Management of International Finance

This document discusses the management of international finance, including the analysis of monetary relations between countries, investment portfolios, and the impact of COVID-19 on stock markets. It also explores the Capital Market Line (CML) and dominance in finance. Find study material and solved assignments on international finance at Desklib.

Management of
International Finance

Table of Contents
1. Introduction .................................................................................................................................3
2. Comparative Analysis, Appraisal on Stock and the Fund Market Appraisal .............................3
3. Discussion A CML and Dominance............................................................................................8
4. Hedging Instruments..................................................................................................................15
5. CONCLUSION .........................................................................................................................16
6. REFERENCES .........................................................................................................................18

1. Introduction
The analysis of monetary relations among two countries is global finance, also referred to as
foreign economics and finance, concentrating on fields such as international investment
including exchange commodity prices. The most significant influencer in economic wealth and
development is undoubtedly foreign trade. Yet there are questions over the fact that the United
States has moved from being the biggest foreign borrower to become the world's largest
borrower throughout the world, consuming excess sums of borrowing internationally from
organisations and nations. In unpredictable ways, this can impact international finance. In order
to measure the actual buying power of various currencies, minimum wage is the comparison of
costs in various areas that used a particular product or a certain group of products.
An equilibrium condition in which shareholders are oblivious to borrowing costs added to
deposit accounts in 2 distinct nations is defined by interest rate parity. In this report, investment
portfolio of two countries India and China have been discussed (Madura, 2020).
A collection of securities and other commodities that rely on overseas markets instead of
local companies is an international account. A foreign portfolio, if well planned, gives the
shareholder access to developing and established markets and offers liquidity. An international
portfolio applies to shareholders who by switching away from a household portfolio, wish to
diversify their holdings. Owing to possible political and economic uncertainty in some
developing markets, this sort of investment will bear higher incidence. There is also a possibility
that the economy of an international market could fall in value against the Dollar.
2. Comparative Analysis, Appraisal on Stock and the Fund Market Appraisal
In terms of comparison of China and India stock exchange, we can see that both nations have
larger number of stock exchanges. The rationale behind this is because of huge number of
population which leads to more amount of investment during a particular time period.
Underneath explanation of each nation's stock market is done in such manner which is as
follows:
China- During year 2006 to October 2007, the growth of Chinese market was on peak. China is a
nation that has number of savers which shows that there is saving rate is of 40%. In the same
time period, in China brokerage account opened at the rate of 2 Lakhs on each day. In china there

is one stock exchange which is Shanghai stock exchange that is based in the city of Shanghai
China. This is the one of the stock exchange and the other one is Shenzhen stock exchange.
India- The Indian stock market is mainly exchanged on its two stock exchanges: The National
Stock Exchange (BSE) and the Stock Exchange (NSE) (NSE). The BSE has existed since 1875.
In comparison, the NSE was established in 1992 and began trading in 1994 (About comparison
of BSE and Shanghai , 2020). Both markets, however, adopt the same money system, operating
times, and method of payment.
Comparison- The Indian stock exchange is older than that of China and is much more diverse,
globalized and economy (Maxfield, 2019). Even so, the growth that the Indian stock market
achieved across upwards of a century took China just three decades to achieve. Global
investment organizations are required to be more encouraged as China's capital market begins to
speed up the starting phase. In Asia, the Indian stock exchange is regarded as the biggest. The
Bombay Stock market (BSE), the very first trading platform in Asia, was established in Mumbai
in 1875. India currently has two major national transactions: the BSE as well as the India
National Stock Exchange (NSE), which were founded in 1992 in Mumbai.
Later, China's stock market launched. At the end of 1990, the Shanghai Stock Exchange (SSE)
was created. India is more mature compared with the Chinese mainland stock exchange. The
number of international fund managers (FIIs) with high risk exposure is far higher, while the
Chinese market consists mainly of marginal private investors.

The above mentioned chart indicates that there was a huge negative impact of lockdown and
COVID 19 on stock market performance of China. The centered line shows there is huge decline
in terms of stock market peformace. The rationale behind this is because of lack of income
sources for general public as well as stock market was also closed for a limited time period.
Though, chinese stock market has not affected too much because of COVID 19 and there was
limited time period’s lockdown.

