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of foreign exchange, foreign direct investment and how these affect international trade. Also studies the international projects, international investment and the international capital flow.
INTRODUCTION:The rest of this course will be devoted the study of international financial markets. In this lecture we will explore certain concepts that we will use in the subsequent lectures.Balance of Payments is the record of a countrys transactions with the rest of the world. Terms like trade surplus and deficit are used to describe if the country has more or exports than imports or imports than exports. More specifically, a country has trade surplus if value of exports exceed that of imports. A country has trade deficit if the value of its exports falls short of the value of its imports. US has been experiencing trade deficits since 1975. The exchange rate is the price of a currency in terms of another. Currencies are traded extensively in international markets. The highest volume of foreign exchange trading occurs in London. The reason possibly is the fact that London possesses the advantage of overlapping both Asian and American business hours. The other major trading centers are New York and Tokyo. The development,installation, and implementation of computer systems and applications. International finance as a subject is not new in the area of financial management, it has been widely covered earlier in international economics and it is only the fast growth of international business in the post-world war II and the associated complexities in the international transactions that made the subject as an independent area of study. International Finance can be broadly defined, as the study of the financial decisions taken by a multinational corporation in the area of international business i.e. global corporate finance. International finance draws much of its background from the preliminary studies in the topics of corporate finance such as capital budgeting, portfolio theory and cost of capital but now viewed in the international dimension. There are various institutions involved in international finance transactions, such as traditional financial institutions, government entities and central banks. Other organizations include microfinance and development institutions, such as the World Bank and the International Monetary Fund.
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ROLE OF TECHNOLOGY IN INTERNATIONAL FINANCE HISTORY:In the 1960s, the New York Stock Exchange shortened its trading days because the volume of trades was too high to process manually. The development of information technologies such as computers and local networks in the 1970s brought fast and affordable information access to the finance industry. Increasingly affordable computers encouraged the development of numerous small financial firms that handled electronic data processing. At the same time, the speed and reliability of information technology supported the creation of nationwide financial services, including electronic check and credit card processing.
The Internet
The open, public nature of the Internet threatens the closed information networks developed by the financial industry in the late 20th century. As a result of this conflict, banks are at the forefront of both information sharing and information security technology. Online commercial transactions began in 1995, and by 1998 the Internet was processing more than $50 billion worth of transactions. In the 21st century, the annual worth of Internet transactions is higher and requires more networks, more computers and more security programs. Financial institutions cannot compete without a broad but secure information network, so information technology is essential to their success.
Global Financing
Information technology allows finance to function on a global level. "Financial markets can be thought of as the first organized, global information markets operating through networked computers," Winn says. Without information technology, financial markets couldn't react to global developments and finance companies couldn't consistently acquire information at the same time as their competitors. For example, the Internet allows continuous access to credit scores and credit ratings to all lenders, insurance companies and businesses that need financially responsible customers.
Social Media
The information technology that runs social media on the Internet provides financial institutions with valuable information on their customers. By encouraging online communities associated with their products, finance companies not only acquire information but also encourage brand loyalty. For example, websites such as TradeKing allow online stock traders to discuss their picks and advise newcomers. Socially driven information technology allows finance companies to contact the younger demographics that will be their future customers.
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ROLE OF TECHNOLOGY IN INTERNATIONAL FINANCE OBJECTIVES OF INTERNATIONAL FINANCE:starting in the early 1980s with the first desktop computers, information technology has played an important part in the U.S. and global economies. Companies rely on IT for fast communications, data processing and market intelligence. IT plays an integral role in every industry, helping companies improve business processes, achieve cost efficiencies, drive revenue growth and maintain a competitive advantage in the marketplace.
1.Product Development:
Information technology can speed up the time it takes new products to reach the market. Companies can write product requirement documents by gathering market intelligence from proprietary databases, customers and sales representatives. Computer-assisted design and manufacturing software speed up decision making, while collaborative technologies allow global teams to work on different components of a product simultaneously. From innovations in microprocessors to efficient drug delivery systems, information technology helps businesses respond quickly to changing customer requirements.
2.Stakeholder Integration:
Stakeholder integration is another important objective of information technology. Using global 24/7 interconnectivity, a customer service call originating in Des Moines, Iowa, ends up in a call center in Manila, Philippines, where a service agent could look up the relevant information on severs based in corporate headquarters in Dallas, Texas, or in Frankfurt, Germany. Public companies use their investor relations websites to communicate with shareholders, research analysts and other market participants.
