The document discusses various aspects of international financial and marketing strategies. It covers topics such as international capital budgeting, selection of funding sources, financial swaps, market identification, product strategies, and pricing strategies. Specifically, it discusses computing cash flows, cost of capital, adjusted present value approaches, interest rate and currency swaps, standardization versus product adaptation, pricing discrimination, skimming versus penetration pricing, and transfer pricing between related entities.

2. International Financial Strategy.
 International Capital Budgeting.
 Computation of cash flow
 Cost of capital
 Adjusted present value approach
 Non-financial factors in capital budgeting.
 Selection of the sources and forms of fund.
 Minimization of cost of funds
 Borrowing to conform to capital norms.
 Financial swap.
 Interest rate swap.
 Currency swap.

3. International Capital Budgeting.
 Computation of the cash flow.
 Any investment for a new project demands a part of
the firm’s current wealth, but in return it brings in
funds and adds to the firm’s stock of wealth in the
future.
 The former results in cash outflow from the firm,
while the latter results is represented by cash inflow
into the firm,
 Cash outflow occurs on account of capital
expenditure, other expenses and payment of taxes.
 Cash inflow include revenue on account of additional
sale or cash from eventually selling of an asset, which

4. International Capital Budgeting.
 Thus cash flow are grouped under 3 heads.
 Initial investment during the period.
 Operating cash flow during the period.
 Terminal cash flow during the period.

5. International Capital Budgeting.
 Cost of Capital.
 In discounting methods of capital budgeting , the
future cash flow is discounted to the present value.
 The discounting factor is nothing but the cost of
capital, incorporating risk factor.
 The cost of capital is simply the weighted average of
the cost of equity and the cost of debt.
 The debt-equity ratio has a definite bearing on the
average cost of capital.

6. International Capital Budgeting.
 Adjusted present value approach.
 Lessard(1985) has developed a technique that is
known as the adjusted present value technique..
 It incorporates most of the common complexities
emerging in the computation of cash flow and in the
determination of the discount rates that have been
explained in the preceding sections.
 Under the APV technique, the initial cash flow consist
of the capital cost of the project minus blocked funds if
any activated by the project, in the host country.
 This amount is converted into the home country
currency at the spot exchange rate.

7. International Capital Budgeting
 Non- financial factors in capital budgeting.
 In the international capital budgeting process,
financial factors dominate, but it does not mean non-
financial factors negate.
 Rodriguez and Carter group these factors as, first the
behavioral characteristics of the organization and
second the business strategy.

8. Selection of the sources and forms of
funds.
 Minimization of cost of funds.
 The effective cost of funds depends inter alia on the rate
of interest and the changes in the exchange rate or in
the value of the borrowed currency.
 In the form of an equation the effective cost of borrowing
from a foreign market is
 Rf = (1 + if)(1 + ef) – 1
 Where:
 Rf = is the effective financing rate.
 if = is the market interest rate.
 ef = is the expected (percentage) change in the
foreign currency against the firm’s home currency.

9. Selection of the sources and forms of
funds.
 Borrowing to conform to capital structure norms.
 If the norms in home country and host country are
similar then there is no problem.
 But if they are different, it becomes an important
decision.
 If the capital structure norms conform to local
norms in the host country, they are well in line
with monetary and financial policy of the host
government.
 They help to evaluate return on equity investment
relative to local competitors in a particular
industry.

10. Financial swap.
 Interest rate swaps.
 Interest rate swaps refers to exchange of interest
payments through a swap dealer normally between
fixed- rate loans and floating rate loans.
 Interest rate swap involves the exchange of interest
payments.
 It usually occurs when a person or a firm needs fixed
rate funds but is only able to get floating rate funds.
 It finds another party who needs only floating rate loans
but is able to get fixed rate funds.
 The two, known as counter parties , exchange the
interest payments and the and the loans according to

11. Financial swap
 Currency swap.
 A currency swap, sometimes referred to as a cross-
currency swap, involves the exchange of interest and
sometimes of principal in one currency for the same in
another currency.
 Interest payments are exchanged at fixed dates
through the life of the contract.
 It is considered to be a foreign exchange transaction
and is not required by law to be shown on
a company's balance sheet.

13. International marketing strategy.
 Market identification and demand estimation.
 Selection of market.
 Estimation of demand.
 Market concentration and diversification.
 Product strategy.
 Standardization vs. adaptation.
 Pricing strategy.
 Pricing in international market.
 Price discrimination
 Skimming vs. penetration pricing.
 Bundling and unbundling.
 Dumping.
 Transfer pricing.

14. Market identification and demand
estimation
 Selection of markets.
 The first step in the marketing strategy is to
identify the potential market on which the firm has
to emphasise.
 It is because particular product cannot
neccesarily be demanded in all markets.

15. Market identification and demand
estimation
 Estimation of demand.
 After the identification of the markets, it is
necessary to estimate the size of the total
demand in a particular market and a possible
share of the firm’s own product.
 If the firm is in a monopoly position it need not
bother about estimating its own shares.
 But there are many firms marketing similar
products.
 It is necessary for the firm to establish its own
share.

16. Market identification and demand
estimation.
 Market concentration versus market
diversification.
 Market concentration strategy means that the
focus of marketing activities is confined to a
similar area.
 On the contrary, marketing activities spread over
a large area is market diversification strategy.

17. Product strategy.
 Standardization versus application.
 Standardization means that the features of the
product should be homogeneous for all markets.
 On the contrary adaptation means that the
product undergoes modification for different
markets, depending on the taste of the
consumers in those markets.

18. Pricing strategy.
 Basis of pricing in the international market.
 Pricing is an important strategy to achieve the
desired sales target.
 It is basically a function of cost and demand.
 This means the price of a product should cover
the cost.
 There is one view that international pricing of
product should cover all cost, meaning that price
should be equal to the sum of domestic price and
overseas cost.

19. Pricing strategy
 Price discrimination.
 A multinational firm charges different price for the
same product in different markets or in different
markets or in different segments . This is called
price discrimination.

20. Pricing strategy
 Skimming price versus penetration prices.
 Sometimes a firm charge a higher price in the
beginning in view of the fact that the product is
new to consumers and they will a pay a high price
for the new product.
 When the low price is charged in the beginning
in order to attract the consumers followed by a
higher price, when the consumers settle down to
the product.

21. Pricing strategy
 Bundling/unbundling of product.
 If the prices based on cost are very high in the
international market, they can be moderated at least
through some extent through different devices.
 Higher price for bare-bone items and lower prices for
accessories is bundling of a product.
 It means that the manufacturers charge a very low
price for a bare bone product. But the accessories are
charged high it is called unbundling.

22. Pricing strategy.
 Dumping
 Charging high price in domestic market and low
price in the foreign market.
 Sporadic dumping –The manufacturer in order to
eliminate distressed stock of goods, sells the product
at a throwaway price in the international market.
 Predatory dumping- objective is to penetrate a new
market and throw the competitors out of the market.
 Persistent dumping- It is permanent type of dumping.
When the product is highly price elastic abroad

23. Pricing strategy.
 Transfer pricing.
 Transfer pricing is the setting of the price for goods and
services sold between controlled (or related) legal entities
within an enterprise.
 For example, if a subsidiary company sells goods to a parent
company, the cost of those goods paid by the parent to the
subsidiary is the transfer price.
 Legal entities considered under the control of a single
corporation include branches and companies that are wholly
or majority owned ultimately by the parent corporation.
 Article 9 of the OECD Model Tax Convention is dedicated to
the Arms Length Principle (ALP). It says that the transfer
prices set between the corporate entities should be in such a
way as if they were two independent entities.