INTERNATIONAL

FINANCIAL
MANAGEMENT

MA. ELEANOR T. FERNANDEZ

 INTERNATIONAL
FINANCE CORPORATION
IFC is a prominent entity supporting sustainable
investments in the private sector of developing
countries to stimulate their growth. It is the biggest
source of multilateral loans and equity financing for
projects undertaken by the private sector in
developing countries. IFC plays a key role in
providing technical assistance to businesses and
governments of developing countries.
 INTERNATIONAL MONETARY FUND

IMF monitors the balance of payments of

its member countries. It is regarded as the
lender of last resort for countries facing
financial crisis, such as deficits and currency
crisis. The relief amount is relative to the size
of the country`s contribution in the
contribution in the global trading system.
 WORLD BANK

It funds the development projects, mainly in

developing countries, that are not financed by
the private sector.
 WORLD TRADE
ORGANIZATION
WTO resolves multilateral and bilateral
trade disputes in addition to the
negotiation of different trade
agreements among various member
nations.
 BENEFITS OF
INTERNATIONAL FINANCE
1. Access to capital markets across the world
enables a country to borrow during tough times
and lend during good times.
2. It promotes domestic investment and growth
through capital import
3. Worldwide cashflows can exert a corrective force
against bad government policies.
4. It prevents excessive domestic regulation
through global financial institution.
5. International finance leads to healthy
competition and, hence, a more effective
banking system.
6. It provides information on the vital areas
of investments and leads to effective capital
allocation.
7. International finance promotes the
integration of economies, facilitating the
easy flow of capital. The free transfer of
funds would eventually result in more
equality among countries that are part of
the global financial system.
INTERNATIONAL FINANCIAL MANAGEMENT
- Is the branch of economics that studies the dynamics
of foreign exchange, foreign direct investment and
how these affect international trade.
- It also studies the international projects, international
investment and the international capital flow.
- It is the study of financial decisions taken by
multinational corporation in the area of international
business.
 CLASSIFICATION OF INTERNATIONAL
BUSINESS OPERATIONS

1. INTERNATIONAL FIRM
- involves importing and exporting
- goods are produced in the domestic market and then
exported to foreign buyers.
-focus on the payment process between the foreign buyer
(seller) and domestic seller (buyer)
2. MULTINATIONAL FIRM
- as international business expands, the firm
needs to be closer to the consumer, closer to
cheaper sources of inputs, or closer to other
producers of the same product gain from their
activities.
- as the domestic firm expands its operation
across borders, incorporationg activities in other
countries, it is classified as multinational.
3. TRANSNATIONAL FIRM
- as the multinational firm expands its
branches, affiliates, subsidiaries, and network of
supplies, consumers, distributors and all other,
which fall under umbrella of activities, the once
traditional home country becomes less and less
well defined/
 IMPORTANCE OF IFM
1. Efficiently produce products in
foreign markets than that
domestically
2. Obtain the essential raw materials
needed for the production.
3. Broaden markets and diversity
4. Earn higher return
METHODS OF FINANCING
IMPORTS AND EXPORTS
1. CASH IN ADVANCE
It is the most desirable method since the
shipper is relieved of collection problems
and has immediate use of the money if a
wire transfer is used. It lacks
competitiveness; the buyer may refuse to
pay until the merchandise is received.
2. DOCUMENTARY LETTERS
OF CREDIT AND DRAFTS
Under these methods, documents
are required to be presented before
payment is made. Both may be paid
immediately, at sight or are later
date. Since payment is made on the
basis of documents, all terms of sale
should be clearly specified.
a. LETTERS OF CREDIT
A LOC adds a bank`s promise of
paying the exporter to that of the foreign
buyer when the exporter has complied
with all the terms and conditions of the
LOC. The foreign buyer applies for
issuance of a letter of credit to the
exporter and therefore is called the
applicant; the exporter is called the
beneficiary.
b. DRAFTS
Sometimes also called as bill of
exchange, is analogous to a foreign
buyer`s check. Like checks used in
domestic commerce, drafts sometimes
carry the risk that they will be dishonored.
SIGHT DRAFTS-is used when the seller
wishes to retain title to the shipment until
it reaches its destination and is paid for.
TIME DRAFTS AND DATE DRAFTS
If the exporter wants to extend credit to the
buyer, a time draft can be used to state the payment
is due within a certain time after the buyer accepts
the draft and receives the goods.
A date draft differs slightly from a time draft in that
it specifies a date which payment is due.
When a time or sight draft is used, a buyer can
delay payment by delaying acceptance of the draft.
CREDIT CARDS
international credit card
transactions are typically placed by
telephone or fax, methods that
facilitate fraudulent transactions.
Merchants should determine the
validity of transactions and obtain
proper authorizations.
OPEN ACCOUNT
in a foreign transaction, it is a
convenient method of payment and
may be satisfactory if the buyer is
well established, has demonstrated
a long and favourable payment
record or has been thoroughly
checked for creditworthiness.
 Methods of Financing your Import Business

1. Factoring Accounts Receivable is

selling your credit accounts or A/R to a
factor, who may be a commercial
finance company, a bank or an AR
financing company. The factoring
company gives you an advance payment
for the accounts you would normally
have to wait on for payment.
2. Financing Using Inventory. You can
use your inventory to get a loan to finance
your import business. You can use your
current inventory to secure a loan to allow
you to buy the imported inventory that your
customers desire. This allows you to
increase your inventory without impacting
your cash flow as long as you think you can
service your debt.
3. Purchase Order Financing. You take
your invoices or purchase orders and
assign or sell them to a commercial
finance company. The commercial
finance company assumes the risk and
the task of billing and collecting. After
the products are manufactured, the
commercial finance company collects
from the customers, takes its cut of the
proceeds, and pays you the profit.
 INTERNATIONAL CREDIT MARKETS

1. The 1st type is the market for floating-rate bank

loans, called Eurocredits, whose rates are tied to
LIBOR, which stands for London Interbank Offer
Rate. LIBOR is the interest rate offered by the
largest and strongest banks on large deposits.
Eurocredits tend to be issued for a fixed term with
no early repayment.
2. Eurobond market is an
international bond underwritten by an
international bank and sold to investors
in countries other than the one in whose
currency the bond is denominated. These
bonds are true international debt
instruments and are usually issued in
bearer form, which means that the
owner`s identity is not registered and
thus is not known.
3. Foreign bond market are issued in the
country in whose currency the bond is
denominated, and they are under-written
by investment banks in that country.
However, the borrower is headquartered
in a different country. Foreign bonds can
have a fixed-rate coupon or a floating-rate
coupon, and they have the same
maturities as the purely domestic bonds
with which they must compete for funds.
 INTERNATIONAL STOCK MARKETS

New issues of stock are sold in

international markets for a variety of
reasons. Large multinational companies
also issue new stock simultaneously in
multiple countries. In addition to new
issues, outstanding stocks of large
multinational companies are occasionally
listed on several international exchanges.
COUNTRY RISK
It refers to the risk involved in investing in a
particular country. This risk depends on the
country`s economic, political, and social
environment. Some countries provide a safer
investment climate and therefore less country
risk than others. It includes changes in host
country requirements regarding local
production and employment as well as the
danger or damage due to internal strife,
ranging from clipping strikes to terrorism and
civil war.
 MEASURING COUNTRY RISK
Various forecasting services measure the
level of country risk in different countries
and provide indexes that indicate factors
such as each country`s expected economic
performance, access to world capital
markets, political stability, and level of
internal conflict. Country risk analysts use
sophisticated models to measure risk of
investing in different countries.