WELCOME TO

INTERNATIONAL

FINANCE

COACH-RAGINI KHANNA

• In previous finance courses you have been taught about

general finance concepts that apply to domestic or local

settings, BUT we live in an international world.

• Companies (and individuals) can raise funds, invest money,

buy inputs, produce goods and sell products and services

overseas.

• With these increased opportunities comes additional risks.

We need to know how to identify these risks and then how

to control or remove them.

Why is International Finance Important?

American consumers routinely purchase

Oil imported from Saudi Arabia and Nigeria.

TV sets and camcorders from Japan

Automobiles from Germany

Garments from China

Shoes from Indonesia

Pasta from Italy

Wine from France

Effect on Consumption

Foreigners in return purchase

American-made aircrafts, Software, Movies, Jeans,

and other products.

Continued liberalization of International trade is certain

to further internationalize consumption patterns around

the world.

Effect on Consumption

Like consumption, production of goods and services

has also become highly globalized.

MNCs efforts to source inputs and locate production

anywhere in the world where costs are lower and

profits are higher.

E.g. IBM

Effect on Production

Financial Markets have also become Highly Integrated.

e.g. Diversified Investment Portfolios.

E.g. Japanese investors are investing heavily in U.S.

and other Foreign financial Markets in efforts to

recycle their enormous trade surpluses.

Other examples-IBM, Sony etc.

Financial Markets

Dr. Reddy (A)

GAIL (G)

GRASIM Inds (G)

ICICI Bank (A)

Infosys Tech (A)

ITC (G)

L& T (G)

M&M (G)

SBI (G)

Tata Comm (A)

Indian Companies Issuing ADR’s & GDR’s

Foreign exchange riskE.g., an unexpected devaluation adversely affects your export market…

Political riskE.g., an unexpected overturn of the government that jeopardizes

existing negotiated contracts…

Market imperfectionsE.g., trade barriers and tax incentives may affect location of

production…

Expanded opportunity setsE.g., raise funds in global markets, gains from economies of scale…

What is special about international finance?

So Finally we can say that…..

Rapidly integrating markets have stretched firms across

borders and increased the importance of foreign

operations to firms around the world.

What do finance practitioners need to know to

operate in a global setting?

Now the Question arises….

Finance practitioners are faced with numerous questions

that require well-developed intuitions from a domestic

setting to be reinvented in an international setting.

Rather than simply considering how to make aggregate

capital structure and dividend decisions, CFOs must also

wrestle with decisions regarding the capitalization and

repatriation policies of their many subsidiaries.

Introduction

Capital budgeting decisions must not only reflect divisional

differences but the complications introduced by currency, tax and

country risks.

Valuation decisions must now take into account how to value assets

that are exposed to different country risks and currencies. Incentive

compensations systems must consider how to measure and reward

managers who are operating in very different economic and financial

settings.

Introduction

Traditional Setting

Modern Setting

How should subsidiaries be financed?

How should repatriation policies be designed?

How should investment opportunities in different

countries be analyzed

How should financial information be communicated

inside the firm?

When should ownership be shared? With whom

Introduction

Difference

Goals for International Financial Management

An Overview…..

InternationalFinancial

Management

ForeignExchange & Derivatives

Markets

SourcingCapital in

Global Markets

ManagingFOREX

Exposure

ForeignInvestmentDecisions

Multinational WCM

Direct Quote

Indirect Quote

Devaluation

Revaluation

Depreciation

Appreciation

BASIC CONCEPTS ….