International Financial Management: Importance, Challenges, Theories, and Analysis of HSBC Holding Plc

This report discusses the importance of international financial management in HSBC Holding Plc, challenges faced by the corporation in different international finance markets, theories related to international financial management, dividend distribution policy, efficient market hypothesis theory, and analysis of HSBC Holding Plc's methods of appraising projects.

INTERNATIONAL
FINANCIAL
MANAGEMENT

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
International Financial Management......................................................................................3
Importance of International Financial Management in HSBC Holding Plc...........................3
Challenges that might experiencing by HSBC Holding Plc in different international finance
market.....................................................................................................................................4
International Finance Management Theories.........................................................................5
Dividend Distribution Policy of the HSBC Holding Plc........................................................5
Efficient Market Hypothesis Theory in the context of HSBC Holding Plc...........................6
Analysis and Evaluation of HSBC Holding Plc's Methods of Appraising the Projects.........6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
International financial management can be taken as a specific field of management which
incorporates generation, management and control of funds required for international operations
(Akgün and et.al, 2020). This report presents a critical analysis and importance of the
international financial management in reference of the one of renowned business group situated
in the UK that is HSBC Holding Plc. Further, several international financial management
theories have discussed in this report in contesting the challenges which the corporation may
experiencing in different international markets.
TASK
International Financial Management
International financial management can be defined as a set of policies and procedures
used specifically in managing the finance in relation to an international corporation. The main
objective of international financial management is to manage the finance system of large
companies which are operating in different geographical location in respective of fulfilment their
financial requirements, manage and control them in order to increase the shareholder’s wealth
(Amagtome and Alnajjar, 2020).
Importance of International Financial Management in HSBC Holding Plc
HSBC Holding Plc is a renowned business group located in London, UK. It is a
multinational bank corporation operating in no. of countries. International financial management
plays a vital role in managing the funds of the corporation. Its importance can be understanding
with the following points mentioned below:
 It plays crucial role in encouraging and managing the bank's businesses world-wide.
 It ensures the effective and efficient use of the bank's capital to manages its different
operations.
 It assists in managing the overall cost bracket of the bank plus ensuring the maximum
generation of the funds.
 It controls the accuracy and relevance of the financial data and reports.
 It helps the bank in countering the financial and economic challenges come up before the
corporation.

 It opens up new opportunities for deploy the corporation's fund in the best method
available in order to generate higher returns.
 It helps the bank to adhere with its financial goals and objectives to fulfil its mission.
 In detailed description of the international financial theories and to ensure its
applications.
 To provide comprehensive insights of the different methodologies required to conduct its
business.
 It provides relevant guidance regarding enhancing the measures to earn funds through the
exchange of different currencies.
 It helps in opens up new opportunities in the different economies which could be
beneficial for the bank in enlarging its operation scale.
 It assists in setting up standards for overall growth of the corporation.
Challenges that might experiencing by HSBC Holding Plc in different international finance
market
There are several challenges that might experience by HSBC Holding Plc in different
economies. Corporation is required to prepare an advance strategy which may help the
corporation to set standards and measures to counter those challenges. These challenges are
listed below:
 Significant Increase in Competition: There is a strong increase in the participants in the
finance industry over the period which are providing a tough competition in enhancing
the customer base in different international market.
 Legal and Regulatory Compliances Requirements: There are several legal and
regulatory requirements required to be complied by the bank in different geographical
condition in order to run the business smoothly and providing the qualitative services to
its customers. These can be as Basel III requirements, banking requirements, ALLL
maintenance requirement, CECL requirement, Dodd-Frank Act requirements etc.
 Rapidly Changes in Customer's Requirements: In this fast growing world, customer
requirements and their preferences are rapidly changing continuously. Therefore, bank
should set a policy which help the corporation in regularly analyse the customers’ needs
and their preferences so that it would be beneficial for the bank in providing valuable and
informed services.

 Data Security: In the era of advanced technology, there is a significant risk of leakage of
the customer’s substantial data which could be used in any order to harm their financial
privacy and security. Bank must follow an integrated system which could help the bank
to keep high customer’s data security to avoid any significant mistake.
International Finance Management Theories
There is a number of international financial management theories which could guide the
management to create specific and crucial strategies to overcome from the above challenges.
These theories can be understanding as follows:
 Purchase Price Parity Theory: This theory undertakes the view that the price of an
article will remain unchanged and unaffected with the currency effect in different
geographical markets (Birkenmaier, J. and Fu, Q.J., 2019). This theory undertakes some
assumptions regarding trade barriers, shipping, insurance, political barriers etc. In the
nutshell it avoids different economies effects and undertakes only inflation effect which
could affect the prices of the articles over the different financial marketplace.
 Interest Rate Parity Theory: This theory taken into account the prevailing interest rates
in different financial market. It states that difference between two different country's
interest rate will be equal to the percentage difference between the spot and forward
currency rates.
 Expectation Theory: This theory explains that the today's future rate for future
transactions will be equal to the future spot rate. Many analysts have observed the trend
that the today's future rate overstates the future spot rate (Gkillas and et.al, 2019).
Dividend Distribution Policy of the HSBC Holding Plc
Dividend distribution policy can be considered as significant decisions taken up by any
corporation in order to provide returns to their shareholders. This policy assists the business
corporation in setting essential measures through which the corporation could provide a
substantial part of the returns earned by the business concern to its investors and shareholders.
This policy considers the financial position of the overall business concern, evaluation of the
revenue generated by it and the investors and shareholder’s requirements regarding the returns,
future growth etc. It depends upon various economic and operational conditions of different
geographical locations. The dividend policy of the HSBC Holding Plc is quite efficient as the
corporation is one of the biggest dividend payers over the period to its shareholders in the UK

