International Financial Management
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Q1. How does International Financial Management helps in maximizing the wealth of theshareholders?Ans:
Effective financial management is not limited to the application of the latest businesstechniques or functioning more efficiently but includes maximization of wealth meaningthat it aims to offer profit to the shareholder, the owners of the businesses and to ensurethat they gain benefits from the business decisions that have been made.
Q2. Explain the major accounts and sub categories of the balance of payments statement.Ans:
The BOP consists of current account, capital account and reserve account. The currentaccount records flow of goods, services and unilateral transfers. The capital account showsthe transactions that involve changes in the foreign financial assets and liabilities of acountry. The reserve account records transactions pertaining to reserve assets likemonetary gold, special drawings right (SDRs) and assets denominated in foreign currencies.
Q3. Define what you mean by Forward Markets. Discuss the differences between futuresoptions and spot options.Ans:
In the forward market, contracts are made to buy and sell currencies for futuredelivery, say, after a fortnight, one month two months, or three months.
Q4. Define cost of capital. Discuss the approaches that are employed to calculate the costof equity capital.Ans:
Cost of capital is another name for required rate of return. It is the minimum rate of return required by a firm on its investment in order to provide the rate of return required byits suppliers of capital. The suppliers of capital are equity shareholders and debt holders. Afirm may have cost of equity, cost of retained earnings and cost of debt. The cost of capitalis the combined cost of all sources of capital. As the components are combined according to
the weight of each component of the firm’s capital structure, the overall cost of capit
al isalso known as weighted average cost of capital (WACC).
Q5. Explain the techniques adopted by MNCs to reduce country risk.Ans:
Measures of country risk do not distinguish different risks facing different industries.They measure only the risk of countries. An MNC will have to reduce the country risk togain. The various techniques that can be adopted by them are summarized as follows: