International financial managment

Mohammed Umair
umairsunni@gmail.com
FINANCIAL
INTERNATIONAL
MANAGEMENT

1. Nature
2. Compared with domestic financial management
3. Scope
4. Current assets management,
5. Managing foreign exchange risks,
6. International taxation,
7. International financing decision,
8. International financial markets,
9. International financial investment decisions;
10.International financial accounting
11.National differences in accounting, attempts to harmonize differences.
CONTENTS

Finance is the science and art of managing money and other assets.
WHAT IS FINANCE?
Study of
Finance
Public
Finance
Personal
Finance
Corporate
Finance
Thus the study of finance can be classified into following ways:-
1. Public Finance:
Public finance deals with role
of the government in managing
financial requirements of the
economy.
2. Personal Finance:
Personal finance deals with
monetary decisions and activities
of an individual or a family unit
that includes routine income and
expenses planning.
3. Corporate Finance:
It is concerned with planning,
raising, investing and monitoring
of finance in order to achieve the
financial objectives of the
company. .

R&D
Improving existing products
Explore new ways of producing
Controlling costs
Efficient methods of production
Quality Management
Finance function refers to action performed by a
finance department that involves acquiring and
utilizing funds of a business.
WHAT IS FINANCE FUNCTION?
Relationship of finance with other functional areas of Management
Finance function is an integral part of all various functional areas of an organization such as Production, Marketing, Human Resource, R&D and
Administration, it may be difficult to separate finance functions from these functional areas of management.
Finance
Function
• Production
• Marketing
• HRM
• R&D
PRODUCTION
Raw material
Transportation
Expansion of production capacity
Operational expenses
Plant and Machinery
MARKETING
Product development
Promotion activities
Distribution activities
Pricing activities
Customer Delight
HUMAN RESOURCE
Talent Acquisition and Retention
Human Resource Development
Compensation Management
Employee health an d safety
Social security
WHAT IS THE ROLE OF FINANCE IN AN ORGANIZATION?

Procuring adequate funds
Mobilization of funds
Acceleration of profits
Financial reporting
Accounting and Analysis
Maximize firm value
The finance function supports the
pursuit of business objectives by
performing a number of functions
such as:
AIMS OF FINANCE FUNCTION

Name
of Firm
Nature of Business
Funds
Procured
recently
How the funds were mobilized? Net Profit Firm Value
Per Share
Bharthi
Infratel
Telecom tower infrastructure
providers which deploys, owns
and manages telecom towers and
communication structures for all
wireless operators
Rs 4,500 Crore 1. Installation of 4,813 new towers;
2. Up gradation and replacement on
existing towers;
3. Green initiatives at tower sites;
4. General corporate purposes; and
Rs. 462.80
Crores
Rs. 279.15
Rs. 200
Just Dial Local Search Engine: providing
local search services over the
Phone, Web, Mobile and SMS.
Rs. 327 crore The funds will be used for expansion
and to upgrade technology.
Rs. 31.49
Crores
Rs. 1,495
Rs. 530
PC
Jeweller
Ltd
Operations include the
manufacture, retail and wholesale
of jewellery.
Rs. 609.30
Crore
1. Finance establishment of new
showrooms;
2. General corporate purposes.
Rs. 69.59
Crores
Rs. 236
Rs. 135
Channel
Nine
Entertain
ment
Business of Production,
Marketing, Distribution of
Television serials, Television
Programmes, Films, Video films,
Corporate Films, Feature films,
Documentaries, and Marketing of
sports and Entertainment events.
Rs.11.7 Crore 1. To finance the estimated
expenditure of production of two
films;
2. Strengthening distribution
operations;
3. Brand building
Rs. 0.05
Crores
Rs. 497.50
Rs. 25
AIMS OF FINANCE FUNCTION

MEANING & SCOPE OF FINANCIAL MANAGEMENT
Financial management is the process of planning, raising,
controlling and administering of funds used in the
business.
Financing
Decisions
Estimating the
financial
requirement.
Determining
the capital
structure.
Investing
Decisions
Assessing risk
and return
Investment of
Funds
Dividend
Decisions
Management of
earnings
Liquidity
Decisions
currents assets
and current
liabilities
SCOPE OF FINANCIAL
MANAGEMENT
Decision Type Scope Key consideration
Financing Decision Raising of Funds Cost and Risk
Investment Decision Allocation of funds in assets Risk and Return
Dividend Decision Distribution of profits Requirements of shareholders
Working Capital Decisions Managing current assets & Lia. Liquidity & Profitability

