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International finance
Globalization has necessitated the requirement of the knowledge of international financial

management. The finance managers of current era cannot be competitive and efficient enough to manage the issues without the knowledge of international finance.
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International Financial Management

It is concerned with application of functions of management to financing activity, investing activity,

dividend decision and liquidity of a business keeping

in mind the global perspective and crossing the geographical boundaries of the country.
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Activities of IFM
Financing activity. Investing activity. Dividend decision.

Liquidity decision or asset management decision.

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Importance and rewards of international finance

Multinational accounting and financing.

Comparative Advantage.
Increasing boundaries of business. Growing financial instruments markets and systems. Currency exposure. Interest rate risk. Taxation. Inflation. Balance of payments. Arbitrage.
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Risk involved in international finance/Challenges of IFM Multiplicity and complexity of the taxation systems. Country risk. {political factors, Economic factors and Social factors}. Political risks. Foreign exchange risks. Conflicts with the host country environments. Conflicts with the Parent.

Conflicts with the home country.

Ethical conflicts.
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Differences from domestic FM

Exchange rate. Wider boundary of business. Wider exposure and risk. International taxation. International capital markets. Political treaties between countries. International capital budgeting . International working capital management decisions.
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Goals of MNC
Share Holders Wealth Maximization. Corporate Wealth Maximization.

Operational Goals.
Corporate Governance. Others.
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International Business Methods

International Trade. Licensing. {copyrights, patent and trademarks} Franchising. Joint ventures. Acquisitions. Establishing new subsidiaries.
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Exposure to International Risk

Exchange Rate Movements.

Foreign economic conditions.

Political risk.
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International Monetary System

Bimetallism (Before 1875)
It is a double standard system of free coin age for both silver
and gold. Both silver and gold were used as international means of payment and the exchange rate among countries currency were determined by either gold or silver reserves.

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The Gold Standard.

The rule of Gold standard was very simple. Each and every country set a rate at which its currency unit could be converted into gold. As each countrys government agreed to buy or sell gold on demand, the value of individual currency in terms of

gold and the exchange rates of those currencies were fixed.

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Free floating currencies between the war.

Market forces determined exchange rates. As the exchange

rate were fluctuating and very much flexible, it was very

difficult to achieve equilibrium.

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Modified Gold Standard.

According to this system, the export and import of the gold was completely banned. The US treasury would buy and sell

gold for foreign currency with a government agency only like

Foreign Central Banks.

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Bretton Woods.

The main objectives of the bretton wood system was -

provision of liquidity and creation of complete and

sophisticated mechanism for the international trade and

exchange.

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Fixed Exchange Rates.

An Electric Currency Arrangement.
After 1973, there was huge amount of volatility in exchange rates when the foreign exchange market reopened and most of the currencies were allowed to float to the levels determined by the market forces i.e

demand and supply.

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International Monetary Fund

IMF was established with the objective of providing assistance to the member countries to protect their currencies against cyclical, seasonal, random barriers. It also helps the member countries in defending their trade barriers. It has assisted the countries facing financial crisis.

It helps its member countries to maintain proper Balance of

payment position.
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 International Monetary Fund (IMF) is an international

institution. This fund was created to supervise, stabilize and

promote the International Monetary System and to resolve

the problem of balance of payment.

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Organization Structure

Enforced in December, 1945.

Consists of Board of Governors, An Executive Board, A

managing Director and a staff of international civil servants.

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Board of Governors
This consists of One governor and one alternate for each member country. It is the highest decision making authority. The governor appointed by member country is usually the minister of finance or the central bank governor. The board normally meets once in a year.

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The Executive Board

This consists of 24 directors, who are appointed or elected by the member countries and are responsible for conducting various activities and

functions of IMF.
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The Managing Director

Managing director serves as the chairman and serves of the head of the organizations staff. The MD is responsible to do the business of IMF as

per the direction of the Board.

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International Monetary and Financial Committee of Board of Governors

This is an advisory committee composed of 24 IMF governors,

ministers and other officials of comparable grade.

They meet twice in a year.

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The Development Committee

This is also an advisory committee consisting of 24 members

who are finance ministers and other officials of comparable

grade. It advises and reports to the Board of Governors of IMF

and World bank on various developmental issues.

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Functions of IMF
Providing financial assistance to member countries. Act as a consultative Body. Regulation the financial relation of member countries. Development of International Trade. Assisting member countries suffering from deficit balance of trade. Promoting International Monetary System. Promote Exchange rate stability. Increase International Monetary Cooperation.
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Purposes of setting up of IMF under Bretton Wood System are

To support smooth flow of international trade, balanced growth and

expansion.
To provide financial assistance and stability to member countries. To provide assistance to avoid adverse balance of payments issues. To promote cooperation and common practices in international monetary system. To provide exchange stability and liquidity. To strengthen financial confidence in member countries.

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Multilateral financial Institutions

Multilateral Investment Guarantee Agency (MIGA): works in all regions of the world and has provided investment guarantees for projects in 96 developing countries across a broad range of sectors. MIGA is committed to playing an important role in the development of the financial sector in emerging markets, especially in the wake of the global

financial crisis.

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 Asian Development Bank (ADB): ADB is an international development finance institution whose mission is to help its developing member countries reduce poverty and improve the quality of life of their people. ADB extends loans and provides technical assistance to its developing member countries for a broad range of development projects and programs. It also promotes and facilitates investment of public and private capital for economic and social development.

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 International Bank for Reconstruction and Development (IBRD): The

International Bank for Reconstruction and Development (IBRD) aims to reduce

poverty in middle-income and creditworthy poorer countries by promoting

sustainable development through loans, guarantees, risk management

products, and analytical and advisory services. IBRD raises most of its funds on
the world's financial markets and has become one of the most established borrowers.

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 International Development Association (IDA): is the part of the World

Bank that helps the worlds poorest countries. It complements the World

Bank's other lending arm the International Bank for Reconstruction

and Development (IBRD) which serves middle-income countries with

capital investment and advisory services.

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 European Bank for Reconstruction and Development (EBRD): It

provides project financing for banks, industries and businesses, both

new ventures and investments in existing companies. It also works with

publicly owned companies, to support privatization, restructuring stateowned firms and improvement of municipal services. The Bank uses its close relationship with governments in the region to promote policies that will bolster the business environment.
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 International Financial Corporation (IFC): It was established with an objective

of supporting the private enterprises. It provides loans to private

corporations. It also purchases stocks and thus becomes part owner in some
enterprises.

International Monetary Fund(IMF): Bretton Woods agreement created U S

Dollar based international monetary system and also resulted in the creation

of two International Institutions viz., International Monetary Fund and World

Bank (International Bank for Reconstruction and Development).
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Government Influence on Exchange Rate

Inflation. Interest Rates. Current-Account / Trade Balance. Public (government) debt.

Political and Economic Factors.

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THANK YOU

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