Analyse- With respect to above mentioned graph this can be stated that there is decreased trend
in terms of stock market of India. The reason is same above Chinese market as due to worldwide
pandemic of COVID (Koontz, Weihrich and Cannice, 2020). In the above graph we can see that
there is time period of March in which performance of stock market affected in a huge negative
manner.
Though, in comparative manner China has been less affected as compared to India. This is so
because of duration of lockdown and many other factors.
Past years’ performance of BSE and Shanghai stock exchange:

Analyse- On the basis of above mentioned both charts, this can be inferred that there is different
amount of growth in terms of stock market performance in different number of years. This is so
because of numerous factors like economy condition, unemployment and many more. In
comparative manner we can see that performance of BSE is better as compared to Shanghai
stock exchange. The major difference in year 2015 where Chinese stock market performance
decreased by a huge manner.
If they compared with the results of the international accelerated vesting and during disease
outbreak, the into not were China and India. Though the Nifty 50 Indian average is strong to

exceeding the pre-Covid point, the Shanghai Composite Index of China is holding steady 4.7%
beyond this high point. The US business is also the only business which has been this thermally
conductive (Ferris and Liao, 2019). The one to rebound again from original battle of sales this
year was the Beijing stock exchange.
3. Discussion A CML and Dominance
The Capital Market Line (CML) illustrates strategies that balance risk and return efficiently. The
Capital Valuation Model (CAPM) portrays the trade-off of productive portfolios between risk
and return. It is a statistical term describing all portfolios that incorporate the threat rate of return
with the volatile asset stock market in an optimum way. The cumulative returns of the Dow
Jones 100 Index have surpassed the benchmarks over the past decade, but it has not been able to
reach the goal in the past three years. In particular, as per the calculation of uncertainty and
oscillatory, the indicator plot indicates that the risks are low (Wood, 2019). While three of the
top ten companies are traded throughout the tech industry by index weight, the finance system is
the stock exchange. In both stock markets there are a few numbers of sectors and companies
which are performing in an effective manner. With relation to BSE we can see that there are IT
sectors companies whose performance is better than other companies which are listed.

Companies like Reliance Jio and Tata group are higher revenue generating companies. While in
the aspect of Shanghai stock exchange manufacturing companies are leading as top revenue
generating companies.
Tata Group has access to the installation and configuration of power plants throughout the utility
space within our reporting domain. It also means that the company has been requested by the
Government of India to compile a list of Chinese imports. In addition, several individual states
have revoked company finally approved to Chinese companies (Maharashtra and Haryana). The
continuing conflict between two nations may have a larger economic influence than a physical
one (Yukhov, 2019). India-China boundary dispute is a century’s tussle. It is an incredibly
significant issue strategically and can have broader implications on the global politics of the
South Asia throughout the longer term. India had a trade surplus of USD48.6b (1.7 percent of
GDP) with China in FY20 from hardly any surplus in FY 2000. India's Chinese imports grew
sharply from just 2.6% of overall exports in FY00 to the all high to 16.4% in FY18 until slipping
to 14% (USD65.3b) in FY20 (about top trading companies in BSE, 2020). The continued
boundary disputes are subject to fluctuate mutual bilateral trade throughout the potential.
Throughout the post-COVID environment, a big change could occur. A border dispute could
contribute in the past to a shift in trade relations. India has a significant trade deficits and imports
are in most situations, an integral part of the economy. Industries such as vehicles, electronics,
bulk medicines, chemicals, imports from China and manufacturing. At the very same time, if
they actually develop alternative inside India and from other nations, China might also meet the
threat of decreased shipments to India over moment. There may be a shift in the way
multinational firms outsource from China after Covid-19. Here, India does have a chance to draw
foreign businesses to set up its industries would attract further FDI (Di Tella, 2019).
Cost Basis
Unrealized
Gain/Loss
Unrealize
d
Gain/Loss
% XIRR
Realized
Gain/Loss
Dividends
Collected
Total
Gain/Los
s
$62133.74 $-62133.74 -100.00% -9.12% $0 $0
$-
62133.74
26,000.00 (26,000.00) -100.00% -28.38% 0.00 0.00
-
26,000.00
15,000.00 (15,000.00) -100.00% 10.44% 0.00 0.00
-
15,000.00
6,380.00 (6,380.00) -100.00% 0.11% 0.00 0.00 -6,380.00
12,500.00 (12,500.00) -100.00% 32.61% 0.00 0.00
-
12,500.00

