International financial management PDF

Running head: INTERNATIONAL FINANCIAL MANAGEMENT
International Financial Management
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INTERNATIONAL FINANCIAL MANAGEMENT1
Contents
Introduction:....................................................................................................................................2
Part a:...............................................................................................................................................2
Inability to stabilize exchange rates:............................................................................................2
Inability to control capital flows in an orderly manner:..............................................................3
Surveillance reviews are dominated by powerful countries:.......................................................3
Inability to develop advanced markets:.......................................................................................3
Inability to improve the loan defaults:.........................................................................................3
Scope of operations limited to imbalance in trade account:........................................................4
Discriminating treatments to provide extra benefits to certain countries:...................................4
Liquidity problem still remains a huge problem:........................................................................5
Problems is dollar system:...........................................................................................................5
Part b:...............................................................................................................................................6
Purchasing Power Parity theory and International Fisher Effects theory:...................................6
International Fisher Effects:........................................................................................................7
Differing ways in which derivative protects PPP and IEF failures:............................................9
Conclusion:....................................................................................................................................11
References:....................................................................................................................................12

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Introduction:
The importance of international financial management has increased multiple folds with
the increasing effects of globalization and cooperation between countries at global level.
International financial management is about considering the effects of exchange rates, rates of
inflation and rates of interests of different countries to manage internal finances affecting the
economic development and progress of respective countries. In this document a detailed
discussion on the failures of International Monetary Fund to tackle certain challenges shall be
made here. The Purchasing Power Parity and International Fisher Effects shall also be discussed
in this document for the benefit of the readers.
Part a:
Failure of International Monetary Fund to meet certain challenges
The role of International Monetary Fund (IMF) is immensely important to stabilize the exchange
rates and rates of inflation around the globe. The role of IMF is immensely significant in the
orderly economic development and progress of the globe. A detailed discussion on the failures of
IMF to tackle certain challenges has been discussed here in this document. This document shall
be helpful in understanding the lag between desired objectives and actual objectives achieved by
IMF.
Inability to stabilize exchange rates:
One of the main reasons behind establishment of IMF was to stabilize the exchange rates by
taking necessary steps in this regard. The disorderly and unstable exchange rates though to some
extent have been improved subsequent to the establishment of IMF however, the actual outcome
of decisions taken by IMF is far from the desired stability in exchange rates. The steps taken by

INTERNATIONAL FINANCIAL MANAGEMENT3
IMF to stabilize exchange rates for orderly development of global economy has not been
achieved even after 88 years from the establishment of IMF (Polak. and Boughton, 2016).
Inability to control capital flows in an orderly manner:
Controlling capital flows in the global market is also one of many objectives of IMF. The
disorderly capital flows does not allow proper development and progress of different economies
in the world. The objective behind establishment of IMF was also to control capital flows in the
market to orderly develop different economies in the world. As a result the global economies
have not been developed in an orderly manner (Reinhart and Trebesch, 2016).
Surveillance reviews are dominated by powerful countries:
The whole objective behind establishing IMF was to ensure orderly economic development and
progress by allowing developing and underdeveloped nations to express their concerns in the
international stage. However, the voting rights and operational mechanism of IMF is such that it
allows only developed and economically powerful nations to use its might to affect the economic
and monetary strategy of IMF. The inability of IMF to monitor the global economic condition
without any bias towards the powerful and economically developed nations is still lacking
(Jenks, 2017).
Inability to develop advanced markets:
Total number of advanced markets in 2012 was 35 whereas the number of total advanced
markets in 2014 has only increased to 39 thus, despite huge amount of spending on number of
initiatives the inability of the organization to develop advanced markets in the globe is pretty
much evident from the fact that there was only about 39 advanced markets in 2014 on the planet.
What is more shocking is that it is still 23% of overall market in 2014 as it was in 2012 (Kawai,
2015).