DOWNLOAD PDF LECTURES IN INTERNATIONAL FINANCE

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1 Chapter 1 : Lecture Notes International Economics I Economics MIT OpenCourseWare 8 lecture notes on international finance Deï nition (ERPT). The exchange rate pass-through (ERPT) is a measure of how responsive international prices are to changes in exchange rates. Lecture notes on International Financial management what is strategic financial management definition and what is financial management explain its importance. May Revised Edition: March First Reprint of Revised Edition: June Published by: Copyright of these Study Notes is reserved by the Institute of Cost and Works Accountants of India and prior permission from the Institute is necessary for reproduction of the whole or any part thereof. Important Issues and Features â To provide expert knowledge on concepts, methods and procedures involved in using Financial Management for managerial decision-making. It studies the principles and the methods of obtaining control of money from those who have saved it, and of administering it by those into whose control it passes. Finance was a branch of Economics till Economics is defined as study of the efficient use of scarce resources. The decisions made by business firm in production, marketing, finance and personnel matters form the subject matters of economics. Finance is the process of conversion of accumulated funds to productive use. It is so intermingled with other economic forces that there is difficulty in appreciating the role it plays. Thus, finance is the activity concerned with the raising and administering of funds used in business. As such it deals with the situations that require selection of specific assets or combination of assets, the selection of specific liability or combination of liabilities as well as the problem of size and growth of an enterprise. Nature of Financial Management The nature of financial management refers to its relationship with related disciplines like economics and accounting and other subject matters. The area of financial management has undergone tremendous changes over time as regards its scope and functions. The finance function assumes a lot of significance in the modern days in view of the increased size of business operations and the growing complexities associated thereto. Financial management, is an integral part of the over all management, on other disciplines and fields of study like economics, accounting, production, marketing, personnel and quantitative methods. The relationship of financial management with other fields of study is explained as under: Economics deals with supply and demand, costs and prof- its, production and consumption and so on. The relevance of economics to financial manage- ment can be described in two broad areas of economics i. Micro economics deals with the economic decisions of individuals and firms. It concerns itself with the determination of optimal operating strategies of a business firm. These strategies includes profit maximization strategies, product pricing strategies, strategies for valuation of firm and assets etc. The basic principle of micro economics that applies in financial manage- ment is marginal analysis. Most of the financial decisions should be made taken into account the marginal revenue and marginal cost. So, every financial manager must be familiar with the basic concepts of micro economics. Macro economics deals with the aggregates of the economy in which the firm operates. Macro economics is concerned with the institutional structure of the banking system, money and capital markets, monetary, credit and fiscal policies etc. So, the financial manager must be aware of the broad economic environment and their impact on the decision making areas of the business firm. Finance and Accounting Accounting and finance are closely related. Accounting is an important input in financial decision making process. Accounting is concerned with recording of business transactions. It generates information relating to business transactions and reporting them to the concerned parties. The end product of accounting is financial statements namely profit and loss account, balance sheet and the statements of changes in financial position. The information contained in these statements assists the financial managers in evaluating the past performance and fu- ture direction of the firm decisions in meeting certain obligations like payment of taxes and so on. Thus, accounting and finance are closely related. Any changes in production process may necessitate additional funds which the financial managers must evaluate and finance. Thus, the production processes, capacity of the firm are closely related to finance. Finance and Marketing Marketing and finance are functionally related. New product development, sales promotion plans, new channels of distribution, advertising campaign etc. Thus, the financial manager must be familiar with the basic concept of ideas of marketing. Finance and Quantitative Methods Financial management and Quantitative methods are Page 1

