INTRODUCTION

INTRODUCTION IFM – a recently developed discipline.But, of late, developing rather too fast.There are many reasons for this:

Increased international trade at a greater pace Entry of more players into international trade The momentum gained by the process of

Economic reforms and Globalization

INTRODUCTION (Contd.,)

The change in political system in Eastern Europe towards greater participation in the global economy

Emphasis on Privatisation by World Bank and IMF

Willingness on the part of the developing countries to open up for competition.

INDIAN SCENARIO Till recently, no much international trade activity.So, no much scope for IFMOnly after Current Account Convertibility and opening up of the economy, an opportunity has opened up for financial managers to expose to international trade.Therefore, it is imperative for today’s FMs to grasp the concepts of IFMIFM – opportunities open up for greater innovation – but more complexities.

The complexities of IF arises from its link with different disciplines such as,

International Economics

International Trade

Taxation

Accounting

Management Control, etc.

It draws on various concepts of Macto-Economics and Micro-Economics

Macro Economic Concepts are,

Balance of Payments Political Economy Exchange Markets Financial Markets Monetary Policy, etc.

Micro Economic Concepts include,

Investment Choices

Financing Policies

Dividend Polices, etc.

WHO ARE CONCERNED WITH IFM?

MNCs having subsidiaries

PSUs dealing with foreign companies

SMEs

Banks and Financial Institutions

DEFINITIONIFM may be defined as the

“Management of the financial operations relating to international activities of business organizations”

Such activities include,

Decision of setting up a plant abroad;Expansion of existing business abroadInvestment in another countryJoint Ventures

Export – ImportFinancing of subsidiaries abroadDistribution of dividend

NATURE AND SCOPE OF IFMThough there are some similarities with domestic FM, yet IFM differs widely from DFM in its scope.

The distinguishing features of IFM are, Greater variety of means of financing Higher Risk Greater constraints in operations

All these demand greater innovation and faster adaptation on the part of managers.

FACTORS CONSTRAINING MNCs’ EFFORTS TO MAXIMISE RETURNS

Environmental Constraints

Regulatory Constraints

Ethical Constraints

DIFFERENCES BETWEEN DFM AND IFM

Domestic Financial Management International Financial Management

Normal Returns are expected Higher ROI expected

Enjoys Relative Freedom Faced with several Constraints

Impact is country-specific Historical, cultural & Institutional Environment in each host country impact the financial decisions and its implementation

Free from Abnormal Risks IFM requires an understanding of unique Risks

UNIQUE DIMENSIONS OF INTERNATIONAL FINANCE

Though almost all finance must be viewed at the international level, there are some special problems that arise from financial and trading relations between nations.

Many of these problems are due to different currencies used in different countries and the consequent need to exchange them.

Movements in exchange rates between currencies can have profound effects on Costs, Sales, Profits, Asset and Liability Values and Individual Well-being.

Other unique IF problems arise from the fact that there are Political Divisions and Currency Divisions between countries.

Thus we see that the managers of international finance face the problems of currency and country divisions and their associated opportunities and risks.

BENEFITS OF STUDYING IFKnowledge of IF can help a finance manager decide how international events will affect a firm and what steps can be taken to exploit positive developments and insulate the firm from harmful ones.

Events like, Change in Exchange Rates, Interest Rates,

Inflation Rates and Asset Values – will affect the firms.

These different changes themselves are related.

IF is not just finance with an extra cause of uncertainty.

It is a legitimate subject of its own, with its own risks and ways of managing them.

Because of integration of financial markets, events happening in distant countries – change in oil and gold prices or election results or outbreak of war or stock market crash or change in interest rates, etc. – will have effects that instantly reverberate around the globe.

Thus, financial markets have become increasingly integrated and inter-dependent financial environment

ENVIRONMENT OF IFM

IFM