3.Process Improvement:
Process improvement is another key IT business objective. Enterprise resource planning (ERP) systems allow managers to review sales, costs and other operating metrics on one integrated software platform, usually in real time. An ERP system may replace dozens of legacy systems for finance, human resources and other functional areas, thus making internal processes more efficient and cost-effective.
4.Cost Efficiencies:
Although the initial IT implementation costs can be substantial, the resulting long-term cost savings are usually worth the investment. IT allows companies to reduce transaction and implementation costs. For example, the cost of a desktop computer today is a fraction of what it was in the early 1980s, and yet the computers are considerably more powerful. IT-based productivity solutions, from word processing to email, have allowed companies to save on the
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5.Competitive Advantage:
Cost savings, rapid product development and process improvements help companies gain and maintain a competitive advantage in the marketplace. If a smartphone competitor announces a new device with innovative touch-screen features, the competitors must quickly follow suit with similar products or risk losing market share. Companies can use rapid prototyping, software simulations and other IT-based systems to bring a product to market cost effectively and quickly.
6. Globalization:
Companies that survive in a competitive environment usually have the operational and financial flexibility to grow locally and then internationally. IT is at the core of operating models essential for globalization, such as telecommuting and outsourcing. A company can outsource most of its noncore functions, such as human resources and finances, to offshore companies and use network technologies to stay in contact with its overseas employees, customers and suppliers.
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ROLE OF TECHNOLOGY IN INTERNATIONAL FINANCE BENEFITS OF TECHNOLOGY IN INTERNATIONAL FINANCE:Information technology, also known as IT, is a comprehensive term that includes all types of technology used to exchange, store, use or create information. Commonly used information technology equipment includes computers, servers, peripheral devices, Internet connectivity equipment and phone systems. From basic computer terminals to IP-based telephony systems, information technology is an integral part of most modern business operations.
1.Communication:
Rapid communications can help increase productivity, allow for better business decision-making and ease a companys expansion into new territories or countries. Email servers, routers, internal company billboards and chat services can serve as the backbone of a companys communications. These electronically based communication systems are used to disseminate routine and critical business information in a quick and efficient manner. IT equipment can be used to send business status reports to executives, to update employees on critical business projects and to connect with business partners and customers.
2.Efficiency:
Streamlined work flow systems, shared storage and collaborative work spaces can increase efficiency in a business and allow employees to process a greater level of work in a shorter period of time. Information technology systems can be used to automate routine tasks, to make data analysis easier and to store data in a manner that can easily be retrieved for future use. Technology can also be used to answer customer questions through email, in a real-time chat session or through a telephone routing system that connects a customer to an available customer service agent.
3.Competitive Advantage:
Adoption of information technology resources allows companies to maintain a competitive advantage over their rivals. Companies using a first-movers strategy can use information technology to create new products, distance their products from the existing market or enhance their customer services. Companies that follow a low-cost product strategy can look to information technology solutions to reduce their costs through increased productivity and reduced need for employee overhead. Businesses can also build-in information technology to their products that makes it difficult for customers to switch platforms or products.
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ROLE OF TECHNOLOGY IN INTERNATIONAL FINANCE IMPORTANCE OF TECHNOLOGY IN INTERNATIONAL FINANCE:Information technology focuses on the development of electronic networks that exchange information. Because all financial transactions involve the exchange of information, the increasing popularity of online finance coincided with advances in information technology. According to Professor Jane K. Winn of the University of Washington School of Law, "Financial institutions were at the forefront in creating the global information economy as it exists today." Finance today relies on information technology. International finance activities help organizations engage in cross-border transactions with foreign business partners, such as customers, suppliers and lenders. Government agencies and non-profit institutions also use international finance tools to meet operating needs. International finance covers all procedures, techniques and tools that financial institutions, such as banks and insurance companies, provide to clients.
These tools may include financing agreements and transaction strategies on securities exchanges, such as the Tokyo Stock Exchange. International finance plays a significant role in modern economies. Business transactions are not only interconnected more than ever before, but most companies engage in multinational activities through export and import.An international finance specialist helps a firm access global markets and use financing tools to operate in the short term and long term. He also evaluates the company's cash levels and recommends adequate funding options to management.
International level initiatives like General Agreement on Trade and Tariffs (GATT), The North American Free Trade Agreement (NAFTA), World Trade Organization (WHO) etc has give promoted international trade and given it a shape. All because of liberalization and those international agreements, we have a buzz word called MNC i.e. Multinational Corporations. MNCs enjoy an edge over other normal companies because of its international setting and best opportunities.
