Role of International Financial Manager in

MNC's
Financial Management
That business activity which is concerned with the
acquisition and conservation of capital funds in
meeting the financial need and overall objectives of
business enterprises
Approaches to Finance function
Traditional approach: Finance function was confined to
only procurement of funds
Modern Approach: It includes both raising of funds as
well as their effective utilization
Financial decisions
1. Investment decision
2. Financing decision
3. Dividend decisions
1. Investment decision : It involves the determination of
total amount of assets to be held by the firm
Financial managers must quantify the benefits, costs,
and risks associated with an investment in a foreign
country
To do this, managers use capital budgeting
2. Financing decision : It involves the selection of the
suitable source of funds.
Firms must consider two factors when considering
financing options:
How the foreign investment will be financed
How the financial structure of the foreign affiliate
should be configured
3.Dividend decision: Quantum of profit to be distributed
among the shareholders
These decisions are more complex in international
business because of the different currencies, tax regimes,
regulations on capital flows, economic and political risk,
and so on between countries
Domestic Financial Management vs. International Financial
Management
Considerations in International Financial Management:
Must consider the effect of exchange rates and changes in
exchange rates on the inter-country transfer of cash flows
Must consider the political risk associated with actions of
foreign governments
Must consider how accounting methods, tax laws, business
regulations, and other institutional rules and arrangements
affect business transactions and cash flows in each country in
which the firm does business, adding to the complexity of foreign
operations
Must consider language and cultural differences when
dealing in international commerce
Role of domestic financial manager
Financial forecasting and planning
Acquisition of funds.
Investment of funds
Helping in valuation decision
Maintaining proper liquidity
Role of international financial manager in
MNCs
1. Currency Transactions
2. Managing foreign exchange risk exposure
3. Global Money Management
4. Financing International Business Operations
1. Currency Transactions: It takes place when
MNCs wants to make foreign investment.
Making payments to the clients
Types of Currency Transactions
Spot Trade
Forward Trade
Spot Trade An agreement to trade currencies based
on the exchange rate today for settlement immediately
(on the spot), technically within two business days
Forward Trade An agreement to exchange currency at
a specified future date at a specified price agreed upon
today (also called a forward contract)
2. Foreign exchange risk :
It is the possibility of a gain or loss to a firm that
occurs due to unanticipated changes in exchange
rate
Types of foreign exchange risk exposure
Translation Exposure
Transactions Exposure
Economic Exposure
Translation Exposure -- Relates to the change in
accounting income and balance sheet statements caused
due to changes in exchange rates.
Transactions Exposure It refers to the extent to which
the future value of the firms domestic cash flow is effected
by exchange rate fluctuations.
Economic Exposure It refers to the degree to which a
firm present value of future cash flows can be influenced
by exchange rate fluctuations.
3. Global Money Management:
Money management decisions attempt to manage
global cash resources efficiently
It includes:
Minimizing Cash Balances
Reducing Transaction Costs
Minimizing Cash Balances
Firms need cash balances on hand for notes payable
and unexpected demands
To keep cash accessible cash reserves are usually
invested in money market accounts that offer low rates of
interest
If firms could invest for a longer time frame, they could
earn higher rates of interest
Reducing Transaction Costs
Transaction costs are the cost of exchange
Every time a firm changes cash from one currency to
another, they face transaction costs
Most banks also charge a transfer fee for moving cash
from one location to another
Multilateral netting can reduce the number of
transactions between subsidiaries and the number of
transaction costs
4.Financing International Business
Operations
EXIM Bank (Export-Import Bank).
Loans from the parent company or a sister affiliate.
Eurodollar loans.
Eurobond market
International Equity markets
.
The International Finance Corporation (IFC).
CONCLUSION
The job of International Finance
manager is getting tough, tougher and
toughest these days.