INTERNATIONAL FINANCIAL MANAGEMENT

International financial management deals with the decision taken in the international
business. It helps in taking the correct financial decision so that maximum gain can be
gained from international business.

IMPORTANCE OF INTERNATIONAL FINANCIAL

MANAGEMENT

The growth in international business is, first of all, evident in the form of highly inflated
size of international trade. In the immediate post-war years, the general agreement on the
Trade and Tariffs was set up in order to boost trade. It axed the trade barriers
significantly over the years, as a result of which international trade grew manifold.
Naturally, the financial involvement of the trader's exporters and importers and the
quantum of the cross country transactions surged significantly. All this required proper
management of international flow of funds for which the study of International Financial
Management came to be indispensable.

Not unexpectedly, the second half of the twentieth century witnessed the emergence, and
fast expansion, of multinational corporations. Normally, with the growth of international
trade, the products of the exporter become mature in the importing countries. When the
product becomes mature in the importing countries, the exporter starts manufacturing the
product there so as to evade tariff and to supply it at the least cost. Thus it would not be
wrong to say that the emergence of the multinational companies was the by-product of
the expansion in world trade. There were some countries in the developing world too
which were liberal in hosting the multinational companies. They imported technology on
a big scale and built up their own manufacturing base. As a result, their own companies
went international. Thus multinational company's emergent not only in developed
countries but also in the developing world and because of their operation the cross
country flow of funds increased substantially. The two way flow of funds, outward in the
form of investment and inward in the form of repatriation divided, royalty, technical
service fees, etc., required proper management and so the study of International Finance
Management become a real necessity.

IFM IN MNC

Foreign exchange risk

– E.g., an unexpected devaluation adversely affects your export market…

Political risk
– E.g., an unexpected overturn of the government that put a risk to existing
negotiated contracts…
Market imperfections
– E.g., trade barriers and tax incentives may affect location of production…

Expanded opportunity sets

– E.g., raise funds in global markets, gains from economies of scale…

SCOPE OF IFM

1. Foreign Exchange Market

2. Exchange Rate Determination

3. Exchange Rate Risk & its Management

4. MNC’s Investment Decision

5. Financing Decisions of the MNC’s

6. International Working Capital Decision

7. International Accounting

8. International Indebt ness

9. Various International Financial Agencies like WTO, IMF & World Bank