International Financial Management

Finance Function in Global Scenario
Dr. Amit Kumar Sinha

1 .International Finance Function  Definition International Financial Management is a process or a system of effective mobilisation and utilization of funds (FOREX) in MNCs in whom forex operations have significant influence on decision making. OR It is a system of acquisition and utilization of funds consisting of forex in MNCs in such a way that the objectives of the Enterprise are achieved.

and how these affect international trade. options and currency swaps. international investments and capital flows. It includes the study of futures. It also studies international projects. and trade deficits. International finance is a branch of international economics 2 .Definition of IFM as a Subject  International finance is the branch of economics that studies the dynamics of exchange rates. global financial system. foreign investment.

2. Management of forex funds is core of function Raising of funds and utilization are major functions It relates to manage exchange-rate and interest-rate risks It is partly theoretical and partly analytical in nature It is futuristic in approach 3 . 4. 3.Characteristics of IFM 1. 5.

International financial environment Foreign exchange markets. 8.Scope of IFM 1. 5. 3. 2. 4. 9. 6. 7. spot and forward Foreign exchange rate determination Foreign exchange risk management International capital budgeting Capital structure problems of MNEs Working capital management in MNEs Tax management in MNEs Global acquisition and mergers 4 .

4. 3. Helps to become a successful global MNC Helps in understanding complexities of global environment Helps in adjustment of impact of global financial events Allows to minimize the risks of foreign exchange transactions Helps to identify and exploit opportunities in foreign markets 5 .Significance and Importance of IFM 1. 5. 2.

What’s Special about “International” Finance?     Foreign Exchange Risk Political Risk Market Imperfections Expanded Opportunity Set 6 .

What’s Special about “International” Finance?  Foreign Exchange Risk  The risk that foreign currency profits may evaporate in dollar terms due to unanticipated unfavorable exchange rate movements.  Political Risk  Sovereign governments have the right to regulate the movement of goods. capital. . and people across their borders. These laws 7 sometimes change in unexpected ways.

and money  Transactions costs  Shipping costs  Tax arbitrage 8 . people.What’s Special about “International” Finance?  Market Imperfections  Legal restrictions on movement of goods.

What’s Special about “International” Finance?  Expanded Opportunity Set  It doesn’t make sense to play in only one corner of the sandbox.  True for corporations as well as individual investors. 9 .

Goals for International Financial Management    The focus of the subject is to equip with the “intellectual toolbox” of an effective global manager—but what goal should this effective global manager be working toward? Maximization of shareholder wealth? or Other Goals? 10 .

 Who are and where are the shareholders?  In what currency should we maximize their wealth? 11 . but complications arise.Maximization of Shareholders’ Wealth  Long accepted as a goal in the Anglo-Saxon countries.

12 .Other Goals  In other countries shareholders are viewed as merely one among many “stakeholders” of the firm including:    Employees Suppliers Customers  In Japan. managers have typically sought to maximize the value of the organization.

Other Goals  No matter what the other goals. 13 . they cannot be achieved in the long term if the maximization of shareholders/ corporate wealth is not given due consideration along with environmental and social concerns.

Functional Unification (Banks Providing all Functions) Innovations/Financial Engineering 14 .Globalization of International Finance: Recent Trends        Emergence of Globalized Financial Markets Liberalization and Integration Privatization / Deregulation of Markets Disintermediation/Emergence of Equity Cult Emergence of New Markets like Hong Kong etc.

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