International Financial Management
This long and impressive phrase simply means learning international finance especially when a company is dealing in a business environment that is international. This environment is different depending upon the foreign country because of changes in currency, political establishments, difference in markets, and different opportunities existing in different markets. This term came into existence when countries started to open up their doors. This globalization and liberalization presented opportunities to entrepreneurs as they crossed boundaries to do business in foreign markets. Super fast means of communication and transport have greatly helped in liberalization of economies. There are also advances in finances with the introduction of listing of companies in foreign exchanges, currency derivatives, bonds in several currencies, and mutual funds operating internationally.
The result of globalization aided by advances in technology is the complex environment faced by businesses when dealing with entities outside their borders. Managing finances of such a company is totally different from financial management of a company operating entirely in a domestic market. Though the goals and concepts do not change, there are many crucial changes in dimension and character in international finance.
Differentiating between finance and international finance
Major factors differentiating international finance from domestic finance are as follows
- Dealings in a new currency
- Change in political atmosphere
- Changed market conditions
- Changed opportunities
New currency: There is always an element of risk when you have to deal in a new currency because of fluctuating exchange rates. This can turn a potentially profitable deal into a loss making one overnight.
Changed political scenario: One has to remain alert about changes in taxation and other policies of the government in a foreign country. Change in regime can severely impact the chances of a business in a foreign country.
Not only do you pay taxes differently but also pay differently to the labor as well as for transportation facilities.
International business always comes with the prospect of new set of opportunities. There is also diversification of risks for a business when it goes international.
However, the basic aim of the business remains the same and that is to increase the profits for the shareholders. Welfare of shareholders lies in increasing price of the shares but management has to take an important decision and that is whether to increase the price in domestic currency or the currency in the foreign country.
Some international bodies that have greatly aided in international trade are GATT, WHO, and NAFTA. It is because of the efforts of these bodies that a new word MNC has become a household term these days. Multinational companies are believed to enjoy a higher status and perception than domestic companies and they also get a chance to reap the rewards of enhanced opportunities. It is these MNCs that make the best use of international financial management. In fact, these companies cannot survive in global market with the knowledge and expertise of international financial management. It is an efficient management of international finances that allows MNCs to shine in global markets.