International Financial Management - subject

Welcome to "International Financial Management: A Comprehensive Guide"! This document serves as a comprehensive resource for understanding the complexities of managing finances in a global context. Covering topics ranging from foreign exchange markets to multinational investment strategies, this guide equips readers with the knowledge and tools necessary to navigate international financial environments.

1. Dr D Divya
Assistant Professor
Department of MBA
Sri Ramakrishna College of Arts & Science

18. PLANNING
DIRECTING
CONTROLLING
ORGANIZING
STAFFING
MONITORING
COORDINATING
LEADING
LEADERSHIP
COMMUNICATING

POSDCORB

29. Central Bank Policies: Many central banks were expected to adjust their monetary policies in
response to inflation concerns. The decisions on interest rates and quantitative easing have a
significant impact on markets worldwide.

Inflation Concerns: Rising inflation rates in various economies have been a key concern. Central
banks have been assessing whether this is transitory or could lead to sustained inflation,
impacting interest rates and investment strategies.

Cryptocurrency Market: The crypto market has seen increased regulatory attention. Some
countries have moved to regulate or ban certain crypto activities, while others are exploring
central bank digital currencies (CBDCs).

Geopolitical Tensions: Geopolitical events such as trade tensions between major economies,
conflicts, and political changes influence market stability and investor confidence.

Renewable Energy Investments: There's been a growing focus on sustainable investments and
renewable energy initiatives, leading to increased funding and interest in related sectors.

Technology Sector: The tech sector remains influential, with developments in artificial
intelligence, cybersecurity, and digital transformation affecting market trends.
Recent changes in International financial market

30. 1. Technology Disruption
●Fintech Innovation: Rapid advancements in financial technology have disrupted traditional banking
and finance.
●Digital Currencies: Rise of cryptocurrencies like Bitcoin, Ethereum, and regulatory responses to their
emergence.



●AI and Big Data: Utilization of artificial intelligence and big data analytics in financial services for
better risk management and customer experience.
2. Evolving Regulatory Landscape
●Stricter Regulations: Governments worldwide are implementing tighter regulations to address
financial risks and protect consumers.
●GDPR and Data Privacy: Enhanced focus on data protection laws affecting financial institutions
globally.
●ESG Standards: Growing emphasis on Environmental, Social, and Governance factors influencing
investment decisions and reporting requirements.

31. 3. Sustainable Finance
●ESG Investing: Increased investor demand for companies aligning with ESG principles, leading to
the growth of sustainable finance.
●Green Bonds: Rise in issuance of green bonds to fund environmentally friendly projects.
●Corporate Responsibility: Companies integrating sustainability into their business strategies to
attract investors and consumers.
4. Market Volatility
●Pandemic Impact: COVID-19-induced market volatility and subsequent recovery, reshaping
investment strategies.
●Supply Chain Disruptions: Challenges in global supply chains affecting various industries and
investor sentiment.
●Interest Rate Uncertainty: Speculation and adjustments by central banks in response to inflation
concerns.

32. 5. Geopolitical Events
●Trade Tensions: Escalating or easing trade disputes impacting global markets and investor
confidence.
●Brexit: Ongoing repercussions and adjustments in financial markets due to the UK's departure
from the EU.
●Geopolitical Instability: Political conflicts and uncertainties affecting market stability and
investment decisions.
6. Rise of Remote Work and Digital Transformation
●Remote Work Trends: Impact of remote work on commercial real estate, technology, and
consumer behavior.
●Digital Transformation: Accelerated adoption of digital platforms, changing customer preferences
and market dynamics.
7. Cryptocurrency Market
●Regulatory Attention: Increased regulatory scrutiny and attempts to create frameworks for
cryptocurrencies and digital assets.
●Institutional Adoption: Growing participation of institutional investors and traditional finance in the
crypto space.

35. Access to Resources: Some countries lack certain resources or have limited access to them. Trading allows
them to obtain goods they don't have or can't produce efficiently.

Specialization: Countries have different strengths and capabilities. Trading enables nations to specialize in
producing goods or services where they have a comparative advantage, leading to increased efficiency and
higher quality.

Economic Efficiency: Through trade, countries can focus on producing what they are most efficient at,
leading to cost reduction and increased productivity.

Increased Variety and Quality: Trade allows access to a wider range of products and services, offering
consumers more choices and better quality goods at competitive prices.

Economic Growth: International trade can stimulate economic growth by providing opportunities for
businesses to expand into new markets, leading to increased sales and profits.

Exchange of Ideas and Technology: Trade often involves the exchange of knowledge, ideas, and technology
between countries, fostering innovation and advancement.

Political Cooperation: Trade can promote diplomatic relationships and political stability between nations,
encouraging peaceful interactions and collaborations.