7,250.00 (7,250.00) -100.00% 3.29% 0.00 0.00 -7,250.00
Response because of an expectations beating in financial statements, resources, and
health the beat proportion (net earnings reward separated by a full group of securities) increased
to 50 percent QoQ. On the basis of rising prices of raw materials and operating costs, the
profitability has increased. The local brokerage business increased the S&p bse EPS for Q1FY21
towards INR 470, up 6 percent, for FY21E as well as to INR 640 per FY22E, down 2 percent. At
present, they anticipate flat Revenue increase in FY21E versus 36% EPS growth in FY22E,
based on the expansion of EPS in the disposable consumer, finance and energy industries. The
local brokerage lifted the Nifty 50 EPS towards Rs 470, up 6 percent, for FY21E, and also for
FY22E to Rs 640, down 2 percent, since the last half, as prices settle and the market starts to
recover, monitoring the turnaround throughout the economy. BSE100's FY22E net income ratio
dropped to 30 per cent QoQ against 89 percent in the previous quarter, powered by significant
net, demonstrated and material upgrades.
B. Assets types
In the nation's infrastructure and even beyond, the biggest Chinese firms weigh heavily. The top
30 Chinese publicly listed firms, some of the larger components of the Shanghai Composite

Index, along with their operations, logos and links pointing, are described here. In China, large
corporations must receive approval from the Equity Regulation Department of state Government
until their shares can be exchanged on the Shanghai Stock Exchange-SSE, a various Trading
platform. Several of the world's Biggest firms mentioned on the Shanghai Stock Exchange were
either established or spun off from public bodies (such as departments, province or local
municipalities) or state-owned companies because of China's traditionally centralized
administration and development (Zang, 2019).
On the other side in the aspect of BSE we can see that majority of sector in BSE has been
covered by consumer goods sector. This is so because India is second biggest nation in terms of
population hence it is basic need of daily need of goods. Apart from this IT sector is also second
biggest sector in terms of weightage in BSE.
Throughout the June 2020 quarter, almost $78 billion in outflows were reported, possibly since
in the early phases of the disease outbreak, international firms considered China's prospects good
comparison to other nations. Around January and July 2020, the US stock market earned total
FPI outflows of $135 billion (about top trading companies in Shanghai stock exchange, 2020).
The growing confusion created by the disease outbreak may have market advantages to transfer
funds back to a safe refuge of shares priced in dollars. As the place of residence of even more
than 50 per quarter of total investment assets and the Us, the 'native country bias' would also

have kicked-in. This calendar has seen portfolio diversification outflows in several other nations,
like Indonesia, Taiwan, Thailand, the Indonesia, Saudi Arabia, Taiwan, South africa and
Australia. This indicates that throughout the pandemic, Foreign institutional investors did not
benefit all international economies. It seems that the response lies in the rate of economic growth
anticipated in the 2 nations (HU and WEI, 2020)
(Weiss, J. W., 2014). If the pandemic advanced and limits on travel persisted, updated estimates
of development grew bleaker. In all G-20 countries, the OECD forecasts GDP to expand around
3 and 12 billion in 2020. Global investor capital that has reached the financial markets isn't really
supposed to visit in a rush owing to the nation's comparatively inferior future growth. For many
of the early buyers who've had bunny on investment firms to navigate the boom over the recent
months, that's also positive news. It also suggests that price declines will not get very deep, if
there are any, as both international and domestic shareholders are ready to bet the cash on India
(Chengsi and Xingchen, 2019).
C. Risk/Return trade-off
The diversifying of the portfolio includes investment in different investments and would be
focused on the expertise and experience of fund managers who can have differentiated results in
terms of return on equity on the context of a particular stock.