WHAT IS INTERNATIONAL FINANCIAL MANAGEMENT?
International financial management may be defined as management of financial operations
of different international activities of an organization.
DISTINGUISHING FEATURES OF INTERNATIONAL FINANCIAL MANAGEMENT
Foreign exchange risk
Variability of exchange rates is widely regarded as the most serious international financial problem facing
corporate managers and policy makers.
Political risk
It the risk of losing money due to changes that occurs in a country’s government. Political actions and instability may make it
difficult for companies to operate. Acts of war, terrorism, trade barriers and military coups are all extreme examples of political
risk.
Expanded opportunity sets
Firms can raise funds in capital markets where cost of capital is the lowest. In addition, firms can also gain from greater
economies of scale when they operate on a global basis.
Market imperfections
There are profound differences among nations’ laws, tax systems, business practices and general cultural environments.

2. The CONTROLLER
The controller typically handles the accounting activities,
such as corporate accounting, tax management, financial
accounting, and cost accounting. The treasurer’s focus tends
to be more external, whereas the controller’s focus is more
internal.
1. The TREASURER
The treasury typically manages the firm’s cash, investing
surplus funds when available and securing outside
financing when needed. The treasury also oversees a
firm’s investment plans and manages critical risks related
to movements in foreign currency values, interest rates,
and commodity prices.
FUNCTIONS OF INTERNATIONAL FINANCIAL MANAGEMENT
TREASURER
 Procurement of funds
 Banking relationship
 Investor relations
 Investment of funds
 Cash management
 Insuring assets
 Credit appraisal and collections
CONTROLLER
 Accounting and auditing
 Reporting of financial information
 Custody of records
 Budgeting
 Interpretation of financial data
 Appraisal of results
 Preparation of taxes

International Institutions
Balance of Payments
International Financial Markets
FOREX Markets
International financial services
International Taxation
International Accounting
SCOPE OF INTERNATIONAL FINANCIAL MANAGEMENT
International financial management may be defined as management of
financial operations of different international activities of an organization.
Scope of
International
finance

There are various global bodies regulating different aspects of international finance.
A. INTERNATIONAL INSTITUTIONS
• Supporting sustainable investments in the private sector of
developing countries.
• Source of multilateral loans and equity financing for
projects undertaken by the private sector in developing countries.
• Technical assistance to businesses and governments of
developing countries.
INTERNATIONAL FINANCE CORPORATION
• Monitors the balance of payments of its member countries.
• Lender of last resort for countries facing a financial crisis.
INTERNATIONAL MONETARY FUND
• It funds the development of projects, mainly in developing
countries
WORLD BANK
• Resolves multilateral and bilateral trade disputes
• Negotiation of different trade agreements
WORLD TRADE ORGANIZATION

International finance is related to management, economic and commercial activities and accounting sciences.
B. INTERNATIONAL FINANCIAL SERVICES
 International Financial services can be defined as the products and services
offered by institutions for the facilitation of various financial transactions and
other related activities.
 Equipment leasing/Lease financing
 Hire purchase and consumer credit
 Bill discounting
 Venture capital
 Insurance services
 Factoring
 Forfaiting
 Mutual fund
 Dealing in foreign exchange
A. ASSET/FUND BASED SERVICES
 Merchant banking
 Project advisory
 Custodian services
 M&A services
 Credit rating services
 Capital restructuring services
 Hedging of risks
 Loan syndication
 Securitization of debt
B. FEE BASED FINANCIAL SERVICES
Here funds are arranged and
interest is charged.
Advisory services for which bank
charges fee and & renders service

D. BALANCE OF PAYMENTS
 Balance of payments (BOP) accounts are an accounting record of all monetary
transactions between a country and the rest of the world.
CAUSES OF DISEQUILIBRIUM IN BALANCE OF PAYMENT ↓
Population
Growth
Development
Programmes
Demonstration
Effect
Natural
Factors
Cyclical
Fluctuations Inflation
Poor
Marketing
Strategies
Flight of
Capital Globalization