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ROLE OF TECHNOLOGY IN INTERNATIONAL FINANCE FUNCTIONS INTERNATIONAL FINANCE:1.Debt Crisis Effect on Banks:
International Banks were the victims of debt default of many governments in the 80s. When loans are given to international finance corporates, they can be forced into liquidation but not so in the case of the Governments. The Banks have therefore spent time and money to reschedule and recover the money in installments and some debts are written off. The debt crisis weakened the banks but the banking system didnt collapse. The banks have become more cautious and started lending only to countries with market oriented economies and undergoing structural reforms. The development in International Debt market gave rise to the new instruments and secondary market in many instruments such as scrutinized debt. Debt repaying capacity and foreign exchange earnings and production use of capital are all taken into account it is important functions of international finance.
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ROLE OF TECHNOLOGY IN INTERNATIONAL FINANCE THE ROLE OF TECHNOLOGY IN INTERNATIONAL FINANCE:Markets are the most efficient way of getting goods and services to the people who need them most. Financial markets allow money to flow from those who are looking to invest to those who need capital. Investing money internationally allows investors the freedom of diversity and the possibility of putting their money to work in a stronger economy than the one at home.
2.Diversification:
Diversification is an important investment principle. Investors who have diversified portfolios have more than one type of investment, such as stocks, bonds and real estate. Investing in international markets allows a greater chance for diversified stocks because the more markets you expose yourself to as an investor, the more opportunities there are. Again, diversification is important because if one market fails, a market in another country might not.
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ROLE OF TECHNOLOGY IN INTERNATIONAL FINANCE CHARACTERISTICS OF INTERNATIONAL FINANCE:New technologies are characterized by the fact that now body ever knows exactly where they will lead. In the middle of the 19th century, one could perhaps foresee that the railways would change the geography of countries, "but no one anticipated the simple device of the commuter ticket which would allow suburbs to spread and finally turn cities inside out" (Hall, 1998, p. 943). However, the world of finance appears different in that, as the preceding chapters have shown, the history of information technology in the financial services industry is a far more evolutionary and less transforming process. In the literature, there is a tendency to overstate the importance of the phenomenon. But, as one author puts it associations of technologies with modernity are contingent not only historically but also geographically; for much, indeed most of the world, the telephone is still thoroughly new and modern (Crang et al., 1999, p. 3). In this sense, cities remain exceptional places, and the financial industry requires the infrastructure and environment provided by these places to prosper. 1.Technology with a Purpose: The Next Generation Today Technology has long been an essential behind-the-scenes partner in the financial services industry, providing the innovative incremental advances necessary for the industry to upgrade and expand its services. Improvements in storage capacity and processing speed, for example, have had a profound impact on data management and transactional capabilities, with accompanying reductions in cost. Yet despite these and other advances, the industry has struggled to fully leverage the power and promise of technology, with market participants eager for solutions that are not only faster and cheaper, but that also offer greater security and efciency. 2.Vision for the Future: Fortunately, the story of technology innovation within financial services does not end with these challenges. Several rapidly accelerating trends are laying the groundwork for the emergence of a new business and IT paradigm that promises to upend conventional thinking about the roles and capabilities of IT systems. First, information technology is increasingly viewed as an integral business function for nancial services rms that must be oriented to achieve business results across the organization. Although the origins of these trends pre-date the nancial crisis, the market downturn has heightened the sense of urgency underlying them. Tough challenges invite bold solutions, and in response to that call, a visionary solution is taking shape.While opinions differ as to the details and timing, the next generation of technology will draw on both clients needs and the trends cited above to emphasize technology with a business purpose. At its core, an innovative new approach to technology would integrate and correlate information from a range of sources like never before, producing results that far exceed the sum of their parts.
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The value of any information technology is wholly dependent on the quality of the data it processes. Data collection and integration in information technology projects are far more complex topics than most businesses understand. Break your data management process into discrete steps to ensure best results and the highest possible return on investment for your technology dollar.
STEP 1:
Monitor your business processes closely. You cannot act upon business information you cannot measure, and you cannot measure business information you have not sufficiently quantified.
STEP 2:
Collect your data, completely and unobtrusively. Complete means that you have audited your information collection techniques, and the information you are measuring does not allow some to fall between the cracks in the collection process; if there is a correlation between the data that is lost and a business operations issue, then the remaining data you rely upon will be skewed. Unobtrusively means that you do not require your employees to spend large amounts of time documenting their processes--which reduces efficiency and leads to large data errors. Collect information passively whenever possible. For example: The boss ask an employee to track newly written contracts on a manual timesheet. Have a business policy that places new contracts in the same computer directory, and use a computer script to tally these on a regular basis.
