M.B.

A Term VI
International Financial Management
(Assignment)

Note : Write assignments on any two of the following and submit the same to the
undersigned latest by 9 April , 2014.
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?
Solution. The economic and monetary system that transcends national borders.
The field of international finance concerns itself with studying global capital
markets and might involve monitoring movements in foreign exchange rates,
global investment flows and cross border trade practices. The international
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. Planning, Organizing,
Directing and Controlling of money value in foreign exchange this is called as an
international financial management.
REASONS TO STUDY INTERNATIONAL FINANCE
(i) To understand the global economy and its relation to:-
a) The end of the cold war
b) The emergency of growing markets among the developing countries and
c) The increasing globalization of the international economy.
The great change of recent years has been the rapid industrialization and
economic growth of countries in several parts of the world, such as Asia, Latin
America and Africa. Another change in the international financial environment is
increased globalization- national economies are becoming steadily more
integrated.
(ii) To understand the effect of Global Finance on business
a) Global finance has become increasingly important as it serves world trade
and foreign investment.
b) Most large and many medium sized companies in the developed world
have international business operations
c) In recent years, it has become clear that international events significantly
affect companies, which do not have foreign operations.
(iii) To make intelligent decisions
Although most personal decisions have nothing to do with international finance
jobs, they all require significant knowledge of international finance to make
intelligent decisions.
Also, International finance enables investors to asses and manage all the
international risks they might encounter in their financial management process.
The risks involved are political risk and foreign exchange risk, transaction
exposure and economic exposure.
Difference between International and Domestic Financial Management:
Four major facets which differentiate international financial management from
domestic financial management are introduction of foreign currency, political risk
and market imperfections and enhanced opportunity set.
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 Managers in IFM
A financial manager is responsible for providing financial advice and support to
colleagues and clients to enable them to make sound business decisions. The role
of the financial manager is more than simply accounting; it is multifunctional.
Financial managers must understand all aspects of the business so that they are
able to adequately advise and support the chief executive officer in decision-
making and ensuring company growth and profitability.
Almost every firm, government agency, or other type of organization has one or
more financial managers. Financial managers oversee the preparation of financial
reports, direct investment activities, and implement cash management strategies.
They also implement the long-term goals of their organization.
Many corporations operate multifunctional teams where the financial manager is
responsible for a particular division or function, or looks after a range of
departments and functions. Financial managers often have specific roles and
titles.
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
Currency Transactions
Managing foreign exchange risk exposure
Global Money Management
Financing International Business Operations

International financial manager will involve the study of
Exchange rate and currency markets
Theory and practice of estimating future exchange rate
Various risks such as political/country risk, exchange rate risk and interest
rate risk
Various risk management techniques
Cost of capital and capital budgeting in international context
Working capital management
Balance of payment, and
International financial institutions etc.
Advantages
a) Financial managers improve business organization and risk management by
providing reassurance on the effectiveness and efficiency of operations,
financial reporting, and compliance with applicable laws and regulations.
b) Financial managers provide management with an in-depth and unbiased
understanding of risks that the organization may be facing, allowing for
preemptive planning.
c) Financial managers give company officers and directors forewarning of
ethical and legal issues that may affect the organization.
Disadvantages
a) Although they are meant to be independent and impartial, financial
managers are paid by the company and are an integral part of the company
management; this can lead to conflicts of interest when advising senior
management on, for example, investment risk.
b) Financial managers judgments, estimates, and interpretations are not
always objective because of their close relationship with the organization
for which they work.
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?
Q3. Critically examine the latest available balance of payment of India.
Q4. Trace the evolution of International Monetary system focusing on the
important developments.

(Professor Y.P. Singh)