign exchange market depends on both the soundness of the individual counterparties and the robustness of national payment systems.

B. DIALOGUE