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INTERNATIONALFINANCIAL

SYSTEM

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LEARNINGOUTCOME

At the completion of this lesson, you will be able to

Understand the international financial management

and objective of international financial

management.

Define the international monetary system and

describe its importance.

Describe the gold standard and the Bretton Woods

exchange rate system.

Describe the characteristics of a fixed exchange rate

regime and a floating exchange rate regime.

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INTERNATIONALFINANCIALMANAGEMENT

Definition

Managing working capital

Financing the business

Assessing control of foreign exchange and

political risks

Evaluating foreign direct investment.

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INTERNATIONALFINANCIALMANAGEMENT

International financial management involves the study of

(a) Exchange rate and currency markets,

(b) Theory and practice of estimating future exchange rate,

(c) Various risks such as political/country risk, exchangerate risk and interest rate risk,

(d) Various risk management techniques,

(e) Cost of capital and capital budgeting in international

context, (t) working capital management,

(g) Balance of payment, and

(h) International financial institutions etc.

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DIFFERENCES

Differences between International financialmanagement and domestic financial

management

Greater information required

Greater communications, planning, control andcoordination needs

Different rules for different parts of theiroperation.

The problems for the measurement ofperformances

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DIFFERENCES

Continuous change, presenting newopportunities and risks.

Difficult for The proper balance betweencentralization and decentralization ofstrategies, policies and operation.

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OBJECTIVEOFINTERNATIONALFM

Maximize the shareholders wealth

Reasons

Avoiding the takeover

Additional capital from the investors

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Maximization of return

Minimization of risk

Hedge against inflation

OBJECTIVEOFINVESTMENT

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INTERNATIONALFINANCEMANAGER

Role:Analyze and balance international risks

and advantages.

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E I

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EVOLUTIONOFINTERNATIONAL

MONETARYSYSTEM

The part of a broader international regime.

Institutional framework for international

payments, movements of capital and exchange

rates

A complex whole of agreements, rules,

institutions, mechanisms, and policies.

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IMPORTANCE

Facilitating international trade and investmentand

Be smooth adaptation to change.

monetary system that functions poorly may not

only discourage the development of trade and

investment among nations but subject their

economies to disruptive shocks when

necessary adjustments to change are prevented

or delayed.

S AG S O I A O A

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STAGESOFINTERNATIONAL

MONETARYSYSTEM

Bimetallism: Before 1875.

Classical gold standard: 18751914.

Interwar period: 19151944.

Bretton Woods system: 1945

1972.

Flexible exchange rate regime: Since 1973.

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Q & A