Domestic Financial Management vs.

International Financial Management Considerations in International Financial Management: Must consider the effect of exchange rates and changes in exchange rates on the inter-country transfer of cash flows Must consider the political risk associated with actions of foreign governments Must consider how accounting methods, tax laws, business regulations, and other institutional rules and arrangements affect business transactions and cash flows in each country in which the firm does business, adding to the complexity of foreign operations Must consider language and cultural differences when dealing in international commerce Who is The Financial Manager? Chief Financial Officer (CFO) Oversees the treasurer and controller and sets overall financial strategy. Treasurer Responsible for financing, cash management, and relationships with banks and other financial institutions. Controller Responsible for budgeting, accounting, and taxes. ROLE OF FINANCIAL MANAGER

In the area of finance and financial management, finance manager is important authority. Not only to raise the finance of company, finance manager do also other lots of works for company. We can explain his role in following words. 1. Role of Finance Manager for Raising Funds of Company Finance manager checks different sources of company. He did not get fund from all sources. First, he check his need in short term and in long term and after this he select best source of fund. He has also power to change the capital structure of company for giving more benefit of company. 2. Allocation of Funds Once the funds are raised through different channels the next important function is to allocate the funds. The funds should be allocated in such a manner that they are optimally used. In order to allocate funds in the best possible manner the following point must be considered The size of the firm and its growth capability Status of assets whether they are long term or short tem Mode by which the funds are raised. These financial decisions directly and indirectly influence other managerial activities. Hence formation of a good asset mix and proper allocation of funds is one of the most important activity

3. Profit Planning Profit earning is one of the prime functions of any business organization. Profit earning is important for survival and sustenance of any organization. Profit planning refers to proper usage of the profit generated by the firm. Profit arises due to many factors such as pricing, industry competition, state of the economy, mechanism of demand and supply, cost and output. A healthy mix of variable and fixed factors of production can lead to an increase in the profitability of the firm. Fixed costs are incurred by the use of fixed factors of production such as land and machinery. In order to maintain a tandem it is important to continuously value the depreciation cost of fixed cost

of production. An opportunity cost must be calculated in order to replace those factors of production which has gone thrown wear and tear. If this is not noted then these fixed cost can cause huge fluctuations in profit. 4. Understanding Capital Markets Shares of a company are traded on stock exchange and there is a continuous sale and purchase of securities. Hence a clear understanding of capital market is an important function of a financial manager. When securities are traded on stock market there involves a huge amount of risk involved. Therefore a financial manger understands and calculates the risk involved in this trading of shares and debentures. Its on the discretion of a financial manager as to how distribute the profits. Many investors do not like the firm to distribute the profits amongst share holders as dividend instead invest in the business itself to enhance growth. The practices of a financial manager directly impact the operation in capital market. Advantages

Financial managers improve business organization and risk management by providing reassurance on the effectiveness and efficiency of operations, financial reporting, and compliance with applicable laws and regulations. Financial managers provide management with an in-depth and unbiased understanding of risks that the organization may be facing, allowing for preemptive planning. Financial managers give company officers and directors forewarning of ethical and legal issues that may affect the organization. Disadvantages

Although they are meant to be independent and impartial, financial managers are paid by the company and are an integral part of the company management; this can lead to conflicts of interest when advising senior management on, for example, investment risk. Financial managers judgments, estimates, and interpretations are not always objective because of their close relationship with the organization for which they work.

Role of international financial manager in MNCs 1. 2. 3. 4. Currency Transactions Managing foreign exchange risk exposure Global Money Management Financing International Business Operations

1. Currency Transactions: It takes place when MNCs wants to make foreign investment. Making payments to the clients Types of Currency Transactions Spot Trade Forward Trade Spot Trade An agreement to trade currencies based on the exchange rate today for settlement immediately (on the spot), technically within two business days Forward Trade An agreement to exchange currency at a specified future date at a specified price agreed upon today (also called a forward contract) 2. Foreign exchange risk : It is the possibility of a gain or loss to a firm that occurs due to unanticipated changes in exchange rate Types of foreign exchange risk exposure Translation Exposure Transactions Exposure Economic Exposure Translation Exposure -- Relates to the change in accounting income and balance sheet statements caused due to changes in exchange rates.

 Transactions Exposure It refers to the extent to which the future value of the firms domestic cash flow is effected by exchange rate fluctuations. Economic Exposure It refers to the degree to which a firm present value of future cash flows can be influenced by exchange rate fluctuations. 3. Global Money Management: Money management decisions attempt to manage global cash resources efficiently It includes: Minimizing Cash Balances Reducing Transaction Costs Minimizing Cash Balances Firms need cash balances on hand for notes payable and unexpected demands To keep cash accessible cash reserves are usually invested in money market accounts that offer low rates of interest If firms could invest for a longer time frame, they could earn higher rates of interest Reducing Transaction Costs Transaction costs are the cost of exchange Every time a firm changes cash from one currency to another, they face transaction costs Most banks also charge a transfer fee for moving cash from one location to another

 Multilateral netting can reduce the number of transactions between subsidiaries and the number of transaction costs Financing International Business Operations EXIM Bank (Export-Import Bank). Loans from the parent company or a sister affiliate. Eurodollar loans. Eurobond market International Equity markets . The International Finance Corporation (IFC). CONCLUSION The job of International Finance manager is getting tough, tougher and toughest these days.