WELCOME TO INTERNATIONAL FINANCE COACH-RAGINI KHANNA
Why is International Finance Important?
In previous finance courses you have been taught about general finance concepts that apply to domestic or local settings, BUT we live in an international world.
Companies (and individuals) can raise funds, invest money, buy inputs, produce goods and sell products and services overseas.
With these increased opportunities comes additional risks. We need to know how to identify these risks and then how to control or remove them.
American consumers routinely purchase Oil imported from Saudi Arabia and Nigeria. TV sets and camcorders from Japan Automobiles from Germany Garments from China Shoes from Indonesia Pasta from Italy Wine from France Effect on Consumption
Foreigners in return purchase American-made aircrafts, Software, Movies, Jeans, and other products. Continued liberalization of International trade is certain to further internationalize consumption patterns around the world. Effect on Consumption
Like consumption, production of goods and services has also become highly globalized. MNCs efforts to source inputs and locate production anywhere in the world where costs are lower and profits are higher. E.g. IBM Effect on Production
Financial Markets have also become Highly Integrated. e.g. Diversified Investment Portfolios. E.g. Japanese investors are investing heavily in U.S. and other Foreign financial Markets in efforts to recycle their enormous trade surpluses. Other examples-IBM, Sony etc. Financial Markets
Dr. Reddy (A) GAIL (G) GRASIM Inds (G) ICICI Bank (A) Infosys Tech (A) ITC (G) L& T (G) M&M (G) SBI (G) Tata Comm (A) Indian Companies Issuing ADR’s & GDR’s
Foreign exchange risk
E.g., an unexpected devaluation adversely affects your export market…
E.g., an unexpected overturn of the government that jeopardizes existing negotiated contracts…
E.g., trade barriers and tax incentives may affect location of production…
Expanded opportunity sets
E.g., raise funds in global markets, gains from economies of scale…
What is special about international finance?
So Finally we can say that….. Rapidly integrating markets have stretched firms across borders and increased the importance of foreign operations to firms around the world.
What do finance practitioners need to know to operate in a global setting? Now the Question arises….
Finance practitioners are faced with numerous questions that require well-developed intuitions from a domestic setting to be reinvented in an international setting.
Rather than simply considering how to make aggregate capital structure and dividend decisions, CFOs must also wrestle with decisions regarding the capitalization and repatriation policies of their many subsidiaries.
Capital budgeting decisions must not only reflect divisional differences but the complications introduced by currency, tax and country risks. Valuation decisions must now take into account how to value assets that are exposed to different country risks and currencies. Incentive compensations systems must consider how to measure and reward managers who are operating in very different economic and financial settings. Introduction
How should subsidiaries be financed? How should repatriation policies be designed? How should investment opportunities in different countries be analyzed How should financial information be communicated inside the firm? When should ownership be shared? With whom Introduction
Goals for International Financial Management
An Overview….. Foreign Exchange & Derivatives Markets Sourcing Capital in Global Markets International Financial Management Multinational WCM Managing FOREX Exposure Foreign Investment Decisions