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INTRODUCTION
Iniernational finandial management, also known as International finance.
It simply mecans financial management in an international business environment. It is
trading and making money through the exchange of foreign currency.

The international financial activities help the organizations to conned

with
international dealings with overseas business partners- customers, suppliers, lenders
etc.

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 INTRODUCTION
It s differet than domestic financlal management because of the different factors
involved like currency, political situations, imperfect markets, and diversified
oPportunity sets.

Main reasons of the difference are

1. The worldwide scale of operations makes the information requirements greater
Different currencies are involved and their relationship change with changing
economic, financial and political developments.
The cultural, social and political factors different in various countries of the
are

world; adoption todifferent Environments

their requires that firms have different
rules forldifferent parts of their operation.

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WHY INTERNATIONAL FINANCIAL MANAGEMENT
International finance is an important tool to find the exchange rates, compare
inflation rates, get an idea about investing in international debt securities, ascertain
the economic status of other countries and judge the foreign markets.

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INTERNATIONAL MONETARY SYSTEMS

The international monetary system refers to the operating system of the financia
environment, which consists nancial insrutlons, muhinaitionial corporations, and
investors.
The international monetary system provides the institutionai framework for
determining the rules and procedures for international payments, determinction o
:

exchange rates, and movement of capital

: :

t should provide means of payment acceptable to buyers and seilers of

:

diferentnationalities
 INTERNATIONAL MONETARY SYSTEMS
monetarY 5ystem refers to the operating system of the financial
The Internatlonal

environment, which consists of financial institutions, multinational corporations, and

invesiors.

The international monetary system provides the for

institutional framework for
determining the rules and procedures for International payments, determination of
exchange rales, cand movement of capital.

Itshould provide means of payment acceptable to buyers and sellers of

different nationalities

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BALANCE OF PAYMENT

Of Payment (BOP) is a stalemeni whichn records all he monetary fransactions

Balance
made berween residents of a countryandthe rest of theworid during a y given
period
indiuiduals corporates
This statement includes all the transactions made by/to
government and helps in monitoring the flow of funds to devetop the
and the
economy.
when all the elementsarecorectly included in the BOP, It shouid sum up to zero
outfiows of funds snculd
in perfect scenarto This means the inflovWs andmost
a

balance Out. However this doesnotfdeally happenin

cases..
MAIN ACCOUNTS IN BALANCE OF PAYMENT
1. Current Account

2 Capital Account

shaing
CURRENT ACCOUNT
The aurrent account Is used to monltor the Inflow and outflow of goods and services
eveen couniries

Ihis account covers althe receipts and payments made with respect t raw materiais
and manuractured goods.
tcould be visible orinvisible trading unilateraltransters or other
paymetsreceipts
When atthegoodsand services are combined, together they make up to a
EOuntn s Balance0rade BOT

Sto haing
 CURRENT ACCOUNT
The current account is used to monitor the inflow and outflow of goods and servicees
between countries.

This account covers all the receipts and payments made with respect to raw materiais
and manufacturedgoods
It could be visible or invisible trading, unilateral transfers or other
payments/receipts. :

When all thegoods and services are combined,together they make up to a

country's Balance OfTrade BOT) :

: .

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 CAPITAL ACCOUNT

All capitcal transactions between the countries are monitored through the capital
CIccOunt.

There are 3 major elements of capital account

1,
Loanskborrowings-Itinincludes countries.
all types of loans from both the private and
public sectors located foreign
vestntsThese are funds invested in the corporate stocks by non-
residents(FDI and Portfolio investments)
Horeignexcange reserves- Foreign exchange reserves held by the central
bank of a country to monitor and controi the exchange rate does impact the
capital account.

E Hartother couniry, it VCes s

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Structure of BOP
Mrurture ol OP CREDITSS DEBITS
TEMS OF cURRENT ACCOUNT
Export of Goods Import of Goods
Exports of Services Import of Services
13 Unilateral Tran sfer Receipts (gifts, Unilateral Transfer Payrments (gifts.
foreig ners).
indemnit ies from indemnitiesto forelgners)
Income receipts. Income Payments
TEMS OF CAPITAL ACCOUNT
14 Capital Receipts ( borrowings from Capital Payments (endins to. capital
capital repayments by or sale of assets to repayments to or purchase cof assets from
foreigners). foreigners).

15

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WHY BALANCE OF PAYMENT ISVITAL FORA

COUNTRY?
1. BOP ofa country reveals Its financlal and economic status.
2. It helps the Government to decide on fiscal and trade policies.
It providesimportant information to analyze and understand the economic
dealings of a country with other countries.

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