Diversification of an investment's period life needs consolidation of all assets. The hazard of
their failure to time the inventory at different stages of their life cycle to monitor. In fact, when a
stock would be an inventory, for instance, there is no risk-free investment. It can advance badly
in the future and conversely, though doing well over an amount of time (Jacque, 2019). Some
analysts have found the effect of the effect of COVID-19 as a 'Black-Swan Incident' on the
Indian equity market, i.e. the incidence of a very powerful. With an exceptionally bad effect,
unexpected case. The manufacturers have decreased the scale of their labour force and also the
pace of output, that has affected the production process, due to the shutdown policy adopted by
the government. Before COVID-19, i.e. at the middle of November, NSE and BSE trading had
reached peaks of 12,362 and 42,273 at their top levels, both, indicating attractive share market
conditions. As BSE Sensex or NSE Nifty fell by 38 percent after the breakout of the COVID-19
financial markets, they came into terror.
Many firms have achieved good returns, and if anyone holds them throughout the fund, they can
hang on to them. Investors should wait for a drop throughout solid investment in revenue shares,
experts say. As the fundamental elements look solid, these businesses can be seen as long-term
acquisitions. One of the key factors that all these companies have been capable of drawing
buyers over times is the steady rise in EPS and over past couple of years. In India, the COVID-
19 outbreak also raises safety problems for Chinese investors preparing to go on work trips to
India. After the launching of the national FDI policy, Chinese policy of India disappeared, a fast
reversal compared to the growing excitement of investors last year. A Chinese consultancy
company is based on Indian financial products in recent time. Information from of the Consulate
General in India revealed as of December 2019, China's combined policy of India have surpassed
$8 billion, significantly more than the building support from many other nations that share
borders towards India. Due to the instability of Indian policy decisions as well as the perception
that Indian policy are affected by certain Western nations, especially the US, which are
restricting Private companies, many Chinese investors take a buy and hold approach
(Kholmakhmadov and Irgasheva, 2019).
Political and economic concerns among India and China have been exacerbated by the latest
border dispute with China throughout the Galwan Region of Ladakh. Viewpoints throughout
India are rising clearer to reject Chinese goods across categories. Throughout terms of
procurement, sectors such as vehicles, consumer goods, medical devices, telecommunications,

pesticides and green energy (solar) have been most important to China. In certain cases, there is a
shortage of different sources at the very same size or expense. Although luxury goods rely on
China for parts, pharmaceuticals rely on API procurement (Kenjayev 2019). Mobile Phone
Company depends on China to networking gear and also 4G cellular phones, as China meets
upwards of 75% of India's request for devices. Vodafone as well as Bharti Airtel will become the
most impacted in the telecommunications domain in the event of tariff and production bollards
on suppliers of telecommunications networking gear. It was of the opinion that throughout the
present climate, any possible confrontation between both the two countries may raise risk
exposures, even when economies are looking to rebound from the disease outbreak.
D. Exchange Rate Movement
The action of exchange rates has a critical effect on stock indices, mainly national and regional
measures, as well as having a direct effect on nations' markets and on shareholders' and
economists' decisions across their various areas. In fact, these focus on changing the import and
export of foreign firms. With documents provided either by Chinese government signalling that
the epidemic is now under command in the region, the Market Capitalization had relocated to a
different 52-week high through July. Through the uncertainty surrounding corporate results and
the economy, the Nifty 50 has still been rising heavily; it is actually about 5 percent far below
January high. Many US indexes, including the Axes (15 percent higher than the pre-Covid
trough) as well as the S&P 500, which was 5 points greater than its 2020 high at the beginning of
September, too have continued to turn up well. This has not been done well though, by stocks in
several other economies. For eg, the CAC indexes of France, that FTSE 100 of the United
Kingdom, the RTS indexes of Russia, the Bovespa indexes of Brazil as well as the Jakarta
Weighted average of Indonesia are now at minimum 20% lower than the pre-Covid levels.
E. The Covariance of Returns
The most desirable, according to the return, differences and the coefficient of correlation,
By each investment asset, a combination of portfolio weights can be described. As this system
involves three kinds of data. In order to estimate the degree of value of the stock, this method is
employed. It does, however, require an appreciation of the anticipated return when calculating

the risk of the overall portfolio assets. In addition, it is necessary to consider how the returns
shift with each other over a given period of time.
Thus, careful financial managers should aim for a combination of assets that can be blended.
Regardless of the market volatility, to achieve a fair return, as the return of one asset would
offset the losses of another resource. Similarly, the same technique may be done, but in specific
markets around the world, taking into account what has been previously stated.
4. Hedging Instruments
In recent times, due to their impact on financial and social judgment, financial information like
interest rates, exchange rates and the equity markets were identified as important components for
any investment (Sherquzieva, 2019). Exchange in currency has dramatically upped and
shareholders are spending their assets in a country's commodity or a national currency according
to the person or business.
In reality, several factors, such as currency values, have a major impact on changes in currency
rates. Inflation, rates of profit and the balance of the capital account. A nation with a low
inflation rate affects its currency. The rate contributes to an increase in the value of the currency
as its buying power increases relative to other currencies. There are some tools which are as
follows:
Currency Forwards Contracts- In such method, two businesses agree to buy or sell a currency
mixture at an accepted date in the future, for a specific sum and at a set rate of exchange.
Currency Futures Contracts- Similar to currencies forward contracts, but these cannot be
changed as these types of contracts are systematic exchange-traded agreements that specify the
maturity period and amounts of the transaction.
Currency Options- This tool gives the tool provides their execution rigidity, but at the expense
that compelled them to enter into the derivatives market, the most valuable payoff.
Currency Swaps- Swaps present transaction costs to stock holdings, comparable to currency
forward contracts. Currency swaps resources, however, are commonly used to regulate the risk
of foreign bonds in currencies.

