Assignment

Q1. What is meant by International Financial Management? Why is it important to study

International Financial Management? How does it differ from domestic financial
management? Critically examine the role of manager of an International Financial firm ?

Ans: International financial management means management of finance in an
international business environment, it implies, doing of trade and making money through the
exchange of foreign currency.
The financial activities help the organizations to connect with international dealings with
overseas business partners- customers, suppliers, lenders etc. It is also used by government
organization and non-profit institutions.
Importance of financial management
Compared to national financial markets international markets have a different shape and
analytics. Proper management of international finances can help the organization in achieving
same efficiency and effectiveness in all markets, hence without IFM sustaining in the market
can be difficult.
Companies are motivated to invest capital in abroad for the following reasons
Efficiently produce products in foreign markets than that domestically.
Obtain the essential raw materials needed for production.
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Broaden markets and diversify
Earn higher returns

Difference between domestic and international financial management
Four major facets which differentiate international financial management from domestic financial
management are:
Foreign Exchange: Its an additional risk which a finance manager is required to cater to under
an International Financial Management setting. Foreign exchange risk refers to the risk of
fluctuating prices of currency which has the potential to convert a profitable deal into a loss
making one.
Political Risks: Political risk may include any change in the economic environment of the
country viz. Taxation Rules, Contract Act etc. It is pertaining to the government of a country
which can anytime change the rules of the game in an unexpected manner.
Market Imperfection: Having done a lot of integration in the world economy, it has got a lot of
differences across the countries in terms of transportation cost, different tax rates, etc. Imperfect
markets force a finance manager to strive for best opportunities across the countries.
Enhanced Opportunity Set: By doing business in other than native countries, a business
expands its chances of reaping fruits of different taste. Not only does it enhances the
opportunity for the business but also diversifies the overall risk of a business.
Role of a manager of international financial firm
1) Role of finance manager for Raising funds of the company.
2) Role of finance manager for taking maximum benefit from leverage.
3) Role of financial manager for international financial decisions
4) Role of finance manager in investment decisions.
5) Role of finance manager in risk management


Q2 What does the balance of payment of a country demonstrates? Why is it
useful to examine a countrys balance of payment statement? What are the
broad categories of international transactions classified as credits and as debits?
Ans: balance of payment A statement that summarizes an economys transactions
with the rest of the world for a specified time period. The balance of payments, also
known as balance of international payments, encompasses all transactions between
a countrys residents and its nonresidents involving goods, services and income;
financial claims on and liabilities to the rest of the world; and transfers such as
gifts.
The balance of payments classifies these transactions in two accounts the current
account and the capital account. The current account includes transactions in
goods, services, investment income and current transfers, while the capital account
mainly includes transactions in financial instruments.
Useful to examine countrys balance of payment statement
It would be useful to examine a countrys BOP for at least two reasons.
1) BOP provides detailed information about the supply and demand of the
countrys currency.
2) BOP data can be used to evaluate the performance of the country in
international economic competition.
For example, if a country is experiencing perennial BOP deficits, it may signal that
the countrys industries lack competitiveness.
categories of international transactions as credits and as debits
1. Credit Transactions (+) are those that involve the receipt of payment
from foreigners. The following are some of the important credit transactions
a. Exports of goods or services
b. Unilateral transfers (gifts) received from foreigners
c. Capital inflows
2. Debit Transactions (-) are those that involve the payment of foreign
exchange i.e., transactions that expend foreign exchange. The following are
some of the important debit transactions
a. Import of goods and services
b. Unilateral transfers (or gifts) made to foreigners
c. Capital outflows