International Financial Management

The assignment delves into the challenges and considerations of financial management within an international business context. It highlights the importance of understanding diverse payment methods, utilizing appropriate financial models (corporate value, cost of capital), and structuring finance effectively to achieve organizational goals.

International Financial
Management

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK ..............................................................................................................................................3
1. Models and theories of International Financial Management.................................................3
2. Methods and techniques of international business for financing............................................4
3. Theoretical models of corporate value, international cost
of capital and financial structure................................................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
International finance having another name that is overseas macroeconomics and it is a
section of financial economics which deals with the monetary interactions that occur between
two or more countries. It includes the foreign direct investment and currency exchange rates.
Finance function of a multinational firm having two functions which includes treasury and
control (Brown, 2016). It helps in doing the financial planning analysis, fund acquisition,
investment financing. Along with this they have to do proper and appropriate cash management,
risk management as well as investment decisions. The individual person who are doing the
practice in the international finance management requires the knowledge and skills in the
different field which includes the knowledge of latest changes in the forex rate as well as
investment behaviour of the investors, macro level charges as well as micro level economic
indicators (International Finance Management, 2012).
TASK
1. Models and theories of International Financial Management
There are different theories and models which are used in the financial management
internationally which includes purchasing power parity(PPP) and product cycle theory.
Purchasing Power Parity: This theory refers to the exchange rate between the currencies
are in equilibrium when their purchasing power is same in the two different countries. It is a
theory and also a element of international financial management and it is related to exchange
rates as well as rate of inflation between the different countries as it is equal to the changes
which are expected in the spot exchange rates to the differential between the two different
countries (Egginton, Van Ness and Van Ness, 2016). This theory as well as law helps in
maintaining the price of identical product in the competitive market in the different countries. It
includes the different cost which includes the transport and transaction cost as well as other
barriers to do free trade so that they can cause the significant change to the price parity. It

requires both the countries to have an active competitive market. If the exchange rate moves too
far away from its PPP, trade as well as financial flow can move into disequilibrium. Along with
this it is a narrow measure as it is includes the traded goods in the economy.
Product Cycle Theory: It is a theory or model which helps in doing the observation by
making the proper pattern for doing the international trade. This model applies by the firm to
save the labour as well as capital using products and services that assist in providing the high
income groups (Francis, Hasan and Wu, 2015). This theory classified into four stages which
includes introduction, growth, maturity and decline. It is a classical trade theory which assumes
that countries can be vary in the terms of initial allotments of the resources as well as economic
skills and have to attain the advantage at the time of high competition by using the appropriate
and relevant resources. This is a well explored theory in the International Finance which has
given much empirical testing. The initial success of this theory as a predictive force in the
economics which is to be used overseas so that by doing the multinational corporations gained
the dominance as well as develop the global networks as it takes the less time in diffusing the
merchandise across the borders of the countries. They have to use appropriate laws which
increases the predictive capacity of this theory (Karadag, 2015).
2. Methods and techniques of international business for financing
Different methods and techniques which are used by the firm to do international business
for financing and they are:
Cash in Advance- Cash in advance is considered as the payment received in advance
before the transfer of the ownership of goods. It leads to less risk factor for the exporter. Credit
Cards the most commonly used as cash in advance payment. Collection of payment in advance is
the least attractive phase for the buyers. The foreign buyers are also concerned with the goods
must not be sold before the cash is received in advance (Renz, 2016).
Letter of credit(LC)- LC is an most securable instrument for the international businesses.
LC is an promissory note by bank on the behalf of exporter to importer for the security of
payment. LC is verified by the bank by fulfilling all the terms and conditions and verifying all
the required documents. LC is also beneficial form the buyers point of view as it protects buyers
from the fraud as payment is until not transferred till the goods are not deliver. The buyer issues
the credit and against it permit the bank to render their service (Christiaens and et.al., 2015).