C. INTERNATIONAL FINANCIAL MARKET
 International financial market is a broad term describing any global marketplace where
buyers and sellers participate in the trade of assets such as equities, bonds, currencies and
derivatives.
InternationalFinancial
Markets
Money Market
Forex market
Eurocurrency market
General Currency Market
Capital Markets
Euro Bond Market
Depository Receipts
Institutional Finance
FCCB

FOREX Market
• The foreign exchange market (forex, FX, or currency
market) is a worldwide decentralized over-the-counter
financial market for the trading of currencies.
Eurocurrency
market
• The Eurocurrency market is made up of several large
banks called Eurobanks that accept deposits and
provide loans in various currencies.
Eurocredit market
• Loans of one year or longer are extended by
Eurobanks to MNCs or government agencies in the
Eurocredit market. These loans are known as Eurocredit
loans.
Eurobond market
• A bond issued in a currency other than the currency of
the country or market in which it is issued.
• The Eurobond market is made up of investors, banks,
borrowers, and trading agents that buy, sell, and
transfer Eurobonds.

ADR
• American Depositary Receipt: A negotiable certificate
issued by a U.S. bank representing a specified number
of shares (or one share) in a foreign stock that is traded
on a U.S. exchange.
GDR
• Global Depositary Receipt: A negotiable certificate
held in the bank of one country representing a specific
number of shares of a stock traded on an exchange of
another country.
FCCB
• FCCB: A convertible bond is a mix between a debt and
equity instrument. It acts like a bond by making regular
coupon and principal payments, but these bonds also
give the bondholder the option to convert the bond into
stock.

F. FOREX MARKETS
 The foreign exchange market (Forex, FX, or currency market) is a global, worldwide
decentralized financial market for trading currencies.
Its huge trading
volume, leading to
high liquidity;
Its geographical
dispersion;
Its continuous
operation: 24 hours a
day
The variety of factors
that affect exchange
rates;
The low margins of
relative profit
compared with other
markets of fixed
income; and
The use of leverage to
enhance profit margins
with respect to account
size.
FEATURES OF FOREX MARKETS

F. FOREX MARKETS
MARKET PARTICIPANTS OF FOREX MARKETS
Banks Commercial
companies
Central
banks
Investment
management
firms
Retail
foreign
exchange
traders
Money
transfer/rem
ittance
companies
IPORTANCE OF FOREX MARKETS
Liquidity Rates Reserves Hedging International
Trade

F. FOREX MARKETS
TYPES OF EXCHANGE RATES A country's exchange rate regime under which the
government or central bank ties the official exchange
rate to another country's currencyA-FIXED EXCHANGE RATE
Advantages of the Fixed Exchange Rate
1. Reduced risk in
international trade
2. Introduces discipline in
economic management
3. Fixed rates should
eliminate destabilizing
speculation
4. Promotes International
Investment
5. Suitable for Currency Area
1. No automatic balance of
payments adjustment
2. Large holdings of foreign
exchange reserves
required
3. Loss of freedom in your
internal policy
4. Fixed rates are inherently
unstable.
Disadvantages of the Fixed Exchange Rate

F. FOREX MARKETS
TYPES OF EXCHANGE RATES
A country's exchange rate regime where its currency
is set by the foreign-exchange market through
supply and demand for that particular currency
relative to other currencies.
B-Floating Exchange Rate
Advantages of the Floating Exchange Rate
1. Automatic balance of
payments adjustment
2. Freeing internal policy
3. Absence of crises
4. Flexibility
5. Lower foreign exchange
reserves
1. Uncertainty
2. Lack of investment
3. Speculation
4. Inflation
Disadvantages of the Floating Exchange Rate