STEP 3:
Normalize your data. Normalized data is an information technology term that means,sample out write everything the same way sample out. You can review a client list and know that William Batson and Bill Batson are the same person, but if both names are entered into the same database, Mr. Batson may be surprised to receive two invoices for the same purchase. Sample out July 1, 2010" and "7/1/2010" are the same date to Americans, but the latter can mean Jan. 7, 2010 if it is transferred to a database in Germany. Automate your data collection whenever possible, because computer output is naturally normalized. For human-compiled and entered data, ensure that your employees understand the normalization standards, and why they are important.
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STEP 5:
Review this entire process on a regular basis. Business analysis should lead to new ideas for processes you wish to monitor, which require new collection procedures and new normalization standards. Each of these steps can be improved over time to ensure that your information technology investment is maximized.
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TECHNOLOGY IN THE WORLD OF INTERNATIONAL FINANCE - A SHORT CHRONOLOGY:The use of information technology to collect, generate and record financial data is nearly as old as the technology itself, spanning thousands of years from the earliest forms of pictorial representation and writing to the latest advances of electronic storage and transmission. From the early beginnings, financial activities were not restricted to particular locations but extended over regions and continents, and great efforts were made to overcome the limits of time and space in long-distance communication in order to transmit news about latest political and economic developments, natural catastrophes and other unforeseen events affecting markets and prices and signalling business opportunities. Prior to the invention of telegraphy in the 19th century, information was bound to move at the same speed, and over the same distance, as the prevailing transport system would allow Financial activities were largely determined by personal knowledge of people and circumstances.Success in money and banking operating in a number of countries ... required having a large number of brothers or cousins, with a single combined interest and thinking more or less alike, to solve the agency problem. The most common method to communicate over long distances was to hire a person to deliver a message as fast as possible, either a human runner or a rider on horseback. Safety considerations made early rulers place guards at regular distances along the roads. They became the forerunners of the relay systems. References to messenger systems were found dating back almost 4000 years to ancient Egypt and Babylon. Mail was delivered by stage coach, caravans and merchant vessels. Travellers were routinely ask to take messages with them. When young Pierpont Morgan left England to go to school in Vevey, Switzerland, travelling over Calais and Paris in 1854, he was asked by the American minister in London, James Buchanan, to deliver a packet of government papers to Paris which was not unusual. Telegraph and Ticker Tape: The arrival of the telegraph made all the difference allowing messages to be sent with great speed over very large distances. The first optical telegraph line started operating in France between Paris and Lille in May 1794. Soon other European countries followed and in 1830 "lines of telegraph towers stretched across much of western Europe, forming a sort of mechanical Internet of whirling arms and blinking shutters" (Standage, 2000, p. 18). But the system had also its drawbacks. It was expensive to run requiring shifts of skilled operators at each station and involving to build towers all over the place. Beside, optical telegraphs would not work in the dark or in fog and mist.
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For example, prior to its introduction between New York and Philadelphia, the transmission of price data from the distant market to the local one had taken one day. The telegraph enabled investors to obtain the price information before their own market closed. Before telegraph lines were established between New York and New Orleans, dealers in foreign exchange in one city received quotes from the other with a delay from four days to a week. This was reduced by the telegraph to a day or less (Garbade and Silber, 1994). The telegraph fundamentally changed America's financial landscape. In 1850, there were 250 stock exchanges. 50 years later, New York had become the dominant exchange standing out as the only financial centre of national importance (Edwards 1998). However, one big problem was security. Banks had their own sophisticated private codes for money transmission but, up to the implementation of a scheme developed by the Western Union (the then dominant US telegraph company) in 1872, transferring money was considered as highly unsecure demanding a high level of trust between both parties and telegraph operators. In those years, English investors held a substantial volume of US Treasury debt which traded in London as well as New York. Before the establishment of the submarine link, information travelled with a time delay equal to the duration of an ocean crossing, or about three weeks. And, since purchase and sale orders directed to the foreign market had to cross the Atlantic, too, execution took the same time once again. After the opening of the transatlantic cable those delays were reduced to one day. By the 1890s, telegrams between the London and the New York Stock Exchanges took three minutes from sender to receiver. Britain became the leader in the world submarine cable business. British firms laid most British and non-British cables in the world and owned 24 of the world's 30 cable ships which earned the country an overwhelming military and economic advantage. London became not only the centre for financing most of the international submarine cable business but also the major communications node reinforcing Britain's position as the foremost naval, commercial and financial power in the world. For example, French journalists must learn that "news of commercial importance - commodity prices, contracts, ships' arrivals and departures, etc. passed through London before reaching Paris. British newspapers and the Reuters news agency received reports of world conditions sooner and in more detail than their French counterparts Telephone and Telex: With the invention of the telephone in the late 1870s, the telegraph increasingly lost out to the new technology although it remained the main form of long-distance international communication until well into the 20th century.Initially, the telephone was widely seen as another, improved kind of telegraph - a "speaking" telegraph -not a wholly distinct technology.
