6d638Finance Function in Global Scenrio (1)

8/3/2019 6d638Finance Function in Global Scenrio (1)

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Dr. Amit Kumar SinhaDr. Amit Kumar Sinha

[email protected]@gmail.com

00

International Financial Management

Finance Function

in Global Scenario


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International Finance FunctionInternational Finance Function DefinitionDefinition

International Financial Management is a processInternational Financial Management is a process

or a system ofor a system ofeffectiveeffective mobilisationmobilisation andandutilizationutilization ofoffundsfunds (FOREX) in MNCs in whom(FOREX) in MNCs in whomforexforex operations have significant influence onoperations have significant influence ondecision making.decision making.

OROR

It is a system of acquisition and utilization of fundsIt is a system of acquisition and utilization of fundsconsisting ofconsisting of forexforex in MNCs in such a way that thein MNCs in such a way that the

objectives of the Enterprise are achieved.objectives of the Enterprise are achieved.


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Definition of IFM as a Subject

Definition of IFM as a Subject

International financeInternational finance is the branch ofis the branch ofeconomics that studies the dynamics ofeconomics that studies the dynamics of

exchange rates, foreign investment, globalexchange rates, foreign investment, globalfinancial system, and how these affectfinancial system, and how these affectinternational trade. It also studies internationalinternational trade. It also studies internationalprojects, international investments and capitalprojects, international investments and capitalflows, and trade deficits. It includes the studyflows, and trade deficits. It includes the studyof futures, options and currency swaps.of futures, options and currency swaps.International finance is a branch ofInternational finance is a branch of

international economicsinternational economics


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Characteristics of IFMCharacteristics of IFM1.1. Management ofManagement offorex fundsforex funds isis corecore ofof

functionfunction

2.2. Raising of funds and utilization are majorRaising of funds and utilization are majorfunctionsfunctions

3.3. It relates to manage exchangeIt relates to manage exchange--rate andrate and

interestinterest--rate risksrate risks4.4. It is partly theoretical and partly analyticalIt is partly theoretical and partly analytical

in naturein nature

5.5. It is futuristic in approachIt is futuristic in approach

6.6. It i till an ev lvin ectIt i till an ev lvin ect


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Scope of IFMScope of IFM1.1. International financial environmentInternational financial environment

2.2. Foreign exchange markets, spot and forwardForeign exchange markets, spot and forward

3.3. Foreign exchange rate determinationForeign exchange rate determination

4.4. Foreign exchange risk managementForeign exchange risk management

5.5. International capital budgetingInternational capital budgeting

6.6. Capital structure problems of MNEsCapital structure problems of MNEs7.7. Working capital management in MNEsWorking capital management in MNEs

8.8. Tax management in MNEsTax management in MNEs

9.9. Global acquisition and mergersGlobal acquisition and mergers


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Significance and Importance ofSignificance and Importance of

IFMIFM1.1. Helps to become a successful global MNCHelps to become a successful global MNC

2.2. Helps in understanding complexities of globalHelps in understanding complexities of global

environmentenvironment3.3. Helps in adjustment of impact of global financialHelps in adjustment of impact of global financial

eventsevents

4.4. Allows to minimize the risks of foreign exchangeAllows to minimize the risks of foreign exchange

transactionstransactions5.5. Helps to identify and exploit opportunities inHelps to identify and exploit opportunities in

foreign marketsforeign markets


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Whats Special aboutWhats Special about

International Finance?International Finance? Foreign Exchange RiskForeign Exchange Risk

Political RiskPolitical Risk Market ImperfectionsMarket Imperfections

Expanded Opportunity SetExpanded Opportunity Set


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International Finance?International Finance? Foreign Exchange RiskForeign Exchange Risk

The risk that foreign currency profits mayThe risk that foreign currency profits mayevaporate in dollar terms due to unanticipatedevaporate in dollar terms due to unanticipatedunfavorable exchange rate movements.unfavorable exchange rate movements.

Political RiskPolitical Risk

Sovereign governments have the right toSovereign governments have the right toregulate the movement of goods, capital, andregulate the movement of goods, capital, andpeople across their borders. These lawspeople across their borders. These lawssometimes change in unexpected ways.sometimes change in unexpected ways.


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Expanded Opportunity SetExpanded Opportunity Set

It doesnt make sense to play in onlyIt doesnt make sense to play in onlyone corner of the sandbox.one corner of the sandbox.

True for corporations as well asTrue for corporations as well asindividual investors.individual investors.


International Finance?International Finance?


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The focus of the subject is to equip with theThe focus of the subject is to equip with theintellectual toolbox of an effective globalintellectual toolbox of an effective global

managermanagerbut what goal should this effectivebut what goal should this effectiveglobal manager be working toward?global manager be working toward?

Maximization of shareholder wealth?Maximization of shareholder wealth?

oror Other Goals?Other Goals?

Goals for International FinancialGoals for International Financial

ManagementManagement


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Maximization of ShareholdersMaximization of Shareholders

WealthWealth

Long accepted as a goal in the AngloLong accepted as a goal in the Anglo--SaxonSaxon

countries, but complications arise.countries, but complications arise.Who are and where are theWho are and where are the

shareholders?shareholders?

In what currency should we maximizeIn what currency should we maximizetheir wealth?their wealth?


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Other GoalsOther Goals In other countries shareholders are viewed asIn other countries shareholders are viewed as

merely one among many stakeholders ofmerely one among many stakeholders of

the firm including:the firm including: EmployeesEmployees

SuppliersSuppliers

CustomersCustomers

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


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Other GoalsOther Goals No matter what the other goals, they cannotNo matter what the other goals, they cannot

be achieved in the long term if thebe achieved in the long term if the

maximization of shareholders/ corporatemaximization of shareholders/ corporatewealth is not given due consideration alongwealth is not given due consideration alongwith environmental and social concerns.with environmental and social concerns.


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Globalization of InternationalGlobalization of International

Finance: Recent TrendsFinance: Recent Trends

Emergence of Globalized Financial MarketsEmergence of Globalized Financial Markets

Liberalization and IntegrationLiberalization and Integration

PrivatizationPrivatization// Deregulation of MarketsDeregulation of Markets

Disintermediation/Emergence of Equity CultDisintermediation/Emergence of Equity Cult

Emergence of New Markets like Hong KongEmergence of New Markets like Hong Kong

etc.etc. Functional Unification (Banks Providing allFunctional Unification (Banks Providing all

Functions)Functions)

Innovations/Financial EngineeringInnovations/Financial Engineering

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6d638Finance Function in Global Scenrio (1)