international financial mgt

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International Financial management:

International Financial management Shikha sharma

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International financial management refers to the financial function of an overseas business. Specifically, the finance function in international business deals with: Investment decision-decision about what activities to finance Financing decision- decision about how to finance those activities Money management decision- decisions about how to manage the firm’s financial resources most efficiently.

Foreign currency derivatives:

Foreign currency derivatives Derivative is a  financial instrument with a value dependent upon underlying variables/ stock. Derivatives are highly popular in international business as they serve two distinct objectives:- Speculation , - hedging The international manager buys these derivatives in order to take positions in the expectation of profits i.e. speculation or uses these instruments to reduce the risk associated with every day management of cash flow i.e. hedging .

Foreign exchange market:

Foreign exchange market Is the place where money denominated in one currency is bought and sold with money denominated in another currency. Some terms: Spot Exchange Rate -- The rate today for exchanging one currency for another for immediate delivery . Forward Exchange Rate -- The rate today for exchanging one currency for another at a specific future date . Currency risk can be thought of as the volatility of the exchange rate of one currency for another

Types of Exchange-Rate Risk Exposure:

Types of Exchange-Rate Risk Exposure Translation Exposure -- Relates to the change in accounting income and balance sheet statements caused by changes in exchange rates. Transactions Exposure -- Relates to settling a particular transaction at one exchange rate when the obligation was originally recorded at another. Economic Exposure -- Involves changes in expected future cash flows, and hence economic value, caused by a change in exchange rates.

Currency convertibility:

Currency convertibility A country’s currency is said to be freely convertible when the country’s government allows both residents and non residents to purchase unlimited amounts of foreign currencies with the local currency. A currency is non convertible when neither residents nor non-residents are allowed to convert local currency into foreign currency.

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The financial management activities can be divided into four major areas: Capital structure: determining the proper mix of debt and equity Long term financing: selecting, issuing and managing long term debt and equity capital, including location and currency Capital budgeting: analyzing investment opportunities Working capital mgt

International Financing:

International Financing Foreign commercial banks perform essentially the same financing functions as domestic banks except: They allow longer term loans. Loans are generally made on an overdraft basis . Nearly all major commercial cities have U.S. bank branches or offices available for customers. The use of “discounting” trade bills is widely utilized in Europe versus minimal usage in the United States. 1 . Commercial Bank Loans and Trade Bills

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Eurodollars are bank deposits denominated in U.S. dollars but not subject to U.S. banking regulations. The differential between the rate paid on deposits and that charged on loans varies according to the risk of the borrower and current supply and demand forces. Rates are typically quoted in terms of the LIBOR- LONDON INTER BANK OFFER RATE It is a major source of short-term financing for the working capital requirements of the multinational company. 2. Eurodollar Financing

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the "euro" prefix can be used to indicate any currency held in a country where it is not the official currency: for example, euroyen or even euroeuro

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A Eurobond is a bond issued internationally outside of the country in whose currency the bond is denominated. The Eurobond is issued in a single currency, but is placed in multiple countries. A foreign bond is issued by a foreign government or corporation in a local market. For example, Yankee bonds, and Samurai bonds. Many international debt issues are floating rate notes that carry a variable interest rate. 3 . International Bond Financing

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Currency-option bonds provide the holder with the option to choose the currency in which payment is received. For example, a bond might allow you to choose between yen and U.S. dollars. Dual-currency bonds have their purchase price and coupon payments denominated in one currency, while a different currency is used to make principal payments. 4 . Currency-Option and Multiple-Currency bonds

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