Financial Management in a Global Context
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Transcript of Financial Management in a Global Context
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Chapter 1 FinancialManagement in the Global
Context
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Indian EconomicLiberalization1980s and 1990s
Shift in policy towards more open economy
Liberalisation of imports and concerted eort to
boost exports21stCentury
uantitati!e restrictions on imports are bein"
phased out
#mport duties are lowered
$%# and $## are on the rise
&ar'et determined exchan"e rate
Current account con!ertibility 2
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Indian EconomicLiberalization
21stCentury (penin" up of outward forei"n direct
in!estment (utward $## limit)200*000 +S%
#%,s issued by forei"n companies
-%,s and .%,s issued by #ndiancompanies
/xports and #mports are on the raise
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Why should India go or openEconomy!
o 'eep the "rowth rate steady)forei"n capital isneeded to au"ment domestic sa!in"s
echnolo"y up "radation needs import of forei"n
technolo"y* both hardware and softwareSince subsidy and uantitati!e easin" is becomin"
increasin"ly di3cult to cater* capital formation isdone throu"h commercial borrowin"s and $%#s and$##s
#ndian companies ability to oer lon" term4nancin" to buyers of en"ineerin" euipment andturn'ey pro5ects
67s and $orei"n subsidiaries of #ndian # Companies
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"he Finance Function
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#esponsibilities o FinanceManagers
o loo' for en!ironmental chan"esand analyse its implications
/xchan"e rates* interest rates* creditconditions at home and abroad* chan"esin industrial* tax and forei"n tradepolicies* stoc' mar'et trends* 4scal and
monetary de!elopments* emer"ence ofnew 4nancial instruments and productsetc:
;
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#esponsibilities o FinanceManagers
o understand and analyseinterrelationships between rele!anten!ironmental !ariables and corporateresponses) own and competiti!e Stoc' mar'et crashes) domestic and o)
shore
ostile a'eo!ers etc:
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#esponsibilities o FinanceManagers
o be able to adapt the 4nance function to
si"ni4cant chan"es in the 4rm@s ownstrate"ic posture Chan"e in product mar'et mix (penin" up of a prohibited sector or industry
%i!ersi4cation
Si"ni4cant chan"e in operatin" results
Competitors reorientation in strate"y
#nno!ation in fundin" strate"ies
Chan"es in di!idend policies
Sale of assets to reduce debt etc:
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#esponsibilities o FinanceManagers
o ta'e in stride past failures andmista'es to minimi=e their ad!erse
impact Aron" ta'eo!er decision
$orei"n loan in an appreciatin" currency
Loans with low interest rate in a "rowin"mar'et with "rowin" inBation rate
. 4xed price supply contract in a !olatilemar'et
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#esponsibilities o FinanceManagers
o desi"n and implement eecti!esolutions to ta'e ad!anta"e of the
opportunities oered by the mar'etsand ad!ances in 4nancial theory (ptions* swaps and forwards for ris'
mana"ement
Securitisation of assets to increaseliuidity
#nno!ati!e fundin" techniues
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#ecent Changes in GlobalFinancial Mar$ets
19;0s /mer"ence of euro money mar'ets and
internationalisation of the ban'in"
business which "a!e rise to inno!ati!efundin" techniues
19?0s
/xchan"e ,ates of !arious countries wereBoated which led to hi"her exchan"e rate!olatility
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#ecent Changes in GlobalFinancial Mar$ets
1980s
/xchan"e rate !olatility and interest rate !olatility led
to demand for inno!ati!e ris' mana"ement products
li'e options* swaps etc: #nte"ration of national as well as oshore mar'ets
which led to the emer"ence of "lobal uni4ed 4nancial
mar'et
-lobali=ation of ban's of ad!anced economies ational bond and stoc' mar'ets were open to non)
resident in!estment ban's
+ni!ersal Dan'in")uni4cation of functional areas of a
4nancial institution 12
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#ecent Changes in GlobalFinancial Mar$ets
#easons or the rise o %ni&ersal 'an$ing
Cross)border 4nancial transactions,emo!al of taxes on interest paid to non)
residents%omestic 4nancial mar'ets were open to
forei"n borrowers and !ice !ersa leadin" tothe in!estors and borrowers portfolio and
liabilities to be denominated in dierent
currencies
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#ecent Changes in GlobalFinancial Mar$ets
#easons or the rise o %ni&ersal'an$ing
%ere"ulation of the 4nancial systems of ma5orindustrial nations)Liftin" of exchan"e controls in +:S*+:E* $rance* -ermany* Swit=erland* 6apan* >olland
%ere"ulation was achie!ed by
/liminatin" specialised institutions caterin"
exclusi!ely to a particular se"ment /ncoura"in" competition by abolishin" 4xed
bro'era"e fees* brea'in" up ban' cartels etc:
(penin" up of domestic mar'ets for forei"n
institutions 1
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#ecent Changes in GlobalFinancial Mar$ets
#easons or the rise o %ni&ersal
'an$ing on)resident 4rms were allowed to be listed on
national stoc' exchan"es of de!eloped countries and
their numbers increased si"ni4cantly
Spreads on loans and underwritin" commissions
were becomin" thin because of competition withinthe 4nancial ser!ices industry
Dorrowers issued securities directly to the in!estors
eliminatin" ban's as intermediaries
he o!erall trend was towards securitisation and 1
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#ecent Changes in GlobalFinancial Mar$ets
1990she formation of /conomic and
&onetary +nionF/&+G and the birth of/uro) a ri!al to +:S $inancial &ar'ets
$ree 4nancial &ar'ets) +:S* most of/urope* 6apan* Sin"apore* >on" Eon"
>u"e in!estments by 4nancial institutionof de!eloped countries into thede!elopin" mar'ets of east /urope and.sia
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E(ects o Globalization
Con!er"ence of business cyclesleadin" to less resilience in "lobal
economyLocal 4nancial crisis could spread
throu"hout the "lobal systemControl by policy ma'ers becomes
di3cult
1?
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"he EmergingChallenges
he ability of the company to synchroni=e its "oals andstrate"ies with respect to the chan"in" businessen!ironment
$actors aectin" business en!ironment