F. FOREX MARKETS
FOREIGN EXCHANGE RISK
Exchange Risk
Exchange exposure Transaction
exposure
Translation exposure
Economic exposure
Liquidity risk
Interest rate risk
Foreign-exchange risk is the risk that an asset or investment
denominated in a foreign currency will lose value as a
result of unfavourable exchange rate
Transaction exposure is the risk,
faced by companies involved in
international trade, that currency
exchange rates will change after
the companies have already
entered into financial obligations.
BILLS PAYABLES
Goods bought from US Co;
 On credit term of 6 months
 Value of Goods ($500)
 At time of purchase ($1=Rs 45)
Case 1: Value of $ ↑
E.g.: Rs. 50=$1
Rs. 50 x $500 =Rs 25,000
Case 2: Value of $ ↓
E.g.: Rs. 40=$1
Rs. 40 x $500 =Rs 20,000
INTEREST ON DEPOSIT
 Amt deposited in Swiss Bank
 Principle Amount : €10,000
 Interest rate : 10% P.A
 Interest Amount : €1000
 At the time of Dep : 1€ = Rs. 60
Case 1: Value of € ↑
E.g.: 1€ = Rs. 75
Rs. 75 x €1000 =Rs 75,000
Case 1: Value of € ↓
E.g.: 1€ = Rs. 50
Rs. 50 x €1000 =Rs 50,000
TRANSACTION
EXPOSURE
Dividends
Interest
Royalty
TAX

F. FOREX MARKETS
‘Translation Exposure' The risk that a company's
equities, assets, liabilities or income will change in
value as a result of exchange rate changes
Balance Sheet Assets - 1/01/2016
 Plant and Machinery
 Inventory
 Cash
Infosys .Inc (USA) Subsidy of Infosys India
$ 200000
$ 100000
$ 20000
$ 320000
Exchange rate as on 1/01/2016
$1= Rs. 45
Therefore translated value of
these assets as on 1/1/2010
is Rs 45 X $ 320000
= 1,44,00,000
Balance Sheet Assets - 31/12/2016
 Plant and Machinery
 Inventory
 Cash
Infosys .Inc (USA) Subsidy of Infosys India
$ 200000
$ 100000
$ 20000
$ 320000
Exchange rate as on 31/12/2016
$1= Rs. 46
Therefore translated value of
these assets as on 1/1/2010
is Rs 46 X $ 320000
= 1,47,20,000
Infosys Ltd (India)
Infosys .Inc (USA)
Subsidy of Infosys India
Therefore translation gain
1,47,20,000- 1,44,00,000
= Rs. 3,20,000

F. FOREX MARKETS
Economic exposure is the risk that a company's cash flow, foreign investments, and
earnings may suffer as a result of fluctuating foreign currency exchange rates.
Liquidity Risk
Liquidity refers to the amount of market interest (the number of active traders and
the overall volume of trading) present in a particular market at any given time.
 From an MNC perspective, liquidity is usually experienced in terms of the
volatility of price movements.
 A highly liquid market will tend to see prices move very gradually and in
smaller increments.
 A less liquid market will tend to see prices move more abruptly and in larger
price increments.
Interest rate risk the risk that rising interest rates will make their fixed
interest rate bonds less valuable.

F. FOREX MARKETS
MANAGING FOREIGN EXCHANGE RISKS
Many firms are exposed to foreign exchange risk - i.e. their wealth is affected by
movements in exchange rates - and will seek to manage their risk exposure.
The internal techniques
Invoice in home currency
Leading and lagging
Matching
Decide to do nothing?
The external techniques
Forward contracts
Money market hedges
Futures contracts
Options
Currency swaps

Futures Trading: Example of a Futures Contract
Let us say after completing MCm your planning to study in Harvard
USA. For which you have to pay college fee of $1000. You have to
Pay this in December. You call up ICICI bank and check the rate and
find . But you need $1000 in December.
Underlying asset: USD
Expiry Date December
Strike price $1=Rs. 47
Current price Rs. 200/-.
This difference between the strike price and the current price is Cost of Carry. =Rs 2/-
contract size Strike price X Quantity (Rs. 47/- X 1000 USD = Rs 47,000
Margin Rs. 23500
Delivery Method ?
QUANTITY 1000 USD

Valuation of Futures
Scenario: 1 Scenario: 2
End of the expiry date
$1=Rs. 49↑
End of the expiry date
$1=Rs. 43 ↓
Rs. 49 - Rs. 47 = Rs. 2
(Rs. 2x1000 USD = Rs.2000)
will be paid to you by Seller.
Rs. 47 - Rs. 43 = Rs. 4
(Rs. 4x1000 USD = Rs. 4000)
will be paid to you by Buyer.

