International Financial Management

International Financial Management
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Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Question 1........................................................................................................................................3
Question 2........................................................................................................................................5
Question 3......................................................................................................................................10
Conclusion.....................................................................................................................................14
REFERENCES..............................................................................................................................15
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INTRODUCTION
Main objective of this report is to understand the concept of international financial
management which is also known as the international finance. It is related to the management of
finance in an international business environment. Main objective of international finance
management is to maximize the shareholders wealth (Andreeva and et. al. 2018). An
international finance manager will require to effectively study the concept of exchange rate and
currency markets, various risk such as political, exchange rate risk, interest rate risk, various risk
management techniques, cost of capital and capital budgeting in international context, working
capital management, balance of payment and so on. With the increase in globalization
entrepreneurs are free to operate their business in any corner of world (Shapiro and Hanouna,
2019). There are various factors which play an important role in international finance
management such as cross-boarder sharing, multi-currency shares, currency swaps, foreign
mutual funds and so on. This report includes various aspects of financial management through
different numeric task such as expected NPV, standard deviation of NPV, Net present value and
internal rate of return.
MAIN BODY
Question 1
a. The expected NPV:
Expected net present value refers to a capital budgeting technique which helps in
adjusting uncertainty and effectively calculating the net present value under various different
situations and profitability (Angrick, 2018). It helps in predicting future outcome and it provide
more accurate result as compare to traditional NPV method. It is a method of capital budget
which provide effective weightage for identifying the best net present value. It is a method which
is used for effective finance analysis which determine the feasibility of investment in a particular
project or business. This define the present value of future cash flow as compared to initial
investment of investors. In this method instead of depending on a single net present value
company calculate NPV under different situations such as best case, worst case, base case,
estimated profit of each scenario, weights of NPV are calculated according to related
probabilities and the expected NPV is find out. Expected NPV is the sum of total products of net
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present value under different scenarios and their related probabilities. In its formula p stands for
probability of occurrence of each scenario (Apte and Kapshe, 2020).
In this regard following is computation of expected NPV, as follows:
Year 1 Year 2
Returns Probabili-
ties
Expected
returns Returns Probabili-
ties
Ex-
pected
returns
£ 8000 0.1 £ 800 £ 4000 0.3 £ 1200
£ 10000 0.6 £ 6000 £ 8000 0.7 £ 5600
£ 12000 0.3 £ 3600
Total expected return = £ 10,400 Total expected return = £ 6,800
Periods Expected
Returns
Discounting factor @11% NPV
Year 0 £ -15,000 1 £ -15,000
Year 1 £ 10,400 0.9009 £ 9,369
Year 2 £ 6,800 0.8116 £ 5,519
Expected NPV £ - 112
b. The standard deviation of NPV:
Standard deviation refers to a statistic which helps in measuring the dispersion of dataset
relative to its mean (Burton, Kumar and Pandey, 2020). It is calculated as a square root of
variance by effectively determine the data points deviation related to mean. If the data point is
further from mean that means the deviation is higher within the data set. In context to standard
deviation of net present value will define the return on investment that is deviate from the
average return. It is also known as the indicator of risk which includes various factors such as
final result, uncertainty and so on (Sherquzieva, 2019). Investors of an organisation use this risk
indicator method for understanding the volatile of their investment portfolio in past. Higher the
standard deviation will defines that there is high risk and uncertainty attach with the investment.
While if standard deviation is low it defines that there is less uncertainty with investment.
Standard deviation helps an investor in analysing the risk attach with it. In terms of this
computation of standard deviation net present value are as follows (García and et. al. 2019).
Year 1
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