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ROLE OF TECHNOLOGY IN INTERNATIONAL FINANCE FUNDAMENTALS OF INTERNATIONAL FINANCE:Fundamentals of international finance deal with the study of foreign investments, the changes in the foreign exchange rates, and how international trade is influenced by them. Financing is a method by the help of which funds or resources are allocated for maximizing returns for a particular organization.Financing is a means of raising and allocating capital and management of funds over a time period taking into consideration the risks related to investments. Financing is termed as a tool for efficient administration of asset and wealth. Business finance or corporate finance deals with stocks, bonds, and other types of investments. These investments are done in order to increase the earnings of the corporate enterprise. Capital budgeting uses the formula of the Internal Rate of Return (IRR) on the capital invested.The decisions of financing are dependent on the choices of financing that are available for an organization for raising capital. In case of the Net Present Value (NPV) or the IRR, if the IRR or NPV is greater than the cost of invested capital, it is assumed that the capital invested is giving a positive yield or return.Financing involves investments in equities (common stock and preferred stock), debt securities (bonds, debentures, or loans from financial services providers). The dividend policy distributes the profits among the company's stockholders through dividends. International finance also follows the similar techniques for allocation of funds and resources in international trade. However, it faces certain hindrances regarding mobility of capital and foreign currencies, as well as the foreign exchange rates prevalent in different countries. In case of international financing, the capital budgeting methods implemented in comparison to conventional financing are associated with local tax rates and international cash flows, the expected return on investment or the cost of capital for which adjustments have been made taking into consideration the degree of risk in that particular country or the susceptibility of the project.International financial markets function as a principal source of equity and debts for the majority of the foreign and domestic subsidiary operations. The international financial markets influence the international trade to a considerable degree because of the unpredictability that is present in the international capital markets. Another factor working behind this is the minimum effort taken by a large number of countries for complete capital account convertibility.The foreign exchange rates function as an overriding element in influencing international finance because if there are fluctuations in foreign exchange rates, international imports or exports can face heavy losses. Forward currency contracts sometimes prove to be helpful in this regard.
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ROLE OF TECHNOLOGY IN INTERNATIONAL FINANCE EMERGENCE OF INTERNATIONAL FINANCE:The emergence of new information technologies is often said to reduce the importance of cities as financial centres. In this paper, several arguments against this view are developed. First, in the financial services industry electronic information transmission, data processing and trading is not an entirely new phenomenon.Second, with the electronic grids of financial institutions spanning the globe being inherently nodal even in the age of virtual finance location still matters. Third, the myth of the "dissolution" of cities is based on the assumption of a perfect separation of virtual and real activities that, at a closer look, does not hold. Financial decisions are made in an "experiential continuum" between the materiality of geographic space and the virtuality of cyberspace. Information transmission in international finance certainly did not start with Nathan Rothschild, but when he was the first in London to hear the news of Napoleon's defeat at Waterloo, allegedly making a fortune of it, the episode soon became one of the industry's favorite legends grounded in information technology. In the early 19th century, in the financial industry information technology was working basically according to the same principles we know today such as digital codes, data compression, error recovery and encryption. The talking is not about computers and the internet, but of "the mother of all networks" as one author puts it, the optical telegraph. The optical telegraph was followed by the electric telegraph, the telephone, the fax machine and, eventually, the computer. As the following chapter shows, each time, financial institutions all around the world eagerly jumped at the opportunity to use the new medium for speeding up communication and trade. The recent mania about electronic exchanges and ecommerce firms offering financial information and the opportunity to buy and sell stocks, bonds, derivatives and other financial instruments online to a broad public sometimes makes forget that this has been the usual way of doing business for large parts of the financial industry for many years. The emergence of new information technologies and "virtualisation" of activities is often said to reduce the importance of location for the financial industry and diminish the role of world cities such as London, Paris and Frankfurt as financial centres. This would have severe consequences for economic growth. At the beginning of the 21st century cities are generally struggling to cope with the effects of two phenomena, the transition from an industrial and manufacturing-based economy to one in which services and information and communication technologies play a dominant role and the competitive pressures of increasing globalization. In this situation, financial services are one of those few sectors promising continuing growth, employment and tax incomes to their communities. A shrinking importance of location would threaten to reduce these benefits.
