International Financial

Management Vs Domestic
Financial Management

UNDER SUPERVISION OF DR. AHMED AZMY

PRESENTED BY: SAMAH FATHI
Contents
 Introduction
 IFM VS. DFM
 Foreign Exchange Rate
 Exposure to Foreign Exchange
 Use of Derivatives Instrument
 Legal and Tax Environment
 Macro Business Environment
 Different Standards of Reporting
 Banking Regulations
 Cultural Differences
 Conclusion
 Introduction
International Financial Management is a well-
known term in today’s world and it is also known
as international finance. It means financial
management in an international business
environment. It is different because of the different
currencies of different countries, dissimilar
political situations, imperfect markets, diversified
opportunity sets.
International Financial Management came into
being when the countries of the world started
opening their doors for each other. This
phenomenon is well known by the name of
“liberalization”.
Domestic financial management is as integrated part of
overall family management. It is also know as family
financial management, personal financial management and
household financial management. It is concerned with the
efficient and effective management of finance of a family in
order to achieve the happiness and better standard of living.
This involves planning and controlling of the sources of
income, the allocation of income among various element of
cost of living and finally the control of income and expenses
of a family. Thus, domestic financial management can be
defined as scientific process of decision making of saving
and investment, finance and liquidity function of a family to
achieve targets and needs of family members within a given
framework of financial resources including time. .
International Financial Management Vs.
Domestic Financial Management
International finance is different from domestic finance in many aspects and first and the
most significant of them is foreign currency exposure. There are other aspects such as the
different political, cultural, legal, economical, and taxation environment. International
financial management involves a lot of currency derivatives whereas such derivatives are
very less used in domestic financial management.

In domestic financial management, we aim at minimizing the cost of capital while raising
funds and try optimizing the returns from investments to create wealth for shareholders. We
do not do any different in international finance. So, the objective of financial management
remains same for both domestic and international finance i.e. wealth maximization of
shareholders. Still, the analytics of international finance is different from domestic finance.
 Foreign Exchange Risk

IFM It’s an additional risk which a finance manager is required to cater to under an International
Financial Management setting. Foreign exchange risk refers to the risk of fluctuating prices of currency
which has the potential to convert a profitable deal into a loss making one.

DFM In domestic financial management the finance manager is required to deal in

domestic currency only, there is no need to deal with foreign exchange, so there is no
currency exchange risk.
 Exposure to Foreign Exchange

IFM The most significant difference is of foreign currency exposure. Currency exposure impacts
almost all the areas of an international business starting from your purchase from suppliers, selling
to customers, investing in plant and machinery, fund raising etc. Wherever you need money,
currency exposure will come into play and as we know it well that there is no business transaction
without money.

DFM In domestic financial management exposure to a single currency of particular country. Entire
business transaction takes place in single currency
Use of Derivatives Instrument

Definition of Derivatives
 Derivatives are financial contracts, and their value is determined by the value of an underlying
asset or set of assets. Stocks, bonds, currencies, commodities, and market indices are all common
assets.
 The underlying assets' value fluctuates in response to market conditions. The main idea behind
getting into derivative contracts is to benefit by betting on the future value of the underlying asset.
 Consider the possibility that the market price of an equity share will rise or fall. A drop in the
stock value may cause you to lose money.
 You can enter a derivative contract, in this case, to generate gains by placing an appropriate bet.
Alternatively, you might simply protect yourself from losses in the spot market where the stock is
traded.
Use of Derivatives Instrument

IFM In international financial

management we use derivatives
instrument to hedge the risk. DFM In domestic financial
management we do not use
derivatives because there is less
risk.
Legal and Tax Environment

IFM The other important aspect to look at is the legal and tax front of a country. Tax impacts
directly to your product costs or net profits i.e. ‘the bottom line’ for which the whole story is
written. International finance manager will look at the taxation structure to find out whether
the business which is feasible in his home country is workable in the foreign country or not.
The manager has to deal with different tax structure and legal laws & it’s difficult to manage
this.

DFM In domestic financial management the finance manager have to deal with
domestic country’s legal rules and tax structure. He is more familiar with the laws
of domestic country.
Macro Business Environment

IFM An international business is exposed to altogether a different economic and

political environment. All trade policies are different in different countries.
Financial manager has to critically analyze the policies to make out the feasibility
and profitability of their business propositions.

DFM In domestic financial management the manager is well aware the local
macro business environment and he have to deal with macro business
environment of single country.
Different Standards of Reporting

IFM
If the business has a presence in say US and India, the books of accounts need to be maintained in
US GAAP and IGAAP.It is not surprising to know that the booking of assets has a different treatment
in one country compared to other. Managing the reporting task is another big difference. The
financial manager or his team needs to be familiar with accounting standards of different countries.

DFM
In domestic financial management have to deal with reporting standard of domestic country only.
Banking Regulations

IFM
The international financial management have to deal and follow the banking
regulations of different countries. The different banking rule and regulations may
negatively impact the international financial management.

DFM
The domestic financial management have to deal with banking rules and
regulations of domestic country. There is more familiarity with banking rules
and regulations
Cultural Differences

IFM
The international financial management deals with cultural differences of
different countries, values, traditions etc differ country to country. It effects
the international financial management

DFM
The domestic financial management deals with cultural
environment of domestic country, so there is less risk due to
cultural differences.
Conclusion
may be such more points of difference
between international and domestic
financial management. Mentioned
above are lists of major differences.
We need to consider each of them
before taking any decision involving
multinational financial environment.
Just like domestic financial management, the goal
of International Finance is also to maximize the
shareholder’s wealth. The goal is not only is limited
to the ‘Shareholders’ but extends to all
‘Stakeholders’ viz. employees, suppliers, customers
etc. No goal can be achieved without achieving
welfare of shareholders. In other words,
maximizing shareholder’s wealth would mean
maximizing the price of the share. Here again
comes a question, whether in which currency
should the value of the share be maximized? This is
an important decision to be taken by the
management of the organization.
References

International Financial Management Vs

Domestic Financial Management
May 19, 2020•Download as PPTX, PDF•
Advance Saraswati Prakashan Pvt Ltd

https://
www.slideshare.net/PrinceRajzCrestha/international-financial-management-vsdomestic-financial-ma
nagement

https://www.lawinsider.com/dictionary/domestic-financing#:~:
text=Domestic%20Financing%20means%20the%20line,by%20a%20Loan%20and%20Security

https://groww.in/p/what-is-derivatives
Thank You