Documentary collection(D/c)- D/C is an transaction in which exporter issues the total
amount sales to the bank(remitting bank),against it bank issues documents which is required by
the buyer to the importers bank(collection bank)which indicates to release the documents to the
buyer for their payment. Funds which are received from the importer and transferable to the
exporter which involves in exchange of the documents. The collection letter provides the
instruction that indicates the particular instructions for the required for the transfer of the tittle of
goods (Coffee Jr, Sale and Henderson, 2015).
Open account- An open account is consider d as transaction of goods and shipped and
reached before the payment of goods. From the importers point of view it is an most beneficial
for cash flows and cost but on other hand more dangerous and risky for the exporter. The sales
period consist of 30 60 90 days duration. While issuing a open account the exporter can adopt
extra protection using the extra credit insurance policy for their safety purpose.
Consignment-It is an mutual agreement in which payment to the exporter is only sent
after the delivery of goods (Al-Smadi and Al-Wabel, 2015). Consignment leads to exporter more
competitive and increase availability and delivery of goods fast. The consignment is based on a
contractual agreement in which both the parties must be agreed. Consignment is also considers
as very risky transaction as the exporter is not sure for their payments and the foreign gods are
deliver through any agent leads to an improper and insecure transaction. The appropriate
insurance policy must be assigned on the consigned goods for the transaction of the foreign
goods and foreign distributor and for the security of the payments.
3. Theoretical models of corporate value, international cost
of capital and financial structure
Theoretical models of corporate financial policy does not focused on the effects of the
interest rate which helps in making the financial decisions. In this nominal interest rates play a
important and essential roles so that interest payment which is nominal in nature that should be
appear in the tax law. This helps in doing the proper and appropriate forecasting regarding the
direction of the effect of interest rated by using the debt value ratios. They have to do proper
examination or analysis that they are maintaining the relation between the interest rate as well as
corporate financial policy which provides a test so that they can find out the importance
(Cremers and et.al., 2016).

Theory related to capital structure helps in dealing with the obstacle of the mutual cost
benefit relations which is connected with introducing the foreign capital into the companies so
that they can manage the optimisation of the capital structure which is known as static trade off
theory. It includes the value of assets as well as total capital which is to be invested in the
company and it is constant. By using the capital structure theory, they can develop the
irrelevance preposition. The employees of the company have to use this theory for doing the
proper finance and on the basis of that they can do the operations. It helps in assuming the no
taxes and no bankruptcy costs. The weighted average cost of capital should remain constant with
the changes in the company's capital structure (Enomoto, Kimura and Yamaguchi, 2015).
Another theory is Trade-off theory of Leverage as it helps in reaching to the optimal
structure and by this they can recognise the tax benefit by doing the interest payments. Along
with this it is having a another way that is the actual rate of interest which is paid by the
companies on the bonds and they issue at the nominal rate of interest because of tax savings.
These theories helps in making the payments as well as assist in attaining the advantage from the
payments of the interest as this theory recognised by the tax benefit of interest payment
(Karadag, 2015).
CONCLUSION
From the above report it has been interpreted that the firm have to manage their financial
resources so that they can attain the success in the market at the time of high competition. Along
with this they have to use the appropriate tools and techniques as well as methods for making the
payments in the international business. They have to use appropriate and theoretical models of
the corporate value as well as international cost of capital along with the financial structure so
that they can not face any issues in attaining the goals and objectives.

REFERENCES
Books and journals
Al-Smadi, M.O and Al-Wabel, S.A., 2015. The impact of e-banking on the performance of
Jordanian banks. The Journal of Internet Banking and Commerce, 2011.
Brown, M.T., 2016. Financial management in the sport industry. Holcomb Hathaway
Publishers.
Christiaens, J and et.al., 2015. The effect of IPSAS on reforming governmental financial
reporting: an international comparison. International Review of Administrative Sciences.
81(1). pp.158-177.
Coffee Jr, J.C., Sale, H and Henderson, M.T., 2015. Securities regulation: Cases and materials.
Cremers, M and et.al., 2016. Indexing and active fund management: International evidence.
Journal of Financial Economics. 120(3). pp.539-560.
Egginton, J.F., Van Ness, B.F and Van Ness, R.A., 2016. Quote stuffing. Financial
Management. 45(3). pp.583-608.
Enomoto, M., Kimura, F and Yamaguchi, T., 2015. Accrual-based and real earnings
management: An international comparison for investor protection. Journal of
Contemporary Accounting & Economics. 11(3). pp.183-198.
Francis, B., Hasan, I and Wu, Q., 2015. Professors in the boardroom and their impact on
corporate governance and firm performance. Financial Management. 44(3). pp.547-
581.
Karadag, H., 2015. Financial management challenges in small and medium-sized enterprises: A
strategic management approach. Emerging Markets Journal. 5(1). p.26.
Karadag, H., 2015. Financial management challenges in small and medium-sized enterprises: A
strategic management approach. Emerging Markets Journal. 5(1). p.26.
Renz, D.O., 2016. The Jossey-Bass handbook of nonprofit leadership and management. John
Wiley & Sons.
Online
International Finance Management. 2012. [Online]. Available through:
<http://highered.mheducation.com/sites/0078034655/information_center_view0/
index.html>. [Accessed on 3rd May 2017].