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ROLE OF TECHNOLOGY IN INTERNATIONAL FINANCE SUCCESS OF TECHNOLOGY IN INTERNATIONAL FINANCE:Information technology is a modern phenomenon that has dramatically changed the daily lives of individuals and businesses throughout the world. Information technology is driven by the microchip, which owes its existence to the semi-conductor. IT solutions run the gamut from personal computers and computer software to production robotics to communications technology. Leveraging information technology for business success is key to survival in the modern business world.
Significance:
Information technology has grown to permeate the business world, affecting how companies make and market their products, as well as how people communicate and accomplish their jobs in modern organizations. Specialized software shapes best-practices and industry standards, continually changing the face of business in almost every way.
Production Technology:
Production technology has allowed modern companies to make great strides in operational efficiency and the effectiveness of human resources. Automation technology, such as assembly lines and computer-controlled machinery, can allow companies to produce unprecedented volumes of goods, and advances in transportation technology allow businesses to ship their products anywhere in the world. Information technology has also changed the way that companies operate internally. Personal computers have become a necessity for a large majority of corporate jobs, and many manual labor jobs require the use of a handheld computer or other electronic device as well.
Communications Technology:
Leveraging advances in communications technology is imperative to surviving in the modern business world. Advances in cellular phone technology have revolutionized the way businesspeople communicate with clients, employees, suppliers and strategic partners. The Internet has revolutionized the marketing function in addition to opening up a wide range of communication options. Modern smart phones are changing the game yet again with the introduction of new and innovative applications. A small business owner can now access a web-based customer relationship management service on a smart phone from anywhere in the world, for example, allowing him to obtain vital data about contacts before making calls.
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The Future:
Modern information technology has gained popularity rapidly since the mid-twentieth century, and the trend is likely to continue into the future. As IT solutions continue to increase the efficiency and effectiveness of business operations and communications, businesses will continue to rely on IT for success.
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ROLE OF TECHNOLOGY IN INTERNATIONAL FINANCE THE EFFECT OF TECHNOLOGY ON INTERNATIONAL PAYMENT SYSTEMS:As technology, particularly mobile phones, enables increasing access to financial services in developing countries, it is important to understand the intersection of technology and youth access, usage, and development. We at the Global Assets Project, a member of the Youth Save Consortium, in partnership with Making Cents International, have released a survey to better understand the role of technology in accelerating youth financial access among low-income youth in developing countries. As evidence slowly emerges on the opportunities and challenges to technology-led youth financial inclusion, we aim to better understand the perspectives and experiences of the youth financial inclusion field on the emerging role of technology as an accelerator, and of course to share those results with all of you.
Participating in this brief survey is an opportunity to find out what your peers think about: 1.How low-income youth use mobile phones 2.Which tools currently offer the greatest opportunity for success, both now and in the future 3.Whether youth and adults have differing needs regarding mobile technology 4.What the greatest obstacles are to using technology to achieve financial inclusion and capabilities
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ROLE OF TECHNOLOGY IN INTERNATIONAL FINANCE DIFFERENT DECISION IN INTERNATIONAL FINANCE:All decisions mostly involve finance. When a decision involves finance, it is a financial decision in a business firm. In all the following financial areas of decision-making, the role of finance manager is vital. We can classify the finance functions or financial decisions into four major groups:
1.Investment Decision:
Investment decisions relate to selection of assets in which funds are to be invested by the firm.Investment alternatives are numerous. Resources are scarce and limited. They have to be rationed and discretely used. Investment decisions allocate and ration the resources among the competing investment alternatives or opportunities. The effort is to find out the projects, which are acceptable. Investment decisions relate to the total amount of assets to be held and their composition in the form of fixed and current assets. Both the factors influence the risk the organisation is exposed to. The more important aspect is how the investors perceive the risk. The investment decisions result in purchase of assets. Assets can be classified, under two broad categories: (i) Long-term investment decisions Long-term assets (ii) Short-term investment decisions Short-term assets.
