International Financial Management

International Financial Management
1

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Question 1........................................................................................................................................3
Question 2........................................................................................................................................5
Question 3......................................................................................................................................10
Conclusion.....................................................................................................................................14
REFERENCES..............................................................................................................................15
2

INTRODUCTION
In modern environment, international financial management, often recognized as
the international finance, is well-known concept. It basically corresponds to financial accounting
in a global business environment. Due to the various variables concerned, such as currencies,
political conditions, imperfect economies, and diversified incentive sets, it differs from
the financial management (Falconier, 2015). Because of open economy and the right to do trade
in any part of world, entrepreneurs began searching for openings outside of own country 's
borders. The step of liberalization was fanned even more by rapid advancements in
telecommunications as well as transportation technology, which came with greater mobility and
lower prices on daily basis. Apart from all else, finance developments like currency swaps,
cross-border share listings, multi-currency shares, and foreign mutual funds have all played a
role (Karadag, 2015). The study covers multiple as aspects of financial management through
different numerical tasks.
MAIN BODY
Question 1
a. The expected NPV:
Expected net present value is capital budgeting strategy that accounts for volatility by measuring
net-present values in various conditions and weighting to arrive at most possible NPV. Because
it recognizes the complexity involved in predicting future outcomes, expected NPV is more
accurate approximation than the traditional NPV (Hilkens, Reid and Gray, 2018). Expected net-
present value of a project is capital budgeting method that accounts for viability by measuring
net-present values in various conditions and effectively weighting them to obtain best NPV.
Although expected NPV embraces the uncertainties inherent in forecasting potential outputs it
is more factual assessment than standard NPV. This is the total of NPVs across different specific
cases as well as their corresponding probability (Yuniningsih, Pertiwi and Purwanto, 2019). The
accompanying equation is employed to evaluate the expected NPV:
Expected NPV = Σ (p × Scenario NPV)
3

The NPV there under a specific scenario is referred to as case NPV, whereas p specifies the
probability of every case emerging. When a business expands it needs to make critical choices
that necessitate substantial capital funding A business's industry performance and expenditure
proposals must be well-informed. In such cases, the organization may employ Capital Budgeting
approaches to decide the most efficient or sustainable investment, that is one of most commonly
employed NPV approaches. In this regard following is computation of expected NPV, as follows
(Bulturbayevich, Sharipdjanovna, Ibragimovich and Gulnora, 2020).
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
As figured out in above table, Expected NPV has negative value which exhibits that project
wouldn’t be viable for business.
b. The standard deviation of NPV:
The standard deviation of investment's returns act an indicator as to how much they will deviate
from average return. This is an indicator of risk including, as a result, uncertainty. Investors may
use standard deviation as risk indicator to see how volatile their portfolios have been in the past
(Ferguson and Morton-Huddleston, 2016). A greater standard deviation indicates that investment
is quite unpredictable or uncertain. Standard deviation of a given investment is measure of risk
that this will deviate from expected return The lower standard deviation of an investment, less
volatile this is. The higher the standard deviation, the more evenly distributed the gains are, and
4