M.COM-Sem-3, International Financial Management,Unit-1, Foundations of international financial management, 08-05-2021

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M.COM 2 All right are reserved with CU-IDOL International Financial MARKETING MANAGEMENT Management  Course Code: MCM612  Semester: 3  Unit: 1 www.cuidol.in Unit-1(MCM 605)

International Financial Management 33 COURSE OBJECTIVES COURSE OUTCOMES  Student would be able to understand the  To expose an introduction to international finance theory (e.g., exchange rate determinants, foreign exchange exposure, various aspect of IFM foreign exchange markets, interest rate parity).   To nurture the knowledge, capability, and skills necessary for making sound financial decisions for a multinational firm. Students will also be able to analyze the International financial Environment  To guide the students on how to run their own MNC and write Learners would be achieving the analytical a quality feasibility report.  skill in IFM www.cuidol.in Unit-1(MCMQ 61051) INSTITUTE OF DAISllTArNigChEt AaNreDrOesNeLrIvNeEdLwEAitRhNCINUG-IDOL

International Financial Management 43 UNIT OBJECTIVES UNIT INTRODUCTION  Foundations of international  An overview, Importance, financial management nature and scope of International financial   Management.    INSTITUTE OF DAISllTArNigChEt AaNreDrOesNeLrIvNeEdLwEAitRhNCINUG-IDOL www.cuidol.in Unit-1(MCMQ 61051)

Introduction To International 5 Financial Management Background of International Financial Management www.cuidol.in Unit-1(MCM 605) All right are reserved with CU-IDOL

International Financial Management 6 • Management of international assets • Management of international liabilities • Management of cross-border financial risks • Cross-border funds transfers These depend on the environmental features of international finance--notably, the global financial markets www.cuidol.in Unit-1(MCM 605) All right are reserved with CU-IDOL

Corporate Finance 7 www.cuidol.in Unit-1(MCM 605) All right are reserved with CU-IDOL

What is Special about Corporate 8 Finance in the International Environment? • Financial markets are partially linked, partially separated by national jurisdictions • Exchange rate fluctuations affect revenues, costs and valuation of firms • The competitive international financial markets offer special tools, opportunities and risks www.cuidol.in Unit-1(MCM 605) All right are reserved with CU-IDOL

What are the Global Financial Markets? 9 • The Foreign Exchange Market • The Derivatives • Domestic and International Money Markets • Domestic and International Capital Markets • Beyond the Money and Bond Markets: International Equity and Commodity Markets • Using the Global Capital Markets: Investors’ and Issuers’ Perspectives www.cuidol.in Unit-1(MCM 605) All right are reserved with CU-IDOL

Contents of IFM 10 Foreign Sourcing Exchange Capital in Markets Global Markets International Synthesis Financial Management Managing Foreign FOREX Investment Exposure Decisions www.cuidol.in Unit-1(MCM 605) All right are reserved with CU-IDOL

What are the Key Issues of International Financial 11  MForaeingnaegxcehamngee rnistk? • IFM deals with exchange risk. Appreciation or devaluation of a currency may have an adverse effect on a company’s product pricing, input cost and financial state of affairs.  Political risk • An unexpected overturn of the government may jeopardize existing negotiated contract. On the other hand expropriation of assets by the host government could ruin company’s investment.  Market imperfections • Trade barriers and tax incentives may affect location of production. Expanded opportunity sets • Could raise funds in global markets and may gain from economies of scale. www.cuidol.in Unit-1(MCM 605) All right are reserved with CU-IDOL

How International FM Differ from the 12 Domestic One www.cuidol.in Unit-1(MCM 605) All right are reserved with CU-IDOL

Importance of IFM 13  Economic Interdependence  It means that in today’s world, no nation exists in economic isolation;  All aspects of a nation’s economy-its industry, service sectors, levels of income and employment, living standard are linked to the economics of its trading partners.  This linkage takes the form of international movements of goods and services, labor, business enterprise, investment funds, and technology. www.cuidol.in Unit-1(MCM 605) All right are reserved with CU-IDOL

Importance of IFM 14  International Competition  To withstand competition a corporation must lower its product cost through reducing cost of capital and sourcing inputs where those are cheaper.  Consequence of Increased Openness  Even the company that is not international in nature have to compete with corporations that could arrange capital at cheaper cost and produce goods where cost of production is lower. www.cuidol.in Unit-1(MCM 605) All right are reserved with CU-IDOL

