FM 304 GLOBAL

FINANCE WITH E-
BANKING
LESSON 1: Features of International Finance
Dimensions of international Finance
Goals of international Finance Financial
Management
Assignment:

 LOOK FOR THE MEANING OR DEFINITION OF THE FOLLOWING:

1.
What is international finance?
2. Features of International Finance?
3. Goals of international financial management?
4. Globalization
5. Trade liberalization
6. Economic integration
7. MNC
OBJECTIVES:

 Understand the need to study and understand

International Finance
 Introduces students to fundamentals of business and
finance in the Global Economy
 Demonstrate understanding of the global economy and
international finance.
International Finance – finance in an
international setting
 Financial management is concerned with how to optimally
make various corporate financial decisions, specially when
such company is a multinational corporation. (MNC)
 It should make decisions pertaining to investment,
financing, dividend policy and working capital
management, with a view to achieving set of given
corporate objectives
 Because of globalization MNC should make diverse
strategies. It is important for financial managers to fully
understand vital international dimensions of financial
management.
 Features of International Finance
 Currencies - Currency is a medium of exchange for
goods and services. In short, it's money, in the form of
paper or coins, usually issued by a government and
generally accepted at its face value as a method of
payment.
 Currency is a generally accepted form of payment, usually
issued by a government and circulated within its jurisdiction.
 The value of any currency fluctuates constantly in relation to
other currencies. The currency exchange market exists as a
means of profiting from those fluctuations.
 Many countries accept the U.S. dollar for payment, while
others peg their currency value directly to the U.S. dollar.
 Features of International Finance
 Accounting Rules - Generally accepted accounting
principles, or GAAP, are a set of rules that encompass
the details, complexities, and legalities of business and
corporate accounting. The Financial Accounting
Standards Board (FASB) uses GAAP as the foundation
for its comprehensive set of approved accounting
methods and practices.

 law requires businesses that release financial

statements to the public and companies that are
publicly traded on stock exchanges and indices to follow
GAAP guidelines.
 Features of International Finance
 Stakeholders - A stakeholder is a party that has an interest in a company and
can either affect or be affected by the business. The primary stakeholders in
a typical corporation are its investors, employees, customers, and suppliers.
However, with the increasing attention on corporate social responsibility, the
concept has been extended to include communities, governments, and trade
associations.
 A stakeholder has a vested interest in a company and can either affect or be
affected by a business' operations and performance.
 Typical stakeholders are investors, employees, customers, suppliers, communities,
governments, or trade associations.
 An entity's stakeholders can be both internal or external to the organization

