I NTERNATIONAL F INANCIAL

S YSTEM

L EARNING OUTCOME
At the completion of this lesson, you will be able to

Understand the international financial management

and
objective
of
international
financial
management.

Define the international monetary system and

describe its importance.

Describe the gold standard and the Bretton Woods

exchange rate system.

Describe the characteristics of a fixed exchange rate

regime and a floating exchange rate regime.

I NTERNATIONAL FINANCIAL MANAGEMENT

Definition

Managing working capital

Financing the business

Assessing control of foreign exchange and

political risks

Evaluating foreign direct investment.

I NTERNATIONAL FINANCIAL MANAGEMENT

International financial management involves the study of

(a)

Exchange rate and currency markets,

(b)

Theory and practice of estimating future exchange rate,

(c)

Various risks such as political/country risk, exchange

rate risk and interest rate risk,

(d)

Various risk management techniques,

(e)

Cost of capital and capital budgeting in international

context, (t) working capital management,

(g)

Balance of payment, and

(h)

International financial institutions etc.

D IFFERENCES
Differences between International financial
management
and
domestic
financial
management

Greater information required

Greater communications, planning, control and

coordination needs

Different rules for different parts of their

operation.

The problems
performances

for

the

measurement

of

D IFFERENCES

Continuous
change,
opportunities and risks.

presenting

new

Difficult for The proper balance between

centralization
and
decentralization
of
strategies, policies and operation.

O BJECTIVE OF INTERNATIONAL FM

Maximize the shareholders wealth

Reasons

Avoiding the takeover

Additional capital from the investors

O BJECTIVE OF INVESTMENT

Maximization of return

Minimization of risk

Hedge against inflation

I NTERNATIONAL FINANCE MANAGER

Role: Analyze and balance international risks

and advantages.

I NTERNATIONAL FINANCE MANAGER

To

understand

the

interrelationship

between

environmental changes and corporate response.

To understand the development and use of new

instruments such as options, forwards futures and

swaps for effective management

To develop ways to minimize risks through internal and

external techniques.

To take a balanced view of successes and failures,

treating them as experiences to learn from.

E VOLUTION OF I NTERNATIONAL
MONETARY SYSTEM

The part of a broader international regime.

Institutional

framework

for

international

payments, movements of capital and exchange

rates

A complex whole of agreements, rules,

institutions, mechanisms, and policies.

I MPORTANCE

Facilitating international trade and investment

and

Be smooth adaptation to change.

monetary system that functions poorly may not

only discourage the development of trade and
investment among nations but subject their
economies to disruptive shocks when
necessary adjustments to change are prevented
or delayed.

S TAGES OF I NTERNATIONAL
MONETARY SYSTEM

Bimetallism: Before 1875.

Classical gold standard: 18751914.

Interwar period: 19151944.

Bretton Woods system: 19451972.

Flexible exchange rate regime: Since 1973.

Q&A