The document provides information on various topics related to international financial management. It discusses the objectives, scope, and nature of international financial management. It also covers key concepts like capital budgeting, working capital, dividend decisions, financing decisions, international flow of funds, balance of payments, current account, capital account, factors influencing international funds flow, advantages and disadvantages of international funds flow, international trade flow, international capital flow, benefits and demerits of international capital flows, and contemporary issues in international financial management.

1. Unit 1

2. International Financial Management
• International financial management, also known as international
finance, is a well-known term in today’s world.
• It simply means financial management in an international
business environment.
• It is different from financial management because of the
different factors involved like currency, political situations,
imperfect markets, and diversified opportunity sets.

3. Objectives of IFM
• Acquisition of Funds
This objective involves generating funds from internal as well as
external sources. The goal of international financial management
is to acquire funds at the lowest possible cost.
• Investment Decisions
International financial management is concerned with the
investment of acquired funds in an optimum manner in order to
maximize shareholders’ as well as stakeholders’ wealth.

4. Scope of International Financial
Management
• Investment Decision
Evaluating the risk involved, measuring the cost of fund and
estimating expected benefits from a project comes
under investment decision.
It is one of the important scope of financial management.
The two major components of investment decision are – Capital
budgeting and Working capital.

5. Capital Budgeting
• Capital budgeting is commonly known as the investment
appraisal. It deals with the allocation of capital and funds in
such a manner that they will yield earnings in future.
• Capital budgeting determines the long term investment which
includes replacement and renovation of old assets.

6. Working Capital
• Decisions related to working capital is another crucial scope of
financial management. Decisions involving around working
capital and short term financing are known as working capital
decision. It also manages the relationship between short term
assets and its liabilities.

7. Dividend Decision
• The Dividend Decision plays a crucial role in today’s corporate
era. It determines the amount of taxation that stockholders pay.
A good dividend policy helps to achieve the objective of wealth
maximization. Distributing the entire profit in the form of
dividends or distributing only a certain percentage of it is
decided by dividend policy.

8. Financing Decision
• Financing Decisions focuses on the accountabilities and
stockholders’ equity side of the firm’s balance sheet, for
example decision to issue bonds is a kind of financing decision.
The main aim of financing decision is to cover expenses and
investments. The decision involves generating capitals by
various methods, from different sources, in relative proportion
and considering opportunity costs, with respect to time of
flotation of securities, etc.

9. Nature of Financial Management
• Primary nature of financial management focus towards
valuation of company. That is the reason where all the financial
decisions is directly linked with optimizing / maximization the
value of a company.
• Nature of financial management basically involves decision
where risk and return are linked with investment. Generally high
risk investment yield high returns on investments. So, role of
financial manager is to effectively calculate the level of risk
company is involve and take the appropriate decision which can
satisfy shareholders, investors or founder of the company.

10. • Finance is a foundation of economic activities. The person who
Manages finance is called as financial manager. Important role
of financial manager is to control finance and implement the
plans. For any company financial manager plays a crucial role
in it. Many times it happens that lack of skills or wrong decisions
can lead to heavy losses to an organization.
• Financial Management is an important function in company’s
management. Financial factors are considered in all the
company’s decisions and all the departments of an
organization. It affects success, growth and volatility of a
company. Finance is said to end up being the lifeline of a
business.

11. • Finance management is one of the important education which
has been realized word wide. Now a day’s people are
undergoing through various specialization courses of financial
management. Many people have chosen financial management
as their profession.
• The nature of financial management is never a separate entity.
Even as an operational manager or functional manager one has
to take responsibility of financial management.

12. • Nature of financial management is multi-disciplinary. Financial
management depends upon various other factors like:
accounting, banking, inflation, economy, etc. for the better
utilization of finances.
• Approach of financial management is not limited to business
functions but it is a backbone of commerce, economic and
industry.

13. Importance of International Financial
Management
International finance plays a critical role in international trade and
inter-economy exchange of goods and services. It is important for
a number of reasons, the most notable ones are listed here −
• International finance is an important tool to find the exchange
rates, compare inflation rates, get an idea about investing in
international debt securities, ascertain the economic status of
other countries and judge the foreign markets.
• Exchange rates are very important in international finance, as
they let us determine the relative values of currencies.
International finance helps in calculating these rates.

14. • Various economic factors help in making international
investment decisions. Economic factors of economies help in
determining whether or not investors’ money is safe with foreign
debt securities.
• An international finance system maintains peace among the
nations. Without a solid finance measure, all nations would work
for their self-interest. International finance helps in keeping that
issue at bay.
• International finance organizations, such as IMF, the World
Bank, etc., provide a mediators’ role in managing international
finance disputes.

15. Differences between domestic finance
and international finance
Domestic finance
• The currency exposure has no impact.
• It is exposed to same economic and political environments.
• It is exposed to same tax laws and regulations.
• Stakeholders are of same beliefs, languages etc.
• Knowledge of foreign exchange derivatives is not required.
• Challenges are limited.
• Maintenance of separate books are not required.

16. International finance
• The currency exposure has impact.
• It is exposed to different economic and political environments.
• It is exposed to different tax laws and regulations.
• Stakeholders are of different beliefs, languages etc.
• Knowledge of foreign exchange derivatives are required.
• Challenges are limitless.
• Maintenance of separate books are required as per GAAP/AS.

17. International Flow of Funds
• The international flow of funds takes place when the
transactions of buying and selling take place between the
international market by means of international business that is
export and import from one country to another country.
• The transactions of international business cause the flow of
funds from one country to another which facilitates imports and
exports from one country to another and helps into money to
flow from one to another market.
• The financial managers of many multinational corporations keep
an eye on the changing trends of the flow of international
business transactions which is measured by the balance of
payment in a country.