5. CONCLUSION
In the last of report, it is concluded that even many of the businesses' futures look very
promising. Many of the stocks should also be regarded for long-term storage purposes. Although
in addition to making an educated decision, shareholders should conduct a thorough review of
each inventory. With revenues on the rise, it is doubtful that stocks would fail, analysts say. In
addition to that, stakeholders really should follow the capital structure, profitability statements,
product portfolio, etc. Earnings are certainly one metric that really should be tracked. In addition
to the end result, one must monitor the success of a firm is to determine the profitability ratios,
which are mostly easily accessible online, it is a decent way to do a simple search mostly on
performance of an organisation before deciding to buy the inventory (Shugeng and Bo, 2019).
Companies are investing in value creation resources for other individuals such as financial
institutions, hedge funds and private investors build predominant classes of shareholders on a
supplementary investment market. Investors however accept these investments the organisations
operating on the resources should rely on their priorities on the appropriate amount of threat. The
expertise gained in handling an alternate asset allocation typically decreases the amount of
danger by investors to check and predict; the intensity to loss aversion and future financial
targets are often listed.

6. REFERENCES
Books and Journals
Madura, J., 2020. International financial management. Cengage Learning.
Maxfield, S., 2019. Governing capital: International finance and Mexican politics. Cornell
University Press.
Koontz, H., Weihrich, H. and Cannice, M.V., 2020. Essentials of Management-An International,
Innovation and Leadership Perspective|. McGraw-Hill Education.
Ferris, S.P. and Liao, M.Y.S., 2019. Busy boards and corporate earnings management: an
international analysis. Review of Accounting and Finance.
Wood, D., 2019. 4 The G7, International Finance, and Developing Countries. Shaping a New
International Financial System: Challenges of Governance in a Globalizing World.
Yukhov, A., 2019. Essays on the Resource Sector, International Finance, and Environmental
Policy.
Di Tella, S., 2019. Macro, Money and International Finance.
Zang, Z., 2019. Three Essays on Big Data in International Finance. eScholarship, University of
California.
HU, J. and WEI, Z.H., 2020. A Comparative Study of the Curriculum System of Finance
Between China and the United States. DEStech Transactions on Social Science,
Education and Human Science, (icesd).
Chengsi, Z. and Xingchen, J., 2019. The Forward-Looking Monetary Policy Transformation and
Evaluation of Asset Price Expectation Management Effect. Studies of International
Finance, (5), p.1.
Jacque, L.L., 2019. International corporate finance: Value creation with currency derivatives in
global capital markets. John Wiley & Sons.
Kholmakhmadov, Z. and Irgasheva, M., 2019. IMPROVEMENT OF MANAGEMENT OF
LOAN PORTFOLIO OF COMMERCIAL BANKS. International Finance and
Accounting, 2019(4), p.13.
Kenjayev, M., 2019. QUESTIONS OF IMPROVEMENT OF INTEREST RISK
MANAGEMENT IN COMMERCIAL BANKS. International Finance and
Accounting, 2019(5), p.8.
Sherquzieva, I., 2019. THE ROLE OF DIVIDEND POLICY IN THE FINANCIAL
MANAGEMENT SYSTEM OF JOINT-STOCK COMPANIES. International Finance
and Accounting, 2019(3), p.22.
Shugeng, D. and Bo, Y., 2019. Research on the Driving Factors of China's Short-term Capital
Flow against the Background of Capital Account Opening——Based on Semi-Parametric
Smoothing Coefficient Model. Studies of International Finance, (5), p.8.
Online:
About comparison of BSE and Shanghai , 2020 [Online] available
through:<https://www.globaltimes.cn/content/1171423.shtml>
about top trading companies in BSE, 2020 [Online] available
through:<https://www.moneycontrol.com/stocks/marketinfo/marketcap/bse/trading.html>
about top trading companies in Shanghai stock exchange, 2020 [Online] available
through:<http://english.sse.com.cn/>