International financial management, also known as international finance, is a well-known term in today’s world. It simply means financial management in an international business environment. It is different from financial management because of the different factors involved like currency, political situations, imperfect markets, and diversified opportunity sets.
Also Read : Role & Importance of Financial Management in a Business Organization
Four Facets to Understand the Concept of International Financial Management in India:
Foreign Exchange
Foreign exchange is an additional risk that a finance manager is required to cater to in an international setting. Foreign exchange risk refers to the risk related to fluctuating prices of currency that has the potential to convert a profitable deal into a loss-making one.
Political Risks
Political risks may include any change in the business economic environment of the country. These changes can include Taxation Rules, Contract Act, or any unforeseen government action. It pertains to the government of a country that can change the rules of the game anytime, in an unexpected manner.
Market Imperfection
Due to market and product integration, the world economy faces a lot of differences across the countries in terms of transportation cost, different taxation systems, etc. Imperfect markets force the finance manager to strive for the best opportunities across international borders.
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Enhanced Opportunity Set
By taking the business across national borders, a business expands its chances of reaping fruits of a different taste. Not only does it enhance the opportunity for more business but also diversifies the overall risk of business to various nations.
Objectives of International Financial Management:
Acquisition of Funds
This objective involves generating funds from internal as well as external sources. The goal of international financial management is to acquire funds at the lowest possible cost.
Investment Decisions
International financial management is concerned with the investment of acquired funds in an optimum manner in order to maximize shareholders’ as well as stakeholders’ wealth.
Compared to national financial markets, international markets have different analytics and dynamics. Proper management of international finances can help the organization to achieve the same level of efficiency and effectiveness in all the markets. Hence, without international financial management, sustaining in the market can be extremely strenuous.
Organizations are motivated to invest capital in international markets for the following reasons
- Efficiently produce products in international markets
- Obtain the essential raw material needed for production
- Broaden and diversify markets
- Yields will be high
Also Read : 8 Major Roles and Functions of Financial Management
International financial management is no different than financial management despite the fact that financial decisions made are taken in the area of international business. The international financial activities help the organizations connect with foreign dealings along with international business partners including customers, suppliers, lenders, etc.
An online financial management certification course can help you immensely to understand the concept of international financial management.
An online financial management course is designed to help you gain an understanding of advanced concepts and techniques required to solve the financial challenges of an organization. An online financial management certification structures in such a way that it exposes participants to factors affecting the financial performance, modes of capital management, risk minimization strategies, and guiding principles on investment decisions. So, if you want to excel in the discipline, an online financial management course is recommended.
Also Read : Financial Management Concepts in the Modern World
International trade and related financial activities provide both opportunities and associated risks for investors, exporters and capitalists. By understanding the emerging trends in this field, they can learn how to invest fruitfully in today’s environment. The field of international finance has seen a significant growth over the past decade.
International finance is that branch of financial economics that deals with the monetary or the macroeconomic inter relations between two or more nation states. This field studies the relationships and dynamics that exist in the global financial systems or the international monetary system such as balance of payments, stock exchanges, exchange rates, foreign direct investment as well as international trade. Multi-national organizations hire the experts in international financial management to study the inter-play between the various elements of international finance and accordingly formulate strategies for international business for their organization. It is also referred to as multinational finance, international monetary economics or international macroeconomics.
Some of the recent and emerging trends in this field are as below:
Countries are Re-balancing Their Import Export Trade
This trend is visible in the way countries like China are trying to balance their import and export trade. The country’s fast growth in the last decade was fueled by its major dependence on its import and export trade. The country is known for large amounts of export of inexpensive goods all over the globe. This happened at a large scale which was not sustainable. Now China is importing goods in exchange for investment. It is now focusing on producing everything they need for domestic use. This puts the countries that relied on Chinese investment in a spot as they struggle to find comparable markets for their products. In addition, the tariffs imposed on China by the US and EU have slowed down its trade and have provided benefits to domestic manufacturers.
Also Read : Recent Emerging Trends in Finance Sector
There is New Found Cooperation Among Countries
There is a growing need for cooperation in trade among many countries. Countries are getting involved in treaties and international organizations in a way that is mutually beneficial to all the member countries. For example, the significant growth of the data economy has led to businesses realizing the need of cross border data transfer. Hence, large scale multinational corporations have eased up on their data transfer related restrictions. This helps the organizations to share online resources for trading, export and for collecting relevant data from around the world.
Also Read : Scope of International Financial Management in India
There Exists Growth in Export Opportunities in India and South America
India and many countries in South America such as Brazil, Chile, El Salvador and Peru have been expanding their economic opportunities. India is a growing market for US exporters. It purchases precious metals and diamonds, machinery, optical equipment and agricultural products from the USA. Brazil imports aircraft, machinery, petroleum products and electronics from the USA. These countries have a strong and growing economy as well as an ever-expanding middle-class segment who is eager to purchase premium merchandise.
Also Read : Recent Emerging Trends in Finance Sector
There is a Rising Popularity of Euro Markets
Euro market is a financial market that deals with euro-currencies. It consists of banks outside the country from where the currencies originate. Euro banks are a popular choice for many multinational corporations for their financial plans because they are free from any regulation and they have the ability to expand a stock of money and credit outside the control of national authorities.
There is a Visible Emergence of Multinational Corporations from Emerging Economies
In 2006, it was observed that out of the 100 big multinational corporations of the world, 22 of them came from emerging economies. This figure has been on an increase and big multinational corporations from the developing or transitional economies are playing a significant role in world economics.
Also Read : Emerging Trends in International Finance
There is an Increase in Cross Border Mergers and Acquisition Based Activities
Due to the rise in the level of foreign direct investment (FDI), there has been a spike in mergers and acquisitions (M&A) within the financial domain across the globe. The acquisition of ABN-AMRO by the consortium of Royal Bank of Scotland, Fortis and Santander was one of the largest deals in the history of the banking industry.
Also Read : What are the Upcoming Trends in Financial Risk Management?
There is a Deregulation of the Financial Markets
The world is witnessing an internationalization of money and the capital markets. Countries like the USA and many European countries offer free financial markets to investors. Singapore and Hongkong have also emerged as strong financial markets. This has led to the creation of a worldwide banking structure.
As organizations are going global, there is an increased interest in international finance for investors and global business owners. And, they can make the most of their presence in the international finance market by being aware of the latest trends in this field.
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