18. Balance of Payments
• The balance of payment shows the value of all the transactions
that took place between the domestic and the foreign residents
in a specific period of time.
• All of these transactions are recorded in double entry system of
accounting and each transaction has two sides one is debt and
the other is credit.
• So, in the balance of payment is the aggregate of both the
transactions.
• The balance of payment can be in surplus or in deficit within a
specific period of time.

19. • When the export transactions are more than the import
transactions in a given specific period of time it is said as the
surplus balance of payment.
• On the other hand, when the export transactions are less than
the import transactions of the country in a given specific period
of time it is said as deficit balance of payment.
• The current and capital account are the two components of the
balance of payment.

20. Current Account
• The short term transactions of a country and the difference
between the savings and the deposits aggregately constitutes
the current account of the balance of payment.
• The transactions in the current account consist of export and
import transactions of goods, export and import transactions of
the services, money transfers and income from the factors like
land and foreign shares.
• The total of the current account balance is also stated as the
balance of trade as a subpart of the balance of payment.

21. Capital Account
• The sum of total inflow and outflow of capital that directly affect
a nation’s foreign assets and liabilities is aggregate constitutes
a capital account.
• It includes all the trade transactions of international business
between one country or a nation or the other country or nation.
• The investments and loans of foreign countries, banking and
other forms of foreign capital and any changes in the foreign
reserves all these items are included in the capital account of
the balance of payment.

22. Factors that influence the flow of
International funds
• Impact of Inflation
• National Income
• Government policies of a country
• Subsidies provided for traders
• Restriction on imports
• Restrictions on the piracy
• Impact of exchange rates of foreign currency

23. Advantages of International Flow of Funds
• Increased Production Capacity
• Increase Aggregate Demand
• Technological Advancement
• The surplus on the financial account of the balance of
payment
• Easy Finances
• The inflow of Foreign Currencies

24. Disadvantages of International Flow of Funds
• The loss to Domestic Players
• Tax Evasion
• Destroying the real estate market
• Money Laundering

25. International Trade Flow
• International trade is the exchange of capital, goods,
and services across international borders or territories because
there is a need or want of goods or services.
• In most countries, such trade represents a significant share
of gross domestic product (GDP).
• While international trade has existed throughout history (for
example Uttarapatha, Silk Road, Amber Road, scramble for
Africa, Atlantic slave trade, salt roads), its economic, social, and
political importance has been on the rise in recent centuries

26. • Carrying out trade at an international level is a complex process
when compared to domestic trade.
• When trade takes place between two or more states factors like
currency, government policies, economy, judicial system, laws,
and markets influence trade.

27. Characteristics of International Trade Flow
• A product that is transferred or sold from a party in one
country to a party in another country is an export from
the originating country, and an import to the country
receiving that product.
• Imports and exports are accounted for in a country's
current account in the balance of payments.
• Trading globally may give consumers and countries the
opportunity to be exposed to new markets and products.

28. • Almost every kind of product can be found in the international
market, for example: food, clothes, spare parts, oil, jewellery,
wine, stocks, currencies, and water. Services are also traded,
such as in tourism, banking, consulting, and transportation
• Advanced technology (including transportation), globalization, in
dustrialization, outsourcing and multinational corporations have
major impacts on the international trade system.

29. Most traded export products

30. International Capital Flow
• Traditionally the capital movements were considered important
as they assisted in the maintenance of BOP equilibrium.
• A country, having a BOP surplus, will invest or lend capital
abroad and thereby offset the payments surplus.
• On the opposite, given a BOP deficit, it could borrow capital
from abroad and remove the deficit.
• In other words, the capital movements had the specific role in
balancing the international payments and receipts.
• In the context of LDC’s like India, the international capital flows
or foreign aid have much vital role to play.

31. • The international capital assistance may be in the form of
private and public foreign investments, loans from foreign
nationals, business and financial institutions, central banks,
governments and international economic institutions such as
International Monetary Fund (IMF), International Bank for
Reconstruction and Development (IBRD), International
Finance Corporation (IFC), International Development
Association (IDA) and several other agencies.

32. Benefits of International Capital Flows
• Increase in the Rates of Saving and Investment
• Technological Change
• Creation of Economic and Social Overheads
• Development of Heavy and Basic Industries
• Undertaking of Initial Risk
• Check upon Inflationary Pressures
• Creation of Employment Opportunities
• Beneficial for Labour
• Modern Value System

33. Demerits of International Capital
Flows
• Not Indispensable
• Wasteful Use of Foreign Capital
• No Increase in Net Investment
• Increase in External Debt Burden
• Balance of Payments Problem
• Financing of Uneconomic Activities
• Unsuited Technology
• Adverse Effect on Domestic Saving
• Political Domination

34. Contemporary issues in
International Financial Management
Challenge of Protection of Natural Resources
When there is more international finance, its growth will affect the natural resources.
Terrorism
Terrorism is also main challenge of International Finance. If any country will increase
the terrorism in other country, its international finance will affected. Motherland is first
and then, there is any international finance. India should ban all international finance
and business relating to the countries which are promoting terrorism in India. Other
countries which have the problem of terrorism, should strict ban on it if it has to
increase its international finance with other countries.

35. Culture
International finance has also challenge of culture of each country. India is veg.
country. So, McDonnell and other non-veg. country should ban to produce the
non-veg. in India.
Follow the Political Policies and Law of Nation
If business people have to grow international finance in any country, they have
to make their policy according to the law and political policy of same country.

36. International Currencies
• International finance also affects from international currencies.
• You have some foreign currency if you have to deal with foreign country.
• At the time of dealing, you know what is the current market rate of forex.
• If your own currency is low value, you should wait for business, otherwise,
your own capital will decrease at fast rate.