2. Finance Decision:
Once investment decision is made, the next step is how to raise finance for the concerned investment. Finance decision is concerned with the mix or composition of the sources of raising the funds required by the firm. In other words, it is related to the pattern of financing. In finance decision, the finance manager is required to determine the proportion of equity and debt, which is known as capital structure. There are two main sources of funds, shareholders funds (variable in the form of dividend) and borrowed funds(fixed interest bearing). These sources have their own peculiar characteristics. The key distinction lies in the fixed commitment. Borrowed funds are to be paid interest, irrespective of the profitability of the firm. Interest has to be paid, even if the firm incurs loss and this permanent obligation is not there with the funds raised from the shareholders. The borrowed funds are relatively cheaper compared to shareholders funds, however they carry risk. This risk is known as financial risk i.e. Risk of insolvency due to nonpayment of interest or non-repayment of borrowed capital.
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3.Liquidity Decision:
Liquidity decision is concerned with the management of current assets. Basically, this is Working Capital Management. Working Capital Management is concerned with the management of current assets. It is concerned with short-term survival. Short term-survival is a prerequisite for long-term survival. When more funds are tied up in current assets, the firm would enjoy greater liquidity. In consequence, the firm would not experience any difficulty in making payment of debts, as and when they fall due. With excess liquidity, there would be no default in payments. So, there would be no threat of insolvency for failure of payments. However, funds have economic cost. Idle current assets do not earn anything. Higher liquidity is at the cost of profitability. Profitability would suffer with more idle funds. Investment in current assets affects the profitability, liquidity and risk. A proper balance must be maintained between liquidity and profitability of the firm. This is the key area where finance manager has to play significant role. The strategy is in ensuring a trade-off between liquidity and profitability. T This is, indeed, a balancing act and continuous process. It is a continuous process as the conditions and requirements of business change, time to time. In accordance with the requirements of the firm, the liquidity has to vary and in consequence, the profitability changes.
4.Dividend Decision:
Dividend decision is concerned with the amount of profits to be distributed and retained in the firm dividend.The term dividend relates to the portion of profit, which is distributed to shareholders of the company. It is a reward or compensation to them for their investment made in the firm. The dividend can be declared from the current profits or accumulated profits. Which course should be followed dividend or retention? Normally, companies distribute certain amount in the form of dividend, in a stable manner, to meet the expectations of shareholders and balance is retained within the organisation for expansion. If dividend is not distributed, there would be great dissatisfaction to the shareholders. Non-declaration of dividend affects the market price of equity shares, severely. One significant element in the dividend decision is, therefore, the dividend payout ratio i.e. what proportion of dividend is to be paid to the shareholders. The dividend decision depends on the preference of the equity shareholders and investment opportunities, available within the firm. A higher rate of dividend, beyond the market
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The finance manager handles finance. The role of finance manager is pivotal. He can change the fortunes of the organisation with proper planning, monitoring and timely guidance. Equally, if the manager is not competent, even a profitable organisation may dwindle or even sink. The finance manger is, now, responsible in shaping the fortunes of the enterprise. The role of finance manager, in a modern business, is pervasive in all the activities of business firm, including production and marketing.It has been rightly said, money begets money. Business needs money to make more money.However, business can make money, when it is properly managed. The financial history is replete with stories how even the profitable organisations were wound up, when the management of finance had turned bad due to mismanagement of financial affairs.It is misunderstood, in some corners, that the role of finance manager is important only in private organisations. It is not so his role is important, both in private and public sector. He has a positive role to play in every type of organisation. Even in non-profit making organisations, his role exists as long as there is involvement of funds. Influences Fortunes of Firm: The history of failures of organisations is interesting.Many firms have failed, not because of inefficiency of production, inability in marketing. In many public sector undertakings, in particular, state government undertakings, importance is given to the appointment of peons, more than adequately, but not to the appointment of competent professional manager in finance, even after lapse of several years. Exists Everywhere: The role of finance manager, in modern times, can be well said,universal and pervasive. Hardly, we find any activity, which does not involve finance. Even entertainment in a firm requires financial management due to financial implications. In modernnbusiness, no decision is taken without the consultation of finance. Even in recruitment, the presence of finance representative has been a normal feature manager. Only the level of finance representative changes, dependant upon the status of position for which recruitment is held. At times, people working in other departments feel that the finance manager has been interfering in all matters, unconnected to him. It is due to inadequate understanding of the role and expectations expected of him in modern business. The finance manager can, definitely, contribute to the overall development of the organisation provided he is competent and allowed to perform his functions, independently. In his new role, the finance manager must find answers for the following three questions, again in the words of Solomon How large should an enterprise be, and how fast should it grow?
