Role of International Financial Manager in MNC's

Financial Management 
That business activity which is concerned with the acquisition and conservation of capital funds in meeting the financial need and overall objectives of business enterprises

Approaches to Finance function 
Traditional approach: Finance function was confined to only procurement of funds Modern Approach: It includes both raising of funds as well as their effective utilization

Financial decisions
1. Investment decision 2. Financing decision 3. Dividend decisions

1. Investment decision : It involves the determination of total amount of assets to be held by the firm  Financial managers must quantify the benefits, costs, and risks associated with an investment in a foreign country  To do this, managers use capital budgeting

2. Financing decision : It involves the selection of the suitable source of funds. Firms must consider two factors when considering financing options:  How the foreign investment will be financed  How the financial structure of the foreign affiliate should be configured

3.Dividend decision: Quantum of profit to be distributed among the shareholders 

These decisions are more complex in international business because of the different currencies, tax regimes, regulations on capital flows, economic and political risk, and so on between countries

Domestic Financial Management vs. International Financial Management 

Considerations in International Financial Management: ‡ Must consider the effect of exchange rates and changes in exchange rates on the inter-country transfer of cash flows ‡ Must consider the political risk associated with actions of foreign governments ‡ Must consider how accounting methods, tax laws, business regulations, and other institutional rules and arrangements affect business transactions and cash flows in each country in which the firm does business, adding to the complexity of foreign operations ‡ Must consider language and cultural differences when dealing in international commerce

Role of domestic financial manager 
Financial forecasting and planning Acquisition of funds. Investment of funds Helping in valuation decision Maintaining proper liquidity

Role of international financial manager in MNC·s
1. 2. 3. 4. Currency Transactions Managing foreign exchange risk exposure Global Money Management Financing International Business Operations

1. Currency Transactions: It takes place when  MNC·s wants to make foreign investment.  Making payments to the clients Types of Currency Transactions  Spot Trade  Forward Trade 

Spot Trade ² An agreement to trade currencies based on the exchange rate today for settlement immediately (´on the spotµ), technically within two business days Forward Trade ² An agreement to exchange currency at a specified future date at a specified price agreed upon today (also called a forward contract)

2. Foreign exchange risk :  It is the possibility of a gain or loss to a firm that occurs due to unanticipated changes in exchange rate Types of foreign exchange risk exposure  Translation Exposure  Transactions Exposure  Economic Exposure 

Translation Exposure -- Relates to the change in accounting income and balance sheet statements caused due to changes in exchange rates. Transactions Exposure ² It refers to the extent to which the future value of the firms domestic cash flow is effected by exchange rate fluctuations. Economic Exposure ² It refers to the degree to which a firm present value of future cash flows can be influenced by exchange rate fluctuations.

3. Global Money Management: Money management decisions attempt to manage global cash resources efficiently It includes: Minimizing Cash Balances Reducing Transaction Costs

Minimizing Cash Balances 
Firms need cash balances on hand for notes payable and unexpected demands To keep cash accessible cash reserves are usually invested in money market accounts that offer low rates of interest If firms could invest for a longer time frame, they could earn higher rates of interest

Reducing Transaction Costs 
Transaction costs are the cost of exchange Every time a firm changes cash from one currency to another, they face transaction costs Most banks also charge a transfer fee for moving cash from one location to another Multilateral netting can reduce the number of transactions between subsidiaries and the number of transaction costs

4.Financing International Business Operations 
EXIM Bank (Export-Import Bank). Loans from the parent company or a sister affiliate. Eurodollar loans. Eurobond market International Equity markets . The International Finance Corporation (IFC).


job of International Finance manager is getting tough, tougher and toughest these days.