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Critically discuss the environment of international financial management and the multinational
enterprise?
Solution
It means financial management in an international business environment. It is different because
of the different currency of different countries, dissimilar political situations, imperfect markets,
diversified opportunity sets.
International Financial Management came into being when the countries of the world started
opening their doors for each other. This phenomenon is well known by the name of
“liberalization”. Due to the open environment and freedom to conduct business in any corner of
the world, entrepreneurs started looking for opportunities even outside their country boundaries.
The spark of liberalization was further aired by swift progression in telecommunications and
transportation technologies that too with increased accessibility and daily dropping prices. Apart
from everything else, we cannot forget the contribution of financial innovations such as currency
derivatives; cross-border stock listings, multi-currency bonds and international mutual funds.
NATURE AND SCOPE OF INTERNATIONAL FINANCIAL MANAGEMENT
Like any finance function, international finance, the finance function of a multinational firm has
two functions namely, treasury and control. The treasurer is responsible for financial planning
analysis, fund acquisition, investment financing, cash management, investment decision and risk
management. On the other hand, controller deals with the functions related to external reporting,
tax planning and management, management information system, financial and management
accounting, budget planning and control, and accounts receivables etc. For maximising the
returns from investment and to minimise the cost of finance, the firms has to take portfolio
decision based on analytical skills required for this purpose. Since the firm has to raise funds
from different financial markets of the world, which needs to actively exploit market
imperfections and the firm’s superior forecasting ability to generate purely financial gains. The
complex nature of managing international finance is due to the fact that a wide variety of
financial instruments, products, funding options and investment vehicles are available for both
reactive and proactive management of corporate finance. Multinational finance is
multidisciplinary in nature, while an understanding of economic theories and principles is
necessary to estimate and model financial decisions, financial accounting and management
accounting help in decision making in financial management at multinational level. 5 Because of
changing nature of environment at international level, the knowledge of latest changes in forex
rates, volatility in capital market, interest rate fluctuations, macro level charges, micro level
economic indicators, savings, consumption pattern, interest preference, investment behaviour of
investors, export and import trends, competition, banking sector performance, inflationary
trends, demand and supply conditions etc. is required by the practitioners of international
financial management.
Multinational Enterprise (MNE)
it is a business entity which conducts business operations in various countries with its
subsidiaries and affiliates. MNEs possess considerable and wide human resources, finance,
expertise and technology as well as enjoy substantial competitive advantage
The main characteristics of multinational companies are:

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Critically discuss the environment of international financial manage.pdf

  • 1. Critically discuss the environment of international financial management and the multinational enterprise? Solution It means financial management in an international business environment. It is different because of the different currency of different countries, dissimilar political situations, imperfect markets, diversified opportunity sets. International Financial Management came into being when the countries of the world started opening their doors for each other. This phenomenon is well known by the name of “liberalization”. Due to the open environment and freedom to conduct business in any corner of the world, entrepreneurs started looking for opportunities even outside their country boundaries. The spark of liberalization was further aired by swift progression in telecommunications and transportation technologies that too with increased accessibility and daily dropping prices. Apart from everything else, we cannot forget the contribution of financial innovations such as currency derivatives; cross-border stock listings, multi-currency bonds and international mutual funds. NATURE AND SCOPE OF INTERNATIONAL FINANCIAL MANAGEMENT Like any finance function, international finance, the finance function of a multinational firm has two functions namely, treasury and control. The treasurer is responsible for financial planning analysis, fund acquisition, investment financing, cash management, investment decision and risk management. On the other hand, controller deals with the functions related to external reporting, tax planning and management, management information system, financial and management accounting, budget planning and control, and accounts receivables etc. For maximising the returns from investment and to minimise the cost of finance, the firms has to take portfolio decision based on analytical skills required for this purpose. Since the firm has to raise funds from different financial markets of the world, which needs to actively exploit market imperfections and the firm’s superior forecasting ability to generate purely financial gains. The complex nature of managing international finance is due to the fact that a wide variety of financial instruments, products, funding options and investment vehicles are available for both reactive and proactive management of corporate finance. Multinational finance is multidisciplinary in nature, while an understanding of economic theories and principles is necessary to estimate and model financial decisions, financial accounting and management accounting help in decision making in financial management at multinational level. 5 Because of changing nature of environment at international level, the knowledge of latest changes in forex rates, volatility in capital market, interest rate fluctuations, macro level charges, micro level
  • 2. economic indicators, savings, consumption pattern, interest preference, investment behaviour of investors, export and import trends, competition, banking sector performance, inflationary trends, demand and supply conditions etc. is required by the practitioners of international financial management. Multinational Enterprise (MNE) it is a business entity which conducts business operations in various countries with its subsidiaries and affiliates. MNEs possess considerable and wide human resources, finance, expertise and technology as well as enjoy substantial competitive advantage The main characteristics of multinational companies are: