International Finance Report: Case Studies and Financial Decisions

This report provides a comprehensive analysis of international finance, focusing on the application of international accounting standards and their impact on financial statements. It explores the features of international financial markets, including the exchange rate market and its significance for organizations like Luxury Chocolate Ltd. The report includes a case study on the capital requirements of a multinational company, Tesco, and examines the Net Income approach to capital structure. Furthermore, it presents an information sheet addressing macro and micro-environmental factors influencing international financial decision-making, as well as the analysis of international mergers, acquisitions, and investment policies. The report concludes by emphasizing the importance of international finance for global business operations.

INTERNATIONAL
FINANCE

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
TASK 2............................................................................................................................................4
TASK 3. ..........................................................................................................................................5
TASK 4............................................................................................................................................6
.........................................................................................................................................................8
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
The international finance can be defined as a monetary and macro economical relation
among two or more then two countries. The term international finance is known by international
macro economics. This is why because it includes monetary and economic interaction among
two or more nations. Herein, the project report Luxury chocolate limited company has been
chosen that operates in the manufacturing of chocolates. The company is located in North west
of England. The report includes impact of international accounting standards on financial
statements as well as about financial market such as exchange rate market etc. Along with in the
report, a case study is produced that contains capital requirement of a multinational company.
Apart from it, an information sheet is prepared that includes international merger, acquisition and
impact of micro and macro-environmental factors on international financial decision-making.
TASK 1.
1.1 Objectives of international accounting standards.
Covered in PPT
1.2 Relevant accounting standard for particular financial situations:
Covered in PPT
1.3 Effect on financial statements of international accounting standard.
The financial statements are effected due to international accounting standard (Frieden,
2015). As per the international accounting standard 1, financial statements should be prepared as
accordance to particular structure and with full of information. The international accounting
standard 1 provides a framework for preparation of financial statements (About international
accounting standard, 2019).
IAS 1- According to international accounting standard 1, the financial statements should include
following:
 Statement of financial position at the end of an accounting period (balance sheet).
 Statement of change in equity
 Statement of cash flow
 Statement of profit and loss

So all the financial statements of companies should be entitled by above mentioned points.
Basically, the international accounting standard makes financial statements fair and relevant to
business transactions. As well as international accounting standard enables to apply accounting
concepts to make financial statements comparable and reliable. Some accounting concepts are as
follows: going concern, accrual basis of accounting, consistency of presentation and materiality
etc.
TASK 2.
2.1 Feature of international finance and institution of international financial environment.
Covered in PPT
2.2 Contribution of international financial market and instrument as a source of finance.
International financial market- This can be defined as a kind of place in which financial
wealth is exchanged between two or more countries (Jung and Maderitsch, 2014). The
international financial market is being considered as a source of finance because of following
reasons:
 Global cash management- The international financial markets are helpful for managing
the cash at global level which act as the source of fund for individuals. This is why
because if companies invest their fund at world level then they have more opportunity to
earn the revenue which acts as a source of fund.
 As well as the international financial markets are also important for transferring the funds
from one agent to another for purpose of consumption.
So this is why international financial markets act as a source of finance.
Financial instruments- It can be defined as monetary relation between two or more parties. The
financial instruments acts as a source of finance because of following reasons:
 Shares- This is a main instrument for fund development. Basically, company's capital is
divided into multi-pal parts which is called shares. The shares are issued by companies to
general public to earn fund. Hence, it acts as a source of fund.

 Bonds- This is a kind of instrument which is related to getting fund from general public.
Eventually, the bonds act as a loan agreement between bond issuer and investor in which
bond issuer is entitled to pay specific amount at future date.
So, the financial instruments are also act as source of finance for companies. Such as the Luxury
chocolate limited company may raise the fund by issuing of bonds and shares.
2.3 Exchange rate market and importance of exchange rate for organisations.
Exchange rate market: This can be defined as a type of market place wherein currencies
of two nations are exchanged on the basis of exchange rate. Basically, the exchange rate is a kind
of rate on that currency of two countries is flipped. The exchange rate market is effected by
below mentioned factors like:
 Fluctuation in inflation rate
 Change in interest rates
 Current account deficits.
Importance of exchange rates- Herein, below importance of exchange rates for above mentioned
company is mentioned below:
 Better relation with other companies across the border- The key advantage of exchange
rate is that it is beneficial for making strong relation with other nation's companies
(Fennema, 2012). By this organisations can make transactions with international
companies. Such as in the Luxury chocolate limited company, they may create a better
relation with other companies which can help them in getting financial assistance.
 Companies can make purchase needed item from international countries by local
currency- As well as exchange rates are important for buying the needed products and
material from other international companies. It becomes possible only due to the
exchange rate mechanism. Herein, the Luxury chocolate limited company, they can make
transaction with other countries with the help of exchange rate.
TASK 3.
3.1 Capital requirement of multinational company

Capital requirement- This can be defined as a need of fund or capital of a company to
operate their business and functions. Herein, Tesco company's capital requirement is mentioned:
Case study
TESCO company based on UK which is engaged in supplying the various groceries items to its
customers wants to open new store at new location for increasing its market share. For this, it has
required some additional capital (pound 10 corer )to fund its new plan of establishing new store
and board of directors has present a proposal to raise fund with various sources of obtaining the
funds (capital). The proposed proposal for capital requirements is as follows:
Capital structure:
Equity: 1. Equity share capital
2. Preference share capital
Debt: 1. loan from banks
2. debentures
4 corer(40 lakh new shares of pound 10 each )
2.5 Crore (20.5 lakh new shares of 10 each)
2 Crore from the bank
1.5 Crore (10.5 lakhs debentures of 10 each)
Company's board shall require to evaluate that source of capital requirements which has least
cost of capital to the company.
3.2 Theory to develop capital structure:
Net income approach- As per this theory, an organisation may increase the total value by
minimising the cost of capital (Basu and Nair, 2012). In other words, when cost of capital is low
and value of firm is high then it will be the optimum capital structure. As well as on this point,
market price per share will be maximum. This is possible when:
 Cost of debt is less then cost of equity.
 There is no any tax
 The use of debt do not flex the risk perception of investors.
The Tesco multinational company may use this approach to fulfil their capital requirement.
TASK 4.
Information sheet

‘Approaches to International Financial Management’
Date- 29th July, 2019
To- Head of finance
From- Finance expert
Macro and micro-environmental factors that is effecting to international financial
decision-making:
The macro and micro-environmental factors have their significant impact on the international
financial decision-making. Herein, below some factors are mentioned below:
 Political factor- This factor is related to the political relation between two or more
countries (Benson, Faff and Smith, 2014). As well as political condition of a country is
unstable then it can be difficult to do international transaction between nations. Like in
Luxury chocolate limited company if they want to do monetary transaction with other
countries then it is important that political condition should be stable of UK.
 Economical factor- This is related to market situation of any country including interest
rate, inflation rate etc. For example in above mentioned company should take the
international financial decisions as per the economic condition of UK and other country.
 Social factor- Under this nations' culture, religion, various language etc. Same as the
Luxury company should make international transaction with those countries whose
language is understandable for them.
 Technological factor- In this factor, various kind of new and advanced techniques are
included. Such as in the international finance advanced technology plays an important
role because it makes monetary transaction among countries more fast and secure.
 Legal factor- Under this various laws, rules and regulations are included. Such as for
Luxury chocolate limited company, it is essential for them to do the financial
transactions with other countries as per the laws and regulations.
Analysis of international merger, acquisition and investment policies:
 International merger & acquisition- This can be defined as a process of buying and
amalgamation of firms across the countries. In other words, due to this smaller
companies can be merged by strong financial position companies. For international

financial management, this is important because due to this assets, liabilities and other
financial sources are exchanged across the border.
 Investment policies- This is related to a kind of policies by which companies can invest
their funds in the international companies (Bayon, Hawn and Hamilton, 2012). For
international finance, the investment policies are important because it leads to exchange
of money from one to another country at global level.
CONCLUSION
As per the above project report, it can be concluded that international finance is very
crucial for companies to exchange funds with other nations. In the project report, effect on
financial statements of IAS is concluded as well as concept of exchange rate market is
mentioned. Apart from it a case study is prepared indicating about capital requirement of Tesco
company. Along with an information sheet is also produced for head of finance and this sheet
includes information about impact of macro and micro-environmental factor on international
finance management decision-making. As well as concept of international merger, acquisition
and investment policies is concluded in report.

REFERENCES
Books and journals:
Frieden, J., 2015. Banking on the world: the politics of American international finance.
Routledge.
Jung, R. C. and Maderitsch, R., 2014. Structural breaks in volatility spillovers between
international financial markets: Contagion or mere interdependence?. Journal of
Banking & Finance. 47. pp.331-342.
Fennema, M., 2012. International networks of banks and industry (Vol. 2). Springer Science &
Business Media.
Basu, P. and Nair, S .K., 2012. Supply chain finance enabled early pay: unlocking trapped value
in B2B logistics. International Journal of Logistics Systems and Management. 12(3).
pp.334-353.
Benson, K., Faff, R. and Smith, T., 2014. Fifty years of finance research in the A sia P acific B
asin. Accounting & Finance. 54(2). pp.335-363.
Bayon, R., Hawn, A. and Hamilton, K., 2012. Voluntary carbon markets: an international
business guide to what they are and how they work. Routledge.
Online
About international accounting standard. 2019. online. Available through
<https://www.iasplus.com/en/standards/ias/ias1>