This document discusses the challenges faced by international financial managers. It outlines the complex global financial system environment they must navigate, including fluctuating foreign exchange rates, varying interest rates between countries, and differing political and cultural factors. International financial managers must identify key economic variables affecting their firm, devise strategies to adapt to changes in these variables, learn from past mistakes, and seize new opportunities presented by the market in order to succeed amidst these challenges. A strong understanding of different country's microeconomic environments, cultures, and levels of technology and infrastructure is crucial.
3. INTERNATIONAL FINANCIAL MANAGEMENT
The environment in which firms function consists
of:
1) International Financial System.
Official part : International Monitory System (IMS)
Private part : International banks, multinational financial
institutions
2) Foreign Exchange market
FE markets consists of multinational banks, FE dealers,
organized exchanges where currency futures are traded
Frequent fluctuations in FE
Risk coverage instruments i.e futures, derivatives etc.,
To understand these complexities is a challenge to the
financial managers
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4. INTERNATIONAL FINANCIAL MANAGEMENT
3) Host country’s Environment
This environment consists of political and
socioeconomic systems, people’s cultural value and
aspirations
Each country is having its own set of tax rules, local
laws .
understanding this environment is crucial to the
Finance Managers to avoid political risks
4) Financing function
Multiplicity of sources of funds
large numbers of investment opportunities
leads to worry about FE and political risks in
positioning funds and mobilizing cash resources
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5. INTERNATIONAL FINANCIAL MANAGEMENT
5) Other aspects
Greater exposure to international markets
volatility in interest rates in different countries
Increased competition
Threats of hostile takeovers
FDI barriers
Political uncertainties in home and abroad
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Economic liberalization in India – affects
FDIs raised
portfolio investments raised
market determined FE rate emerged
Rupee was made fully convertible for current
account (imports/exports)
Liberalization of capital Account
Restrictions on import removed(2001)
Restrictions on access to foreign(currency)
capital markets liberalized
import duties lowered
Freedom from controls
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Economic liberalization in India – affects (contd.)
All the above measures enabled finance managers :
Investment vehicle
Cost reduction
Enhancement of returns
Wider funding options
Hence each Finance Manager must be in the know of
every global developments
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To sum up Finance Managers are required to:
1) Identify the significant Economic and Financial
variable that affect the firm
Exchange rates
Interest rates
Credit conditions at home and abroad
Changes in industrial, tax, foreign trade policies
stock market trends vis a vis their affects on the firm
Threats from liberalization of foreign investments
Emergence of new Financial instruments 8
9. INTERNATIONAL FINANCIAL MANAGEMENT
2) To meet the changes in various economic
and financial variables and to adopt to such
changes with suitable strategies
e.g.
Environment variables
Major change in product – market mix
Effect of take over Major competitors
Opening infrastructure sector to private
investments
Affects of privatization
Funding strategies
changes in dividend policies
Financial Restructuring
Acute competition
Increased pace of diversification
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3) Turnaround:
Look back
Review of wrong takeovers
Foreign Loans without coverage
Fixed prices contracts when prices are
coming down
Set right errors of judgment
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4) Grab the opportunities provided by the
market
Use of options, futures and swaps
Securitization of assets
Extensive use of computer and nets
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6 ) Fluctuations in Foreign Exchange rates
Changes in economic and political and
legal environment
BOP problems
debt problems
To meet the above challenges a
corporate Manager should have good
knowledge of micro Economic
environment
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7 ) Cultural Problems
IFM deals with firms in different countries
The cultures of each country differs from
others and it creates problems
Hence FM should know different cultures
of different countries.
E.g : Mc Donald could not be successful to
establish business in China due to
ignorance of Chinese culture
In India successful --- No beef , No fork in
burgers 13
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8 ) Technology / Availability of infrastructure
etc.
The level of technology in the globe
some times impediment to
international business
E.g. India:
Poor quality of infrastructure
poor quality of transport
Poor quality of communication
High corruption
Erratic power supply
Japanese recently commented that India is
the most corrupt country and hence they
don’t want to business
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