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ROLE OF TECHNOLOGY IN INTERNATIONAL FINANCE AIMS OF FINANCE FUNCTION:1.Acquiring Sufficient and Suitable Funds:
The primary aim of finance function is to assess the needs of the enterprise, properly, and procure funds, in time. Time is also an important element in meeting the needs of the organisation. If the funds are not available as and when required, the firm may become sick or, at least, the profitability of the firm would be, definitely, affected. It is necessary that the funds should be, reasonably, adequate to the demands of the firm. The funds should be raised from different sources, commensurate to the nature of business and risk profile of the organisation. When the nature of business is such that the production does not commence, immediately, and requires long gestation period, it is necessary to have the long-term sources like share capital, debentures and long term loan etc. A concern with longer gestation period does not have profits for some years. So, the firm should rely more on the permanent capital like share capital to avoid interest burden on the borrowing component.
3.Increasing Profitability:
Profitability is necessary for every organisation. The planning and control functions of finance aim at increasing profitability of the firm. To achieve profitability, the cost of funds should be low. Idle funds do not yield any return, but incur cost. So, the organisation should avoid idle funds. Finance function also requires matching of cost and returns of funds. If funds are used efficiently, profitability gets a boost.
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ROLE OF TECHNOLOGY IN INTERNATIONAL FINANCE MARKETS STRUCTURES OF INTERNATIONAL FINANCE:International Financial Management is a well known term in todays world and it is also known as international finance. It means financial management in an international business environment. It is different because of 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 with 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. The resultant of liberalization and technology advancement is todays dynamic international business environment. Financial management for a domestic business and an international business is as dramatically different as the opportunities in the two. The meaning and objective of financial management does not change in international financial management but the dimensions and dynamics changes drastically.
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ROLE OF TECHNOLOGY IN INTERNATIONAL FINANCE Difference between International and Domestic Financial Management:
Four major facets which differentiate international financial management from domestic financial management are introduction of foreign currency, political risk and market imperfections and enhanced opportunity set.
1.Foreign Exchange:
Its an additional risk which a finance manager is required to cater to under an International Financial Management setting. Foreign exchange risk refers to the risk of fluctuating prices of currency which has the potential to convert a profitable deal into a loss making one.
2.Political Risks:
Political risk may include any change in the economic environment of the country viz. Taxation Rules, Contract Act etc. It is pertaining to the government of a country which can anytime change the rules of the game in an unexpected manner.
3.Market Imperfection:
Having done a lot of integration in the world economy, it has got a lot of differences across the countries in terms of transportation cost, different tax rates, etc. Imperfect markets force a finance manager to strive for best opportunities across the countries.
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ROLE OF TECHNOLOGY IN INTERNATIONAL FINANCE CONCLUSION:From the role of IT in the history of finance, its very nature and its relation to world city growth, several conclusions can be drawn. First, unlike in many other sectors, in international financial relations electronic information transmission, data processing and trading is not a new phenomenon. The "internet revolution" here brought rather a gradual change. Financial services as the forerunners of globalization have a long tradition of using advanced information and communication technologies for overcoming the limits of time and space. Their formation of "clusters" and location in centres largely contributed to rise and economic prosperity of cities. Second, even in the age of electronic connectedness and virtual finance location still matters and there are no signs that the bulk of financial services will shift away from the world's metropoles. The electronic grids of financial institutions spanning the globe are inherently nodal, and the cities so far managed to redefine their role as nodes in the networks and geography of the new technologies. Third, the myth of the "dissolution" of cities is based on the assumption of a perfect separation of virtual and real activities that, at a closer look, does not hold. Financial decisions are made in an "experiential continuum" between the materiality of geographic space and the virtuality of cyberspace. Neither the loss of authenticity nor the acceleration of transformations as a result of virtual reality are complete. Virtual markets and processes complement rather than replace existing real ones. Fourth, the biggest impact of the new technologies so far is on the shape and spatial organisation within cities. Technological progress allowed financial institutions to shift parts of activities to suburbia in face of rising costs, and the lack of space meeting the requirements of an extended workforce and "intelligent buildings" have led to a spread beyond old city centres. As a consequence, cities' financial districts appear less compact than in former times, but there are limits to the diffusion process since many activities continue to require proximity.
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BIBLIOGRAPHY:-
www.investopedia.com
www.finance.com
www.mgt.com
www.internationalfinance.com
www.financepolicy.com
www.scribd.com
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