INTERNATIONAL

BUSINESS & FINANCE

BC-613
B.Com (Hons) 8th Semester
Compulsory Course
INTERNATIONAL
FINANCE
 Meaning & Definition
International finance is the branch of
economics that studies the dynamics of
exchange rates,foreign investment and how
these affect international trade. It also studies
international projects, international investments and
capital flows, and trade deficits. It includes the
study of futures, options and currency swaps.
Together with international trade theory,
international finance is also a branch of
international economics.
 Explanation
• Linkage of domestic finance activities with IF
focusing on problems arise in IF such as
exchange rate complications, opportunities
and risk involved in overseas borrowing and
investment such as inflation, discount rate etc

• IF is a subfield of Finance and all finance is

going to be ‘international’ (international financial
crises in USA effected whole the world)
 The benefits of studying IF
IF helps in two ways
• Helps FM to decide how international events will
affect a firm and which steps can be taken to
exploit positive developments and insulate the
firm from harmful ones
• Helps managers to anticipate events and make
profitable decisions before the events occur.
Among in exchange rates, as well as in interest
rates, inflation rates and asset values.
It is difficult to think of any firm or
individual that is not affected in some way
or other by the international environment.
Jobs, bond and stock prices, food prices,
government revenuers and other important
economic variables are all tied to
exchange rates and other development in
the global financial environment.
 Demonstration of some effects
of change in exchange rate
December 2008
Exchange Rate US $ 1 = Pak Rupee 60

International Price in Pakistan

price (US $) (PKR)

Imported Commodity (per

2 120
unit)
Raw Material 100 6000
Foreign Loans 40 billion 2400 billion
FDI 10 billion 600 billion
 February 2010
Exchange Rate US $ 1 = Pak Rupee 88

International Price in Pakistan

price (US $) (PKR)

Imported Commodity (per

2 176
unit)
Raw Material 100 8800
Foreign Loans 40 billion 3520 billion
FDI 10 billion ?
 Change
Internati Change
Price I Pakistan (PKR)
onal
December February 2010
price
2008
(US $)

Imported 2 120 176 56

Commodity
(per unit)
Raw Material 100 6000 8800 2800
Foreign Loans 40 2400 b. 3520 b. 1120 b.
billion
FDI 10 600 b. ? ?
billion
 Some questions for you
Consequences to
• Public finance
• Tax matters
• Govt negotiation power to foreign & local
businessmen
• Debt servicing
• Foreign & economic policies