What is International taxation?
 International taxation refers to tax levied on the cross –border transaction.
 The transaction may take place between two or more persons or entity in two or
more countries or tax jurisdiction.
 Such a transaction may involve a person in one country with property and income
flows in another.
TYPES OF INTERNATIONAL TAXATION
• Residence based taxation:
• Residents of the country are taxed on their worldwide (local and foreign) income.
• Source Based Taxation:
• Only local income from a source inside the country is taxed. Usually non-residents are
taxed only on their local income.

TAX IMPLICATIONS OF MNCs OPERATING IN INDIA
 Resident:
 INDIAN COMPANY : The Company registered in India is an Indian Company.
 Indian Company is always treated as Resident in India whether Control &
Management is in India or Outside India.
 FOREIGN COMPANY : If Control & Management of the affairs of the business
of Foreign Company is situated wholly in India then its residential status is
Resident in India.
Sec.6(3), Residential Status of foreign Company
 Non-Resident:
 If its Control & Management of the affairs of the business is situated wholly
/ partially outside India then its Residential Status is Non‐Resident in India.
*BOD MEETING

INCIDENCE OF TAX SECTION 5
Type of income Ordinary
Resident
(OR)
Non Resident
(NR)
1. Indian income Taxable Taxable
2. Foreign income
3. Income from foreign remittances
4. Income from business or profession on the Basis of Place
of Control
a) Income from business wholly or partly controlled from
India
a) Income from business wholly controlled from outside
India
Taxable
Taxable
Taxable
Taxable
No Tax
No Tax
No Tax
No Tax
5. past untaxed profit brought into India During the
previous year.
No Tax No Tax

OBJECTIVES OF INTERNATIONAL FINANCIAL MANAGEMENT
Goals or objectives describe a particular result aimed to achieve with a prescribed time frame and with available resources.
Goals of Financial
Management
Profit Maximization
Wealth Maximization
Profit Maximization The prime motto of any kind of business activity is earning profit
Sales - Expenses = Profit
The term ‘profit maximization’ implies generation of huge amount of profits over the time
period, this includes both short-term and long-term.
Decisions whether investment, financing, dividend or working capital management should
focus on maximization of profits

FAVORABLE ARGUMENTS FOR PROFIT MAXIMIZATION
Is profit maximization an ethical Goal?
 Barometer of Performance
 Economic survival
 Expansion and Diversification
Why Profit Maximization?  Attracts investors
 Maximize stakeholders return
 To fulfil social desire
MERITS

Concept of WEALTH MAXIMIZATION
Wealth Maximization is process of increasing shareholders wealth
by way of maximizing the market
value of firm’s common stock.
 Serves interest of Society
 Benefits customers
 Considers timing of benefits & risk
 Benefits employees
 Prescriptive idea
 Leads to controversy
 Not socially desirable
 Ownership and Management conflict
MERITS DEMERITS

OBJECTIVES OF INTERNATIONAL FINANCIAL MANAGEMENT
Goals or objectives describe a particular result aimed to achieve with a prescribed time frame and with available resources.
• Goal - Maximize Shareholder Wealth
• maximize Capital Gains and Dividends taking into account risk
• A company’s stock price is very important (incorporates all relevant information)
• This goal applies in the Anglo-American World [U.S., U.K., Canada, Australia and New
Zealand].
• Goal in Continental Europe and Japan – Stakeholder Capitalism Model
• Maximize Corporate Wealth (not only stockholder wealth but also wealth of managers, labor, local
community, suppliers and creditors).
• Wealth not just financial wealth but also
• The firm’s technical, market and human resources.
 There are different goals in different countries.
 What we believe in the U.S. is not necessarily followed in other countries
 There appears to be a trend toward more use of the shareholder wealth maximization
model.

International financial managment

Recommandé

Recommandé

Contenu connexe

Tendances

Tendances (20)

Similaire à International financial managment

Similaire à International financial managment (20)

Plus de Mohammed Umair

Plus de Mohammed Umair (20)

Dernier

Dernier (20)

International financial managment