38. International capital flows can bring several gains to countries involved:
Access to Funding: Countries can attract foreign investment, which provides access to
capital for infrastructure development, businesses, and other sectors. This investment can
stimulate economic growth.
Technology Transfer: Foreign investment often brings advanced technology, expertise, and
managerial know-how into the host country, boosting productivity and efficiency.
Diversification of Portfolios: International capital flows allow investors to diversify their
portfolios across different countries and asset classes, reducing risk by not being overly
dependent on any single market or asset.
Economic Growth: Capital inflows can fuel economic growth by funding projects, creating
jobs, and enhancing overall productivity.
Exchange Rate Stability: Foreign capital flows can influence exchange rates, providing
stability or potentially affecting a country's currency value positively.
Market Development: Capital inflows can stimulate domestic financial markets, making
them more robust, liquid, and efficient.
Global Integration: Capital flows foster global economic integration, linking economies and
facilitating trade and investment between nations.

39. What is an Exchange Rate?
The a currency's exchange rate is defined as "the rate at which one country's
currency may be converted into another." It may fluctuate daily with the changing
market forces of supply and demand of currencies from one country to another. For
these reasons; when sending or receiving money internationally, it is important to
understand how exchange rates are determined.

67. Exchange Rate Volatility - Recent Experience:
Factors Influencing Exchange Rates:
Recent years have witnessed increased volatility in exchange rates due to various
factors:
●Geopolitical Events: Political tensions, trade conflicts, and geopolitical
uncertainties impact currency values as markets react to these events.
●Monetary Policy Decisions: Central banks' policies, especially interest rate
changes and quantitative easing programs, influence currency valuations.
●Economic Indicators: Fluctuations in GDP growth, inflation rates, trade balances,
and fiscal policies impact exchange rates.
●Market Sentiment and Speculation: Investor sentiment, risk appetite, and
speculation in currency markets contribute to short-term volatility.

68. Impact on Businesses and Investments:

●Exporters and Importers: Fluctuating exchange rates affect the competitiveness of
businesses engaged in international trade. For exporters, a weaker domestic currency
might boost competitiveness but lower profits. Importers face the opposite scenario.
●Foreign Investments: Exchange rate volatility influences returns on foreign
investments. Changes in currency values can significantly impact the profitability of
investments in different countries.
●Risk Management: Businesses engaging in global transactions employ hedging
strategies to mitigate exchange rate risks, using instruments like forward contracts,
options, and swaps.

70. There are several factors that contribute to a currency's exchange rate. Here are some of the top factors that can
affect an exchange rate:
1. Inflation Rates
Changes in market inflation cause changes in currency exchange rates. A country with a lower inflation rate than
another's will see an appreciation in the value of its currency. The prices of goods and services increase at a
slower rate where the inflation is low. A country with a consistently lower inflation rate exhibits a rising currency
value while a country with higher inflation typically sees depreciation in its currency and is usually accompanied
by higher interest rates.
2. Interest Rates
How do interest rates affect money exchange rates? Changes in interest rate affect currency value and dollar
exchange rate. Forex rates, interest rates, and inflation are all correlated. Increases in interest rates cause a
country's currency to appreciate because higher interest rates provide higher rates to lenders, thereby attracting
more foreign capital, which causes a rise in exchange rates.
3. Country's Current Account/Balance of Payments
A country's current account reflects balance of trade and earnings on foreign investment. It consists of total
number of transactions including its exports, imports, debt, etc. A deficit in current account due to spending more
of its currency on importing products than it is earning through sale of exports causes depreciation. Balance of
payments fluctuates exchange rate of its domestic currency.

71. 4. Government Debt
Government debt is public debt or national debt owned by the central government. A country with government debt is less likely to
acquire foreign capital, leading to inflation. Foreign investors will sell their bonds in the open market if the market predicts
government debt within a certain country. As a result, a decrease in the value of its exchange rate will follow.
5. Terms of Trade
A trade deficit also can cause exchange rates to change. Related to current accounts and balance of payments, the terms of trade
is the ratio of export prices to import prices. A country's terms of trade improves if its exports prices rise at a greater rate than its
imports prices. This results in higher revenue, which causes a higher demand for the country's currency and an increase in its
currency's value. This results in an appreciation of exchange rate.
6. Political Stability & Performance
A country's political state and economic performance can affect its currency strength. A country with less risk for political turmoil is
more attractive to foreign investors, as a result, drawing investment away from other countries with more political and economic
stability. Increase in foreign capital, in turn, leads to an appreciation in the value of its domestic currency. A country with sound
financial and trade policy does not give any room for uncertainty in value of its currency. But, a country prone to political confusions
may see a depreciation in exchange rates.

72. 7. Recession
When a country experiences a recession, its interest rates are likely to fall, decreasing its chances
to acquire foreign capital. As a result, its currency weakens in comparison to that of other
countries, therefore lowering the exchange rate.
8. Speculation
If a country's currency value is expected to rise, investors will demand more of that currency in
order to make a profit in the near future. As a result, the value of the currency will rise due to the
increase in demand. With this increase in currency value comes a rise in the exchange rate as
well.