Chapter 1 international financial managment
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Transcript of 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
1.1 Why Study International
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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1.1 Why Study International
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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1.1 Why Study InternationalFinance (contd.)
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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1.1 Why Study InternationalFinance (contd.)
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.
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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.