finance function in global scenrio

8/4/2019 Finance Function in Global Scenrio

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Dr. Amit Kumar Sinha

[email protected]

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International Financial Management

Finance Function

in Global Scenario


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International Finance Function

Definition

International Financial Management is a process

or a system ofeffectivemobilisation andutilization offunds (FOREX) in MNCs in whomforex operations have significant influence ondecision making.

ORIt is a system of acquisition and utilization of fundsconsisting of forex in MNCs in such a way that theobjectives of the Enterprise are achieved.


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Definition of IFM as a Subject

International finance is the branch ofeconomics that studies the dynamics of

exchange rates, foreign investment, globalfinancial system, and how these affectinternational trade. It also studies internationalprojects, international investments and capital

flows, and trade deficits. It includes the studyof futures, options and currency swaps.International finance is a branch ofinternational economics


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Characteristics of IFM

1. Management offorex funds is core offunction

2. Raising of funds and utilization are majorfunctions

3. It relates to manage exchange-rate andinterest-rate risks

4. It is partly theoretical and partly analyticalin nature

5. It is futuristic in approach


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Scope of IFM

1. International financial environment

2. Foreign exchange markets, spot and forward

3. Foreign exchange rate determination4. Foreign exchange risk management

5. International capital budgeting

6. Capital structure problems of MNEs

7. Working capital management in MNEs

8. Tax management in MNEs

9. Global acquisition and mergers


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Significance and Importance of

IFM1. Helps to become a successful global MNC

2. Helps in understanding complexities of globalenvironment

3. Helps in adjustment of impact of global financialevents

4. Allows to minimize the risks of foreign exchangetransactions

5. Helps to identify and exploit opportunities inforeign markets


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Whats Special about

International Finance? Foreign Exchange Risk

Political Risk

Market Imperfections

Expanded Opportunity Set


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Whats Special about

International Finance? Foreign Exchange Risk

The risk that foreign currency profits may

evaporate in dollar terms due tounanticipated unfavorable exchange ratemovements.

Political Risk

Sovereign governments have the right toregulate the movement of goods, capital, andpeople across their borders. These laws

sometimes change in unexpected ways


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Market Imperfections

Legal restrictions on movement of

goods, people, and money Transactions costs

Shipping costs

Tax arbitrage

Whats Special about

International Finance?


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Expanded Opportunity Set

It doesnt make sense to play in only

one corner of the sandbox. True for corporations as well as

individual investors.

Whats Special about

International Finance?


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The focus of the subject is to equip with theintellectual toolbox of an effective globalmanagerbut what goal should this effectiveglobal manager be working toward?

Maximization of shareholder wealth?

or

Other Goals?

Goals for International Financial

Management


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Maximization of ShareholdersWealth

Long accepted as a goal in the Anglo-Saxoncountries, but complications arise.

Who are and where are theshareholders?

In what currency should we maximize

their wealth?


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Other Goals

In other countries shareholders are viewed asmerely one among many stakeholders ofthe firm including: Employees

Suppliers

Customers

In Japan, managers have typically sought tomaximize the value of the organization.


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Other Goals

No matter what the other goals, they cannotbe achieved in the long term if themaximization of shareholders/ corporatewealth is not given due consideration alongwith environmental and social concerns.


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Globalization of InternationalFinance: 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. Functional Unification (Banks Providing all

Functions)

Innovations/Financial Engineering

finance function in global scenrio

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