2 closely related such as linear programming, probability, discounting techniques, present value techniques etc. Thus, the financial manager should be familiar with the tools of quantitative methods. In other way, the quantitative methods are indirectly related to the day-to-day decision making by financial managers. Finance and Costing Cost efficiency is a major strategic advantage to a firm, and will greatly contribute towards its competitiveness, sustainability and profitability. A finance manager has to understand, plan and manage cost, through appropriate tools and techniques including Budgeting and Activity Based Costing. Finance and Law A sound knowledge of legal environment, corporate laws, business laws, Import Export guidelines, international laws, trade and patent laws, commercial contracts, etc. Similarly, now many Indian corporate are sourcing from international capital markets and get their shares listed in the international exchanges. This calls for sound knowledge of Securities Exchange Commission guidelines, dealing in the listing requirements of various international stock exchanges operating in different countries. Finance and Taxation A sound knowledge in taxation, both direct and indirect, is expected of a finance manager, as all financial decisions are likely to have tax implications. Tax planning is an important func- tion of a finance manager. Some of the major business decisions are based on the economics of taxation. A finance manager should be able to assess the tax benefits before committing funds. Present value of the tax shield is the yardstick always applied by a finance manager in invest- ment decisions. Finance and Treasury Management Treasury has become an important function and discipline, not only in banks, but in every organization. Every finance manager should be well grounded in treasury operations, which is considered as a profit center. It also includes, wherever necessary, managing the price and exchange rate risk through derivative instruments. In banks, it includes design of new financial products from existing products. The type of financial assistance provided to corporate has become very customized and innovative. Moreover, the concept of development financial institutions also does not exist any longer. The same bank provides both long term and short term finance, besides a number of innovative corporate and retail banking products, which enable corporate to choose between them and reduce their cost of borrowings. Finance and Insurance Evaluating and determining the commercial insurance requirements, choice of products and insurers, analyzing their applicability to the needs and cost effectiveness, techniques, ensur- ing appropriate and optimum coverage, claims handling, etc. International Finance Capital markets have become globally integrated. Finance managers are expected to have a thorough knowledge on international sources of finance, merger implications with foreign companies, Leveraged Buy Outs LBOs, acquisitions abroad and international transfer pricing. The implications of exchange rate movements on new project viability have to be factored in the project cost and projected profitability and cash flow estimates. Similarly, protecting the value of foreign exchange earned, through instruments like derivatives, is vital for a finance manager as the volatility in exchange rate movements can erode in no time, all the profits earned over a period of time. Finance and Information Technology Information technology is the order of the day and is now driving all businesses. It is all pervading. A finance manager needs to know how to integrate finance and costing with operations through software packages including ERP. The finance manager takes an active part in assessment of various available options, identifying the right one and in the implementation of such packages to suit the requirement. The funds raised from the capital market needs to be procured at minimum cost and effectively utilised to maximise returns on investments. There is a necessity to make the proper balancing of the risk-return trade off. Financial Management as the name suggests is management of finance. It deals with planning and mobilization of funds required by the firm. There is only one thing which matters for everyone right from the owners to the promoters and that is money. Managing of finance is nothing but managing of money. Every activity of an organization is reflected in its financial statements. Financial Management deals with activities which have financial implications. The very objective of Financial Management is to maximize the wealth of the shareholders by maximizing the value of the firm. The earlier objective of profit maximization is now replaced by wealth maximization. Since profit maximization is a limited one it cannot be the sole objective of a firm. The term profit is a vague phenomenon and if given undue importance problems may arise whereas wealth maximization on the other hand overcomes the drawbacks of profit maximization. Thus the objective of Financial Management is to trade off between risk and return. The objective of Financial Management is to make efficient use of economic resources mainly capital. The functions of Financial Page 2

3 Management involves acquiring funds for meeting short term and long term requirements of the firm, deployment of funds, control over the use of funds and to trade-off between risk and return. Financial Management today covers the entire gamut of activities and functions given below. The head of finance is considered to be importantly of the CEO in most organizations and performs a strategic role. Estimating the total requirements of funds for a given period. Raising funds through various sources, both national and international, keeping in mind the cost effectiveness; c. Investing the funds in both long term as well as short term capital needs; d. Funding day-to-day working capital requirements of business; e. Collecting on time from debtors and paying to creditors on time; f. Managing funds and treasury operations; g. Ensuring a satisfactory return to all the stake holders; h. Paying interest on borrowings; i. Repaying lenders on due dates; j. Maximizing the wealth of the shareholders over the long term; k. Page 3

