Goals and scop of international financial

nternational Financial Management

International Finance

International finance is the branch of financial economics broadly concerned with monetary and macroeconomic interrelations between two or more countries. International finance examines the dynamics of the global financial system, international monetary systems, balance of payments, exchange rates, foreign direct investment, and how these topics relate to international trade. Sometimes referred to as multinational finance, international finance is additionally concerned with matters of international financial management. Investors and multinational corporations must assess and manage international risks such as political risk and foreign exchange risk, including transaction exposure, economic exposure, and translation exposure.

Some examples of key concepts within international finance are the Mundell–Fleming model, the optimum currency area theory, purchasing power parity, interest rate parity, and the international Fisher effect. Whereas the study of international trade makes use of mostly microeconomic concepts, international finance research investigates predominantly macroeconomic concepts.

International Financial Management

International financial management (IFM) is a term that grew out of the need for individuals and organizations to consider the implications of financial decisions due to cross-border transactions prevalent in the world economy. Thus, international financial management is the study and application of financial strategy that takes into account the differences and complexities involved in cross border transactions. The term accounts for such topics as raising capital, making acquisitions, investment strategy, managing risk, organizational restructuring, and overall financial policy in global context. Finance managers of such international activities are concerned with aspects like exchange rates, rules regarding taxation, legal complexities and regulations, and risk factors associated with doing business in another nation. Familiarity with international trade agreements is an important part of the topic as well.

Currency exchange rates and differing methods to determine price of assets can have a major impact on the bottom line in international financial management. As such, the topic accounts for the structure of the currency exchange system and how to determine asset prices in a global setting. In addition, IFM is also concerned with how different currencies impact the prices on stock markets.

Decision making in international financial management must account for potential impacts related to various capital structures, approaches to risk management, and how to best leverage taxation systems. IFM will examine how a firm may take advantage of local partnerships in other countries or how to capitalize on international subsidies that are available. Taking into account taxation and exposure to exchange rates, IFM managers will research and decide how to best hedge those exposures and responsibilities.

Valuation and policies for obtaining financing internationally are usually modified when a dealing cross-border investment. International finance management will consider the cost of placing operations in other nations and discern how to best value investments in developing nations. Other areas of concern include penetrating markets and sustaining a presence in those markets effectively.

Additionally, international financial management accounts for differing institutional arrangements, whether formal or informal, that reflect decision making. Differences in legalities, such as protection of creditors and shareholders, impacts both investment and restructuring decisions. This means IMF requires excellent communication skills and building relationships in order to get the job done correctly.

Overall, the main goal of international financial management is to create the most wealth possible for shareholders. Stakeholders also are important for IFM managers. They include suppliers, vendors, employees and end customers who all must be observed from a financial perspective when considering cross-border transactions.

History and Background

During the post-war years, the GATT was established in order to improve trade. It removed the trade barriers notably over the years, as a result of which international trade grew manifold.

The financial participation of the trader’s exporters and importers and the international transactions flowed significantly. It started when different countries started “liberalizing” i.e. when countries agreed to open doors for each other and traded. The advancement of technology and liberalization resulted into the idea of financial management both domestically and globally.

Domestic Vs International Financial Management (IFM)

Financial Systems may be classified as domestic or overseas, closed or open. A ‘domestic’ is one inside a country. Thus financial system in the United States, is an international financial system from the India’s view. The mean and objective of both Domestic and International Financial Management remains the same but the dimensions and dynamics broaden drastically.

Foreign currency, market imperfections enhanced opportunity sets and political risks are four broader heads under which IFM can be differentiated from Financial Management (FM) The goal of IFM is not only limited to maximization of shareholders but also stakeholders.

Importance

Compared to national financial markets international markets have a different shape and analytics. Proper management of international finances can help the organization in achieving same efficiency and effectiveness in all markets, hence without IFM sustaining in the market can be difficult.

Companies are motivated to invest capital in abroad for the following reasons

Efficiently produce products in foreign markets than that domestically.

Obtain the essential raw materials needed for production

Broaden markets and diversify