 Legal Framework - Platform Rules, each Contribution Agreement and each

Fund Description that constitute a legal basis for the cooperation
Features of International Finance
 Institutional Framework - The systems of formal laws, regulations, and
procedures, and informal conventions, customs, and norms, that
shape socioeconomic activity and behavior.
 Set of several legal, economic, cultural, and social variables that constitute a key
feature of a geographic area and determine the actions of institutions, companies,
and people in this locatio
 Language - a system of communication used by people living in
a particular country
 An important advantage in conducting business abroad, specially if you speak
their language
 Taxation - imposition of compulsory levies on individuals or entities by
governments. Taxes are levied in almost every country of the world, primarily
to raise revenue for government expenditures, although they serve other
purposes as well
Dimensions of international Finance
 Foreign exchange and Political Risk
 Foreign exchange risk – when firms and individuals are engage in cross border
transaction they are exposed to risk
 Political Risk – this ranges form unexpected changes in tax rules. This also arises
that a sovereign country can change the “rules of the game and the affected
parties may not have effective recourse.
 Market Imperfection - the various frictions and impediments preventing
markets from functioning perfectly
 Expanded Opportunity Cost – when firms venture into the arena of global
markets, they can benefit from this, because firms can locate production
in any country or region of the world to maximize their performance and
raise funds in any capital market where the cost of capital is the lowest.
Goals of international Finance Financial
Management
 Shareholder wealth maximization – means that the firm makes
all business decisions and investment with an eye toward making
the owners of the firm better of financially than they were
before.
 Corporate Governance - Corporate governance is the system of
rules, practices, and processes by which a firm is directed and
controlled. Corporate governance essentially involves balancing
the interests of a company's many stakeholders, such as
shareholders, senior management executives, customers,
suppliers, financiers, the government, and the community.
 Corporate governance is the structure of rules, practices, and
processes used to direct and manage a company.
 A company's board of directors is the primary force influencing
corporate governance.
Goals of international Finance Financial
Management
Corporate Governance - continue
 Bad corporate governance can cast doubt on a company's operations and its
ultimate profitability.
 Corporate governance entails the areas of environmental awareness, ethical
behavior, corporate strategy, compensation, and risk management.
 The basic principles of corporate governance are accountability,
transparency, fairness, and responsibility.
Terms to remember:
 Globalization - is the word used to describe the growing interdependence
of the world’s economies, cultures, and populations, brought about by
cross-border trade in goods and services, technology, and flows of
investment, people, and information. Countries have built economic
partnerships to facilitate these movements over many centuries
 Trade liberalization - Trade liberalization is the removal or reduction of
restrictions or barriers on the free exchange of goods between nations.
These barriers include tariffs, such as duties and surcharges, and nontariff
barriers, such as licensing rules and quotas. Economists often view the
easing or eradication of these restrictions as steps to promote free trade
 Trade liberalization removes or reduces barriers to trade among countries, such as
tariffs and quotas.
 Having fewer barriers to trade reduces the cost of goods sold in importing
countries.
 Trade liberalization can benefit stronger economies but put weaker ones at a
greater disadvantage
Terms to remember:
 Economic integration - Economic integration is an arrangement
among nations that typically includes the reduction or elimination
of trade barriers and the coordination of monetary and fiscal
policies. Economic integration aims to reduce costs for both
consumers and producers and to increase trade between the
countries involved in the agreement.

 Multinational corporations (MNC) - A multinational corporation

(MNC) has facilities and other assets in at least one country other
than its home country. A multinational company generally has
offices and/or factories in different countries and a centralized
head office where they coordinate global management. These
companies, also known as international, stateless, or
transnational corporate organizations tend to have budgets that
exceed those of many small countries
References:

 https://www.investopedia.com/terms/c/currency.asp
 https://www.accounting.com/resources/gaap/
 https://www.investopedia.com/terms/s/stakeholder.asp
 https://www.lawinsider.com/dictionary/legal-framework
 https://en.wiktionary.org/wiki/institutional_framework
 https://www.igi-global.com/dictionary/institutional-framework/14798
 https://www.britannica.com/topic/taxation
 https://www.investopedia.com/terms/c/corporategovernance.asp
 https://www.investopedia.com/terms/t/trade-liberalization.asp
 https://www.investopedia.com/terms/e/economic-integration.asp
Quiz: this was inputted in google form
1. It is negatively necessary that financial managers should 6.Is it affirmative that a company cannot stay in business if it evades taxes and does not compensate
adopt and understand international finance. well its manpower? (true)
7. Negative implications and practices of companies can cast doubts not only in its operations but also its
2. This is the current value of any currency for another profit (true)
currency, and this rate fluctuates constantly in response to
economic and political events. 8. Having business outside your country where raw materials are present and other economies of scale is
called.
Currency Market imperfection
Exchange rate Expanded opportunity cost
Virtual currency Foreign Exchange risk
Political risk
Barter
9. Volatility of currency in trade affects business.
3. If you are a publicly traded corporation, you need to Market imperfection
publicized your financial statements using certain accounting Expanded opportunity cost
standards. Foreign Exchange risk
Political risk
4. The following are internal stake holders, except.
Managers 10. Most market are a combination of 2 or more market structure (e.g. oligopoly, perfect competition et.al)
and has various frictions and impediments preventing markets from functioning well.
Owners
Employees Market imperfection
Customers Expanded opportunity cost
Foreign Exchange risk
5. this is the growing interdependence of the worlds’ Political risk
economies, and flow of investment and information. 11. These are set of several legal, cultural and societal variables that constitutes a key features of a
geographic area and determine the action of institutions.
Globalization
Trade liberalization Legal Framework
Institutional framework
Economic integration Market imperfection
Political risk.
Corporate governance