INTERNTIONAL FINANCE

INT FINANCE

• Foreign exchange risks• Currency flows and country specific restrictions• Different tax laws and the differences in methods of

calculating the taxable income• Debt equity ratio (it is finance officer’s task to ensure

that the company gets the capital at the lowest possible cost.)

• Dividend remission policy

Bond Market

• Several counties have a bond market for international finance that runs parallel to the domestic bond market, since for international business International Finance Market is a good source of funds. Companies can issue bonds in a foreign country to a group of investors. Several developing countries borrow money from international finance market by selling bonds. However they have to pay a higher rate of interest because of the misperception in such investments from the rich countries.

Int stock exchange

• International stock exchanges like the American stock exchange or the Nasdaq-“National Association of Securities Dealers Automatic Quotation System. Nasdaq Stock Markets one of the largest for trading stocks. However for developing countries trading on Nasdaq may be subject to their government’s approval.

• Dow Jones Analysis group of daily and weekly indices of selected stocks and bond business are used as parameters for doing business in particular stocks. The firms of Standard and Poor indexes and ratios or averages are designed to measure the performance of finance market.

Foreign bonds

• Foreign bonds are sold outside the country of the borrowing company and they are in the currency of the country of issue, while the Eurobonds are sold in countries other than the one in whose currency the bond has been made. Global bond is registered in different national markets as per the registration requirements of each market.

• International bonds are useful way of obtaining finances because they help companies to diversify its finance portfolio from local banks and bond market and maturities not usually available in domestic markets.

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Financial centres

• Financial Centers• These are cities or offshore countries that provide large

international currency funds. They offer a low cost source of finance for MNCs.. They offer foreign currency like Euro for deposits and loans at times these are intermediary or pass through markets for international loans. These could be for bringing economic and political stability and operate as efficient experienced and reliable finance. They have good communication and support services; these could be operational or booking centers. Key offshore finance centers are in Bahrain, the Caribbean, Hong Kong, London, New York Singapore and Switzerland besides others.

Internal Financing

• Companies planning business expansion need to generate some of their own finances besides debt and equity. MNCs have diverse operations in different currencies and that makes the assessment of internal finance availability complex. Parent company can provide the seed capital as its share of equity. Following chart shows how the internal finance system operates-

FIN RISKS• Financial risks normally result from either inflation or currency

fluctuations. It is better to understand the type of risk the company as to deal with, in the international finance. The nature of the risk, the conditions in which the risk becomes pronounced and how the company can preempt the avoidance of the risk factor. When the currency of a country becomes weak, or is devalued, inflation comes into play. Import restrictions, control on acquisition of funds, difficulties in getting credit terms and high interest rates all cause inflation. These can cause high levels of bills receivables and longer credit periods disrupting there cash flow. At times the country’s government tries inflation control through artificially established price. Price, as is known remains under the influence of competitive pricing, brand equity, production costs and at times government regulations.

HOME COUNTRY• Payment to home country can be made as license fees, payment

for importing capital goods or materials and as dividends for equity investments.

• Country’s inflation rates must be understood in advance to prevent cash flow problems

• Repatriation of profits to home country must be properly documented and recognized for maintaining transparency towards the host country’s government and for obeying their laws.

• Sudden exchange fluctuations must be considered as these can change the cash flow as well as the company’s competitive position.

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ACCOUNTING SYSTEMS

• It is important for the companies in international business to

understand the accounting systems for the MNCs as they operate in different countries. Decision process of MNCs stars with having timely and accurate information on the company’s accounts and the taxation as prevalent in the host country. It is necessary to know about different currencies and accounting systems. Financial reporting differs in countries both in content and in presentation. is to follow the accounting system according to the host country’s established practices; also known as Generally Accepted Accounting Principles or GAAP.

GAAP

Each country’s GAAP is different and yet the MNCs have to prepare their accounts in the manner required by the host country and also as per the home country’s needs as they have to submit the accounts to the head quarters in the home country a well.