4 Chapter 2 : InternationalFinanceLectures This is the first lecture in the "International Finance" series in which I both introduce myself as well as the "big picture" of the class. My teaching style in this series will be to maximize. Next Page International Finance is an important part of financial economics. It mainly discusses the issues related with monetary interactions of at least two or more countries. International finance is concerned with subjects such as exchange rates of currencies, monetary systems of the world, foreign direct investment FDI, and other important issues associated with international financial management. Like international trade and business, international finance exists due to the fact that economic activities of businesses, governments, and organizations get affected by the existence of nations. It is a known fact that countries often borrow and lend from each other. In such trades, many countries use their own currencies. Therefore, we must understand how the currencies compare with each other. Moreover, we should also have a good understanding of how these goods are paid for and what is the determining factor of the prices that the currencies trade at. International trade is one of the most important factors of growth and prosperity of participating economies. Its importance has got magnified many times due to globalization. Moreover, the resurgence of the US from being the biggest international creditor to become the largest international debtor is an important issue. These issues are a part of international macroeconomics, which is popularly known as international finance. Importance of International Finance International finance plays a critical role in international trade and inter-economy exchange of goods and services. Exchange rates are very important in international finance, as they let us determine the relative values of currencies. International finance helps in calculating these rates. Various economic factors help in making international investment decisions. Utilizing IFRS is an important factor for many stages of international finance. Financial statements made by the countries that have adopted IFRS are similar. It helps many countries to follow similar reporting systems. IFRS system, which is a part of international finance, also helps in saving money by following the rules of reporting on a single accounting standard. International finance has grown in stature due to globalization. It helps understand the basics of all international organizations and keeps the balance intact among them. An international finance system maintains peace among the nations. Without a solid finance measure, all nations would work for their self-interest. International finance helps in keeping that issue at bay. The very existence of an international financial system means that there are possibilities of international financial crises. This is where the study of international finance becomes very important. To know about the international financial crises, we have to understand the nature of the international financial system. Without international finance, chances of conflicts and thereby, a resultant mess, is apparent. International finance helps keep international issues in a disciplined state. Chapter 3 : International Finance Introduction Lectures in International Finance: Crisis, Coordination, Currency, Unions and Debt [Paul R. Masson] on blog.quintoapp.com *FREE* shipping on qualifying offers. This book provides a good basis for a graduate course in international finance. Chapter 4 : Lecture notes on International Financial management - Lecture Notes Chapter 0 - Introduction to International Finance Many of the concepts and techniques are the same as the one used in other Fina nce classes (Investments. Chapter 5 : Sloan School of Management MIT OpenCourseWare Free Online Course Materials Chapter 18 The International Financial System Unsterilized Foreign Exchange Intervention Federal Reserve System -- #1 Assets Foreign Assets Liabilities -$1B Currency in circulation (International Reserves) Federal Reserve System -- #2 Page 4

5 Assets -$1B Foreign Assets Liabilities -$1B Deposits with the Fed (International Reserves) -$1B (reserves) â A central bank's sale of foreign assets in the. Chapter 6 : Lectures in International Finance Download book Foreign Exchange: Basic Concepts Foreign exchange (Fx): money denominated in the currency of another nation or group of nations [a financial instrument issued by a foreign country] Exchange rate: the price of one currency expressed in terms another currency [the number of units of a given currency needed to buy one unit of another currency] Foreign exchange market: banks and currency exchanges. Chapter 7 : NPTEL :: Management - International Finance In the international financial market, as compared to the domestic financial market, the borrowers may have to pay a higher interest rate, but they will have -More competition among banks in Europe. -More innovations, particularly for risk management. Page 5