ifm lesson 1
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INTRODUCTION
• Definition: International Finance
• It is an extension of corporate finance to a
global context and fundamentally involveste management of international business
related financial functions!
•
IF means international trade of goods andservices" FDI and contractual
collaborations
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INTRODUCTION
• Definition: International #usiness
• It is essentially carrying on te international trade of
goods and services and international production of
goods and provision of services!• Definition: International Trade
• IT involves export and Import of goods and services!
Firms export to penetrate te mar$et and import to
obtain supplies at a lo%er cost!
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INDI& : 'xports ())*
+a,or commodities exported %ere petroleum products" +acinery" Iron
and steel" cemicals" automobiles" apparel" %ite goods and precious
stones and metals!
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INDI& : I+-ORT. ())*
10.8 6.9
6.7 6.7 4.2
0 2 4 6 8 10 12 in %
China Saudi Arabia
USA UAE Iran
India: Imports 2009
+a,or commodities imported %ere precious stones" fertili/er" iron and steel"
gold and silver" electronic goods" macinery" organic and inorganic
cemicals" metalliferous ores and products" coal and transport e0uipment!
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Direct and Indirect 'xports
• Definition: Direct 4Indirect 'xports
• Direct export means tat a firm ta$es
direct responsibility for ma$ing its goodsavailable in te target mar$et by selling
directly or troug its agents!
•
Indirect export means %en te enterprisesells its product to te end users troug
its intermediaries!
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#ilateral Trade
• #ilateral trade also $no%n as counter
trade is bartering of goods and services!
•
5lobal Trade Ratio:• 6alue of a country7s overall trade 4 5D-
• &bout 238 as compared to Cinas 3)8
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.cope of IF+
• .cope of International financial management can be
outlined as follo%s:
• IF+ fundamentally is involved %it te management of
international business related financial functions
• IF+ deals %it multiple currencies and ence as tomanage te fluctuations in te forex mar$et including te
mar$et for derivatives
• IF+ as to design and manage te excange rate ris$"
interest rate ris$" inflation rate ris$" credit ris$ and te
political ris$
• IF+ as to address te issues pertaining to te foreign
direct investment and te foreign portfolio investment
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.cope of IF+• Te scope of IF+ also covers te international securities mar$et"
international excanges and bourses
• Cross border financing and investment enances te scope of IF+
to international accounting practices and set global accounting
standards
• .imilarly IF+ enances te scope of tax la%s and taxation strategyof not only te ome but also te ost country
• .cope of IF+ also covers te diverse %or$ing capital management
of +NCs
• IF+ is concerned %it te balance of payments in internationaltransactions of a country
• IF+ addresses te multiplicity of regulatory environment and aids
in te decision ma$ing process of bourgeoning and increased
complexities of international business
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.cope of IF+
• Case .tudy 2!2
• 9al+art is te largest retail store in te U.! It operates over ;"))) retailfacilities globally! &lso" te company is te dominant retail store in Canada"+exico" and te United <ingdom! &ccording to te Fortune =)) index of te
%ealtiest and most po%erful corporations in te %orld" 9al+art olds tenumber one spot" ran$ed by its total sales!
•Te company>s competitive strategy is to dominate every sector %ere itdoes business! It measures success in terms of sales and dominance over
competitors! Its strategy is to sell goods at lo% prices" outsell its competitors"
and to expand! & typical 9al+art model is to build more stores" ma$eexisting stores bigger" and to expand into oter sectors of retail!
•Te company is proud of its strategy and even incorporates it %itin itsmoni$er ?&l%ays @o% prices" &l%ays!? 'very step of te %ay" it strives to
ma$e money and dominate its competitors" to te point of putting some of
tem out of business!
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.cope of IF+
• Case .tudy 2!2
• Te year ())A mar$ed te most significant retrencment for9al+art since it undertoo$ its international expansion in te
early 2**)s" in an effort to re,uvenate sales gro%t! 9al
+art" te %orld>s largest retailer" admitted defeat in its long
standing effort to penetrate successfully te 5erman retailmar$et!
• On Buly 3)" ())A" te company announced tat it %as
selling its operations in 5ermany to 5erman retailer +etro
&5! 9al+art ad been trying to ma$e its 5erman storesprofitable for eigt years! 9al+art announced a pretax loss
on te sale of 2 billion!
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.cope of IF+
• uestions:
• 9at %ere te reasons for te failure of 9al+art in itsambitious plans to capture te 5erman mar$etE
• 9al+art also experienced a loss of seasoned executives
%en it ac0uired several 5erman retailers! 9y did te
executives leave rater tan relocateE
• 9al+art>s 5erman operations ad four presidents in eigt
years! 9as it a uman failure tat 9al+art found te going
toug in 5ermanyE