chapter 1 international financial managment

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International Financial ManagementP G Apte


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1.1 Why Study International

Finance (contd.)

Veritable revolution has been taking place

in the money and capital markets around the

world

Liberalization, integration and innovation

have created a giant international financialmarket which is extremely dynamic and

complex


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Multilateral negotiations regarding phased

removal of trade barriers have made

considerable progress and WTO had emerged as

a meaningful platform

Post war, World trade has grown faster than

World GDP

Almost all countries getting integrated with

the global economy


Finance (contd.)


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1.1 Why Study InternationalFinance (contd.)

Indian economy needs substantial amountsof foreign capital to augment domesticsavings

Technology up-gradation in India willrequire continuing import of foreigntechnology, hardware and software

Indias increasing recourse to commercialborrowings and direct and portfolioinvestments by nonresidents


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Finance (contd.)

The efforts of Indian companies to diversifyinto exports of engineering equipment andturnkey projects will have to be supported

by the ability to offer long term financing tobuyers

A number of companies particularly in theIndian IT sector have begun venturingabroad for strategic reasons either aspartners in joint ventures or by establishingforeign subsidiaries


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India's growing dependence on international

financial markets

Debt Equity

FII investment

Indian companies have also been venturingabroad for setting up joint ventures and

wholly owned subsidiaries


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For those who are willing to master its

complexities the global financial market

provides endless opportunities for creativefinancial management; for the unwary, it is

a minefield

Finance managers must come to grips withwith the conceptual foundations and

practical issues of instruments and markets


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The Finance Function

The finance function in a firm can be

conveniently divided into two sub-

functions viz.account ing and con tro l

andt reasu ry management

Decisions taken by the treasurer have

implications for the controller and vice

versa


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The Finance Function


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The Emerging Challenges

To keep up-to-date with significantenvironmental changes and analyze theirimplications for the firm.

To understand and analyze the complexinterrelationships between relevant

environmental variables and corporateresponses - own and competitive - to thechanges in them.

To be able to adapt the finance function tosignificant changes in the firm's own strategicposture.

To take in stride past failures and mistakes tominimize their adverse impact.

To design and implement effective solutions to

take advantage of the opportunities offered bythe markets and advances in financial theor .


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GLOBALIZATIONOn or Off?

Economic "globalization" refers to the increasing integration

of economies around the world, particularly through the

movement of goods, services, and capital across borders. The

term sometimes also refers to the movement of people (labor)

and knowledge (technology) across international borders.

The term "globalization" began to be used more commonly in

the 1980s, reflecting technological advances that made it

easier and quicker to complete international transactions

both trade and financial flows.


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There are countless indicators that illustrate how goods, capital,

and people, have become more globalized.

The value of trade (goods and services) as a percentage of world

GDP increased from 42.1 percent in 1980 to 62.1 percent in 2007.

Foreign direct investment increased from 6.5 percent of world

GDP in 1980 to 31.8 percent in 2006. The stock of international

claims (primarily bank loans), as a percentage of world GDP,increased from roughly 10 percent in 1980 to 48 percent in 2006.

All these trends have continued beyond 2006 but some reversal

is predicted after the current crisis and economic slowdown

The number of foreign workers has increased from 78 million

people (2.4 percent of the world population) in 1965 to

191 million people (3.0 percent of the world population) in 2005.


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FOREX MARKET TURNOVER (NET)

DAILY AVERAGE, APRIL 2007

(US$ BILLION)

TOTAL 3988

SPOT 1305

OUTRIGHT FORWARDS 433

SWAPS 2250

US$ vs. OTHERS 2660.262

EURO vs. OTHERS 1139.406

JPY vs. OTHERS 509.731

GBP vs. OTHERS 460.779

CHF vs. OTHERS 208.790


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FOREX MARKET DAILY TURNOVER
http://upload.wikimedia.org/wikipedia/en/a/a3/G_foreign_exchange_market_turnover.gif


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According to David Krutz from the Financial Times

website :

"The foreign exchange market will have doubled in sizein just three years next year, thanks to increased

participation by fund managers and pension funds".

TowerGroup, a financial services research consultancy,said it expected total global average daily volumes on

the FX market to exceed $3,000bn in 2007. It has

happened.

FX volumes, which rose from $1,770bn in 2004 to

$2,000bn in 2005, were set to rise to $2,600bn in 2006

and $3,600bn for 2007 and $5000 billion by 2010.
http://www.answers.com/topic/financial-timeshttp://www.answers.com/topic/towergrouphttp://www.answers.com/topic/towergrouphttp://www.answers.com/topic/financial-times


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* Indias net international liabilities increased by US $8.06

billion between end-March 2008 and end-March 2009, as the

decline in international assets (US $ 35.64 billion) exceeded the

decrease in international liabilities (US $27.58 billion).

* The decline in international assets was mainly on account of

decrease in portfolio investments, both equity (about 0.7

billion), debt securities (about $67 million) and loans (a little

over $5 billion).

* On the other hand, the decrease in international liabilities

was mainly on account of the decrease in portfolio investment

(equity securities) amounting to over US $35 billion


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Gramm-Leach-Bliley ActSummary of Provisions

TITLE I -- FACILITATING AFFILIATION AMONG BANKS,SECURITIES FIRMS, AND INSURANCE COMPANIESRepeals the restrictions on banks affiliating with securities

firms contained in sections 20 and 32 of the Glass-Steagall

Act.

Creates a new "financial holding company" under section 4 of the Bank

Holding Company Act. Such holding company can engage in a statutorily

provided list of financial activities, including insurance and securities

underwriting and agency activities, merchant banking and insurance

company portfolio investment activities. Activities that are

"complementary" to financial activities also are authorized. The

nonfinancial activities of firms predominantly engaged in financial activities

(at least 85% financial) are grandfathered for at least 10 years, with a

possibility for a five year extension.

chapter 1 international financial managment

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