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Overview of International Finance Concepts

This document provides an introduction to international finance. It discusses how financial integration has occurred through technology, new financial instruments, and liberalization policies. While financial integration provides benefits like production and consumption gains and risk diversification, it also exposes businesses to risks like currency risk and contagion risk. For finance managers, international financial markets provide various funding sources, investments, risk management tools, and speculative opportunities. The finance function must acquire and allocate financial resources cost-effectively while managing various risks across multiple instruments and jurisdictions. Understanding international finance is important for Indian businesses as the financial sector has become more integrated globally and many Indian firms do business internationally.

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9 views10 pages

Overview of International Finance Concepts

This document provides an introduction to international finance. It discusses how financial integration has occurred through technology, new financial instruments, and liberalization policies. While financial integration provides benefits like production and consumption gains and risk diversification, it also exposes businesses to risks like currency risk and contagion risk. For finance managers, international financial markets provide various funding sources, investments, risk management tools, and speculative opportunities. The finance function must acquire and allocate financial resources cost-effectively while managing various risks across multiple instruments and jurisdictions. Understanding international finance is important for Indian businesses as the financial sector has become more integrated globally and many Indian firms do business internationally.

Uploaded by

bhabesh10
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd

Introduction to International

Finance
Background
• Businesses operate in an open economy setup
• In an open economy, trade takes place in
goods, services, capital and technology
• Circular flow of income
• Trade leads to integration of markets : physical
and financial
• Financial integration involves the freedom and
opportunity to raise funds from / invest
anywhere in the world
How did financial integration
occur?
• Technology

• New financial instruments

• Liberalization Policies
Benefits of Integration
• Though there are controversies, but, generally
countries gain from trade

• Production and Consumption benefits

• Diversification benefits
Costs of Integration
• Exposed to more risk: currency risk and
country risk

• Risk of contagion
Effects of Integration
• More co-movement of markets
• More volatility in interest rates, exchange rates,
asset prices
Given this background, we have to consider the
international financial markets
• To a finance manager, the international financial
markets present an array of funding techniques,
investment vehicles, risk management products
and speculative opportunities
Why International Finance is
relevant in India?
• Indian financial sector has got more
integrated to international markets

• Several MNCs have started operations in


different sectors

• Indian companies are also expanding


businesses through JVs, FOSs etc.
The Finance Function
• Accounting & control and Treasury
Management
• T.M. is acquisition and allocn of fincl resources
to min. cost and max. return sub to an
acceptable level of risk
• Pro-active and reactive management
• Wide variety of instruments throw the
challenge
• Finance Manager has to take marketing
decisions, too
Financial Management in a global
context
• FDI led to the emergence of MNCs
• Motives of MNCs
 Vertical integration
 Differences in factor prices
 Large domestic markets with high tariff
 Non-transferable technological know-how
 Less restrictive regulations
 Service industries
Objective of the Firm
• Max the current value of the shareholders’
wealth
• Financial decisions have multi-period dimensions
• Uncertainty
• CAPM and APT

Ref: Apte, International Financial Management

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