Module - 1: OF International Financial Management
Module - 1: OF International Financial Management
Module - 1: OF International Financial Management
MEANING OF IFM
International financial management (IFM) deal with the financial decisions taken in the area of International Business. The growth in International Business is, first of all, evident in the form of highly inflated size of international trade.
IMPORTANCE OF IFM
Foreign Exchange Market To determine the exchange rate Exchange Rate Risk and its Management MNCs Investment Decisions International Working Capital Decisions Financing decisions of the MNCs International Accounting and Taxation
Cash Management
External Reporting
Fund Acquisition
Investment Decisions
Investment Financing
Risk Management
Accounts Receivable
CALCULATION OF BOP
Item CURRENT ACCOUNTS I. Merchandise i) Private ii) Government Credits Debits Net (Rs. Cr.)
II. Invisibles 1. Travel 2. Transportation 3. Insurance 4. Investment 5. Government, not included elsewhere 6. Miscellaneous 7. Transfer payments i) Official ii) Private A. TOTAL CURRENT ACCOUNT (I + II)
II. Banking
III. Official i) Loans ii) Amortization iii) Miscellaneous
INTRODUCTION
The foreign exchange market is the market in which currencies are bought and sold against each other. It is the largest market in the world. The foreign exchange market is an over the counter market. This means that there is no single physical or electronic market place or an organized exchange (like a stock exchange) with a central trade clearing mechanism where trades meet and exchange currencies. The market itself is actually a worldwide network of inter-bank traders, consisting primarily of banks, connected by telephone lines and computers.
I N T E R E S T R A T E
P1
D Excess Supply
CURRENCY FUTURES
Currency Future is a transferable futures contract that specifies the price at which a currency can be bought or sold at a future date. Currency future contracts allow investors to hedge against foreign exchange risk. A currency future or foreign exchange future, is a futures contract to exchange one currency for another at a specified date in the future at a price (exchange rate) that is fixed on the purchase date. Most contracts have physical delivery, so for those held at the end of the last trading day, actual payments are made in each currency. Investors can close out the contract at any time prior to the contracts delivery date.
CURRENCY OPTIONS
Currency Option is a contract that grants the holder the right,
but not the obligation, to buy or sell currency at a specified exchange rate during a specified period of time. For this right, a premium is paid to the broker, which will vary depending on the number of contracts purchased. Currency options are one of the best ways for corporations or individuals to hedge against adverse movements in exchange rates. Investors can hedge against foreign currency risk by purchasing a currency option put or call. For example, assume that an investor believes that the USD/EUR rate is going to increase from 0.80 to 0.90 (meaning that it will become more expensive for a European investor to buy U.S dollars). In this case, the investor would want to buy a call option on USD/EUR so that he or she could stand to gain from an increase in the exchange rate (or the USD rise).
CURRENCY FORWARDS
A forward contract in the forex market that locks in the price at which an entity can buy or sell a currency on a future date. Also known as "outright forward currency transaction", "forward outright" or "Foreign Exchange forward or FX forward. In currency forward contracts, the contract holders are obligated to buy or sell the currency at a specified price, at a specified quantity and on a specified future date. These contracts cannot be transferred.