Globalization of Economic Activities 15  It means that national economies rely on international trade in overall economic activity.  World trade expanded faster than world output in the last 50 years by a significant margin due to rapid technological change and continuing liberalization of trade and investment.  Technological innovation led to the increase of productivity, and the advances in transport technology brought people and enterprises closer together so that the boundary of tradable goods and services has been greatly extended.  These activities have led to more and more companies to globalize production structure through investment abroad. www.cuidol.in Unit-1(MCM 605) All right are reserved with CU-IDOL

Globalization of Economic Activities 16  World trade expanded faster than world output in the last 50 years by a significant margin due rapid technological change and continuing liberalization of trade and investment.  Technological innovation led to the increase of productivity, and the advances in transport technology brought people and enterprises closer together so that the boundary of tradable goods and services has been greatly extended.  These activities have led to more and more companies to globalize production structure through investment abroad. www.cuidol.in Unit-1(MCM 605) All right are reserved with CU-IDOL

What are the International Financial Management 17 Decisions  Capital budgeting • What long-term international investments or projects should the business take on?  Capital structure • How should we pay for our assets? • Should we use local or foreign sourced debt or equity?  Working capital management • How do we manage the day-to-day finances of the firm? How could you manage foreign exchange risk? www.cuidol.in Unit-1(MCM 605) All right are reserved with CU-IDOL

International Financial Managers Need to have a Clear 18 Understanding about Global Financial System The Global Financial System GOVERNMENT SUPERVISORY TREASURIES AUTHORITIES CENTRAL CURRENCIES ACCOUNTING BANKS STANDARD BODIES INTERNATIONAL EXCHANGE COMMERCIAL MULTINATIONAL FINANCIAL RATES BANKS ENTERPRICES INSTITUTIONS FINANCIAL (MCE) MARKETS INVESTMENT INSTITUTIONAL BANKS SOVEREIGN RATING INVESTORS FUNDS AGENCIES www.cuidol.in All right are reserved with CU-IDOL Unit-1(MCM 605)

Multinational Enterprises 19  A multinational enterprise (MNE) is defined as one that has operating subsidiaries, branches or affiliates located in foreign countries.  While international finance focuses on MNEs, purely domestic firms can also face significant international exposures:  Import & export of products, components and services  Licensing of foreign firms to conduct their foreign business  Exposure to foreign competition in the domestic market  Indirect exposure to international risks through relationships with customers and suppliers www.cuidol.in Unit-1(MCM 605) All right are reserved with CU-IDOL

Types of Multinational Enterprises 20  Raw Material Seekers  First type of MNEs  Exploit raw materials found overseas  Trading, mining and oil companies  Market Seekers  Post-WWII MNEs  Expand production and sales into foreign markets  Big name companies – IBM, McDonalds etc.  Cost Minimisers  More recent MNEs  Seek out lowest production cost countries  Manufacturing and service companies www.cuidol.in Unit-1(MCM 605) All right are reserved with CU-IDOL

SUMMARY 21 • IFM is related with Management of international assets. Management of international liabilities, Management of cross-border financial risks and Cross-border funds transfers. • These depend on the environmental features of international finance--notably, the global financial markets. • Investment decision, Financing decision and Risk management are important basic function in IFM. • Key Issues of International Financial Management incudes Foreign exchange risk, Political risk, Market imperfections along with Expanded opportunity sets • IFM is important for Multinational Corporations for their financial affairs management. • Types of Multinational Enterprises are Raw Material Seekers, Market Seekers, Cost Minimisers. www.cuidol.in Unit-1(MCM 605) All right are reserved with CU-IDOL

REFERENCES 22 1. Apte, P.G., International Financial Management, Tata McGraw Hill Publishing Company Ltd.  2. Bekaert, G. and R.J. Hodrick, International Financial Management, Prentice Hall.  3. Eiteman, D.K., Stonehill, A.I. and Moffett, M.H., Multinational Business Finance, Pearson Education. www.cuidol.in Unit-1(MCM 605) All right are reserved with CU-IDOL

23 THANK YOU For queries Email: [email protected] www.cuidol.in Unit-1(MCM 605) All right are reserved with CU-IDOL