market. It has stabilized its dividend policy after overcoming from the pandemic effects.
According to its latest financial statements, it is expecting to fulfil its dividend paying out criteria
from 40 % to 55 % of its revenue as dividends in the current financial year which is ever higher
in comparison with its competitors. Board of Directors of the business group insisted upon
paying out the interim dividend to its shareholders which is resulted out from the excellent
performance of the business group in the last 2-year period.
Efficient Market Hypothesis Theory in the context of HSBC Holding Plc
Efficient market hypothesis theory undertakes the viewpoint that the financial market is
very impulsive and the prices on which share trading can be done represent their fair market
prices. Therefore, it is hard for the investors to buy or sell an overvalued or undervalued stock in
order to generate extra income (Reavis and et.al, 2021). It is an effective investment theory
which contends that the prices of the stocks present all the required and relevant market
information which could affect its value. It is closely related to the corporation's operating
efficiency. As a result, it must be inconceivable to outperform the general trading centre by
specialized inventory selection or the timing of the market, and the best way for a financial
professional to get higher returns is to buy riskier assets.
Market analysis for the HSBC shows that its operational efficiency and effectiveness is
closely related with its stock prices. Any percentage change in the operational efficiency would
result into the change in its stock prices. Market analysis shows in-depth investigation of the
various fundamental macroeconomics variables which could affect the business at a greater
extent and about the strong form of Efficient Market Hypothesis. Efficient market hypothesis can
help the management of the business group in controlling and maintaining the volatility in its
share prices assuring the shareholders regarding their wealth maximization.
Analysis and Evaluation of HSBC Holding Plc's Methods of Appraising the Projects
Project appraisal is a cost and income review method of several considerations regarding
a proposal to determine its viability and profitability (Silva and et.al, 2022). There is distinct
project appraisal method which could assist the business group in determination of the viability
of projects in order to enhance its earning capabilities which are as follows:
 Economic Analysis: This requires a deep study to understand whether the project is
beneficial for the overall business group considering different economic situations
regarding availability of resources, customers acquisition, their preferences,

requirements, probability of earnings, expected expenditures (Tambingon and et.al,
2018). business group is required to form a governing authority which analyses all the
significant economic factors before investing in a project. Government policies and
procedures regarding banking and finance industry must be taken into account for
consideration.
 Financial Analysis: This includes considerations regarding requirement of working
capital and fixed capital. This is the foremost analysis can be performed by a corporation
in order to judge the financial viability of the projects. HSBC Holding Plc must recognise
and examine the crucial factors regarding finance such as requirement of fixed capital,
requirement of working capital, their availability etc. fixed capital required for capital
assets whereas working capital required for occurrence of the day-to-day activities.
 Market Analysis: This accumulates comprehensive study of the financial market and its
factors which could affect the business sustainability and profitability (Trpeski and et.al,
2021). HSBC Holding Plc is required to assess the different marketplace in which it will
conduct its operations. It will assist the business group in enhancing its scale of
operations and size of the business. Along-with this, it will help the business in preparing
relevant market strategies to run their operations in long run.

CONCLUSION
As concluded by the above report, International financial management plays a crucial
role in assessing the ways to generate the revenue, manage and controlling it in order to
maximize the investors wealth for the HSBC Holding Plc. With the help of this the business
group can counter the challenges which the corporation might experiencing in the different
marketplace. There are several theories related to international financial management which
could assist the business group in determining the exchange rates effects, inflation rate effects
and market interest rate effects on its earning generating capabilities. Further, dividend
distribution policy is also discussed of the business group in the report. Business group is having
strong form of efficient market hypothesis as the prices of its equity reflects all the relevant and
substantial information which could affect its value. In last, there are some project appraisal
methodologies explained and examined in referencing the business group.

REFERENCES
Books and Journals
Akgün and et.al, 2020. Investigating the relationship between working capital management and
business performance: Evidence from the 2008 financial crisis of EU-28. International
Journal of Managerial Finance.
Amagtome, A.H. and Alnajjar, F.A., 2020. Integration of Financial Reporting System and
Financial Sustainability of Nonprofit Organizations: Evidence from Iraq. International
Journal of Business & Management Science. 10(1).
Birkenmaier, J. and Fu, Q.J., 2019. Does consumer financial management behavior relate to their
financial access?. Journal of Consumer Policy. 42(3), pp.333-348.
Gkillas and et.al, 2019. Integration and risk contagion in financial crises: Evidence from
international stock markets. Journal of Business Research. 104, pp.350-365.
Reavis and et.al, 2021. Millennials' Strategic Decision Making Through the Lens of Corporate
Social Responsibility and Financial Management. Journal of Business Strategies. 38(2),
pp.125-146.
Silva and et.al, 2022. The role of non-critical business and telework propensity in international
stock markets during the COVID-19 pandemic. Journal of International Financial
Markets, Institutions and Money, p.101598.
Tambingon and et.al, 2018. Determinant factors influencing the quality of financial reporting
local government in Indonesia. International Journal of Economics and Financial
Issues, 8(2), p.262.
Trpeski and et.al, 2021. Financial Management-proposes and functions. Knowlwdge
international journal, 48.