International Financial Management
1. Introduction
2022-23
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Main dimensions of International Financeis

International financing covers a broad financial field. These are aspects that have to do
with the existence of many different countries. This complicates the life of a financial
manager in many ways.
For example:

the existence of national currencies and, therefore, the question ofexchange rates and
currency risk;

the existence of different judicial systems, which further complicates the issue ofcredit risk;

the sovereign autonomy of countries addspolitical risksto thecommercial risks;

the existence of different and sometimes incompatible tax systems, giving rise to questions
ofdouble taxationand triple.
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Exchange and Political Risks

Exchange Rate Fluctuation: affects production and
investment costs and the total value of revenues,
expenditures and results.

Political risks: unexpected changes in the fiscal framework,
in the rules on foreign investment, in the profit repatriation
regime, in access to production factors, etc.
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International market opportunities

Access broad product markets;

Lower costs ofFunding(Financing)

Possibility of economies of scale in production: reduction of
average production costs and financial means.
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Who is interested in International Finance?

multinationals

Companies that import or export

Companies that finance themselves abroad

Domestic companies in competition with external
companies
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The example of currency exposure…
1. Does a company that does not have operations abroad face any operational currency
exposure?
two. Do only companies with exports or companies that compete with foreign exporters
face operational exposure?
3. Does a company that denominates all of its contracts in local currency or hedges all of
its contracts in foreign currency face operational exposure?
Almost all companies facesome operational exposure, although some are only exposed
indirectly (through the country's general economic activity).
As large economies have a major impact on world economic activity, companies in these
countries tend to be very exposed to exchange rates.
The smaller the country, the more open the economy. Therefore, the exposure is relevant
to most companies in a small country with an open economy.
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The Financial Function in a Globalized Economy

International Finance combines elements of Corporate Finance with themes of
International Economy;

Markets are now more interdependent and international finance is an important
element in the management of companies that have decided to go international;

Companies have international assets or operations in foreign markets and obtain part
of the revenues and results in these markets;

In the international context, companies face difficulties arising from the economic,
financial and legal complexities of each country different from the domestic context.

International financial management presupposes theunderstanding of the set of
international financial risks.
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The functions of international financial management

They include valuation of assets in foreign currency (exports, imports, investment
projects, …);How to update cash flows subject to commercial, exchange, political, tax risk? How
to determine the cost of capital?

International funding;In an international setting, should loans be denominated in
local/domestic or other currency?

risk coverageexchange rate and management of other risks. One of the financial
manager's tasks is to reduce risk by hedging exposure. There are many other sources of
uncertainty besides exchange rates, such as interest rates or commodity prices.

These functions cannot be seen in isolation: evaluation,hedgeand funding are
interrelated.
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