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.

1. INTERNATIONAL FINANCIAL
MANAGEMENT
EVALUATION OF FLOATING RATES
By
V S SARMA ,PROF, MBA VJIT
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2. INTERNATIONAL FINANCIAL MANAGEMENT

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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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6. INTERNATIONAL FINANCIAL MANAGEMENT
 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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7. INTERNATIONAL FINANCIAL MANAGEMENT
 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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8. INTERNATIONAL FINANCIAL MANAGEMENT
 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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10. INTERNATIONAL FINANCIAL MANAGEMENT
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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11. INTERNATIONAL FINANCIAL MANAGEMENT
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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12. INTERNATIONAL FINANCIAL MANAGEMENT
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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13. INTERNATIONAL FINANCIAL MANAGEMENT
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

14. INTERNATIONAL FINANCIAL MANAGEMENT
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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