Issues of International Finance Anusha

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ISSUESOF INTERNATIONAL

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THEVARIOUSISSUESAREASFOLLOWS

Varied economic systemsTariff and non-tariff barriersPolitical risks

Environmental safeguardDumpingCultural differenceLanguage differencesIntellectual property rightsCyber crimesTransfer pricing 2

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Economic and currency crisis

Interest rates

Foreign exchange risk

Cold war

International business cycle

Operational risks

Global terrorism

International cash managementCredit worthiness

Methods of payment

Foreign exchange market

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VARIEDECONOMICSYSTEM

Economic system refers to the kind of governance of a

country. It my be based onCommunism, Socialism and mixed

economic principles.

TARIFFANDNON-TARIFFBARRIERS

Tariff- Its a kind of tax imposed in internationaltrade.

Non-tariff- the WTO is an agency to reduce tariffs.

By rejecting the goods for the reason ofenvironmental safety, health hazards, laborstanders etc is called as non-tariff barriers.

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POLITICALRISK

The instability in the governance in different

countries.

The change in government policies makes MNCs

to step back in many occasions.

ENVIRONMENTALSAFEGUARD

The major issue today is global warming i.e. Ozone

layer depletion and Green House effect.

The global business and the environmentalprotection should go hand in hand.

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DUMPING

It means selling a product at a high price in the

home country and at low price in host country. It ruins industries and employment opportunities in

the host country especially small scale industries.

CULTURALDIFFERENCES

The MNCs should cope with cultural differencesand adopt themselves to the cultural and sub-cultures of the host country.

They define their goals, attitude, dealing withemployees etc very dramatically from one countryto another.

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LANGUAGEDIFFERENCES

Different countries negotiate in different languageslike India and America in English, France in Frenchetc.

INTELLECTUALPROPERTYRIGHTS

Intellectual property rights are patents, trade marks,copy rights etc.

The invention of new things require R&D set up byfirm.

The problem of privacy is haunting several leadingcompanies and brands.

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CYBERCRIMES

It is a crime committed with the use of computerand internet

The privacy is interrupted, money in some othersaccount are withdrawn, manipulated andtransferred.

TRANSFERPRICING

In any international business there are normally manytransactions of goods or services between parent and

subsidiaries. The price at which goods or services are transferred

within the firm is called Transfer Price.

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ECONOMICAND CURRENCYCRISIS

During the time of economic crisis and currencycrisis the international business and finance alsofaces the impact such as Asian crisis or Malaysiancrisis etc.

INTERESTRATES The rate of interest charged by the world bank is

increasing day to day which raises cost of capitaland the profitability of the firm is thus reduced.

Interest rates is a parameter in global finance whichplays a prominent role in production and operationalrisks of a global firm.

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FOREIGN EXCHANGERISK

It is referred to the difficulties faced by a firm or an

individual owing to the fluctuations in exchangerate.

The exchange rate is based on the market forces ofdemand and supply of foreign currencies at a

particular time.COLDWAR

The cold war is because of hatred and jealousbetween two countries.

Due to this cold war the international business andfinance is also affected.

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INTERNATIONALBUSINESSCYCLE

The business cycle has various stages such asinflation, deflation, revival and recession.

The MNCs operating in different countries have to

take care of the issues arising out of the differentphases.

OPERATIONALRISK A global firm operates in various countries. Its

production plant, assembly unit and service units

are spread all over the world. Risk involved here are political risk, foreign

exchange risk, commercial risk and country-specificrisk. 11



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CREDITWORTHINESS

Trade and payment between two countries are an

integral part of international finance. The importance of credit worthiness of country

party and counter country and their credibility insticking to contractual terms.

METHODSOFPAYMENT

Every shipment abroad requires some kind offinancing while in transit.

The exporter needs funds to buy or manufacturegoods and importer has to carry these goods ininventory until they are sold.

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IF

Letter ofcredit

Drafts

Electronicfund

transfer

Openaccount

Consign

ments

Cash inadvance

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FOREIGN EXCHANGEMARKETS

Foreign exchange market is the market inwhich currencies are bought or sold againsteach other.

The currency appreciation and depreciationof a particular country will affect MNCs

business considerably.

Eg. When Indian rupee got appreciatedmany global firms experienced decline inprofitability and productivity

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Issues of International Finance Anusha