 The emergence and rise of multinational

companies has resulted in high levels of

international business activities. International
business encompasses commercial transactions
like sales, investment and transportation between
two or more companies.
 These cross border flows has resulted in world
economy.
Due to this there is a need to manage the
international finance
 International finance is an area of financial economics
that deals with monetary interactions between two or
more countries
 concerning itself with the topics such as currency
exchange rates, international monetary system, FDI
including risk
 it helps multinational corporations in dealing with cross
border transactions by detailing various financial aspects
involved to these transactions.
 With increasing volumes and
complexities of international business,
the study of international finance has
become a specialized subject dealing
with study of-

 Foreign exchange markets

 Exchange rates
 MNC financial systems
 Risk management
 International accounting systems
 Itis the market in which
currencies are bought & sold
against each other.
 No single physical location.
 A world wide network of
primarily banks connected
through a telecommunication
network.
 foreign exchange market

spot
forward
transactio derivatives
transactions
ns
 Another aspect covered in international finance
is that of exchange rate & its determination
 In case a fixed exchange rate system is prevalent,
their each member country sells a fix value for its
currency inventories of gold or US dollar
 In case of floating exchange rate, it is the
demand & supply of the currency which
determines exchange rate
 Demand & supply of currency dependent on
factors like interest rate, monetary & fiscal policy,
BOP etc.
Two ways in which currency is quoted:

EXCHANGE RATE
QUOTATION N

direct indirect
quote variable quote variable
unit- home unit- foreign
currency currency

constant constant
unit- foreign unit- home
currency currency
 multinationals are the single most largest
players responsible for international business &
international finance.
 MNC has numerous kinds of flows between the
parent company , foreign business clients
 MNC take decision on the nature of fund
movement
 Important variables in context of MNCs –
A} mode of transfer of funds-decision regarding
funds like dividends, loans, interest payment etc.
B} planning for payment schedule.
C} managing the firm value
 The earnings of firms engaged in
international business are subject to
fluctuations due to floating exchange rate.
International finance also studies the
techniques of preparing consolidated
financial statements of MNCs.
Like international audit, international
taxations etc.
Diminishing national boundaries

 Efficientlyproduce products
in foreign markets
 Broaden markets and diversify
 Earn higher returns
 Single market
 Competitive advantage
New Technologies
Region FDI FDI
inflows Outflows

2011 2012 2013 2011 2012 2013

World 1700 1330 1451 1711 1346 1410

Developed 880 516 565 1215 852 857

economies

Developing 724 729 778 422 440 454

economies
 Online transaction
 New technology
 Awareness about services offered in other
countries
 Financial deregulation can be referred to a
variety of changes in the law which allow
financial institution more freedom in how
they compete.
So deregulation is very important as:
It helps in creation and expansion of world
wide banking structure.
 by increasing competition it increases ,it
increases efficiency of business also.
But there were criticisms also for this excessive
deregulation
As according to the UN report a sustained
process of deregulation within countries and
between countries can lead to global crisis.
Suggestions :
Those financial instrument which do not
contribute to long term economic growth
should be removed, and speculative and risky
activities should be encouraged.
 Mergers
It refers to legal consolidation of two
companies into one entity .
 Acquisition
It occurs when one company takes over
another and completely established itself as the
new owner.
 In 2007 when the economic conditions were
good there was an increase of about 27% .
 But in 2008 it slowed down because of
financial crisis.
 But till 2014 it has increased to double..
Euro market
 It is a kind of market which is virtually free
from regulations ,which provides excellent
opportunities for investment ,funding and
speculation.
 Also provide risk management products.
 The last two decades have seen the
emergence of a large number of multinational
companies from emerging economies .
 About 22 MNCs from top 100 infrastructure
MNCs are headquartered in developing
economies .
 Example :TATA
 Through integration ,domestic investors can
buy foreign asset and foreign investors can
buy domestic asset .
 So this gives the investors the freedom and
opportunity to raise funds and to invest
anywhere in the world, through any type of
instrument.
 Integration has lead to redistribution of
financial resource from the surplus to deficit
countries.
 As the name suggest, ECB- when company
borrows money from external [non-
trading/foreign] sources.
 Money is borrowed from non- resident
lenders.
 Via bank loans, fixed rate bonds, non-
convertible shares, optionally convertible or
partially convertible preference shares etc.
 For a minimum average of 3 years.
 Within Outside
India India
1. Short term funds – money ADR , GDR, ECB , FCCB
market
2. Long term funds – capital
market
 Hotel , infrastructure, IT , hospital sector. [but
company must have registered itself under
Companies Act 2013]
 Micro finance institutions [MFI] can borrow via
ECB.
 NGOs, NBFCs, Companies can borrow via ECB,
if they are involved in micro- finance activity.
 SEZ units
 From American’s point of view, it allows a foreign Co. [e.g.
Indian] to raise money from American financial market.
 Suppose, Indian Co. wants to raise money from America,
by issuing shares in American Stock Exchange.
 But then Indian Co. will have to maintain accounts
according to American standards.
 To prevent this problem, Indian Co. gives its shares to
American bank.
 American bank gives that Indian Co. receipts [called ADR]
in return of these shares. Then Indian Co. can trade those
ADR receipts in American share market, to raise money.
 But then Indian Co. will have to pay dividends to those
investors in dollar currency.
 From India’s point of view, it allows a foreign
company [e.g. America, British] to raise
money from Indian financial market.
 GDR enable a company, the issuer, to access
investors in capital markets outside of its
home country.
 It is listed & traded in the stock exchange.
 If for example an Indian company which has
issued ADRs in the American market wishes
to further extend it to other developed and
advanced countries such as Europe, then they
can sell these ADRs to the public of Europe &
the same would be named as GDR.
 FCCB means a convertible bond issued by an Indian
Co. expressed in foreign currency & the principal &
interest in respect of which is payable in foreign
currency i.e. the payment of principal & interest is
usually in the currency in which the money is raised.
The option of converting bonds into equity at a price
determined at the time the bond is issued.
 It also has the benefits of a debt instrument as it
includes guaranteed returns or yields which are
payable in foreign currency.
 FCCB have maturity period of about 5 years.
 Currently, Indian companies can raise upto $50
million in a FY through issue of such bond via
automatic route.