Learning Unit 7
Reading Material
International Financial Management
(Selected extracts from the Book on International Finance Management by Professors
P.K.Jain, Josette Peyrard and Surendra S Yadav)
- General Introduction
International Financial Management is the management of the financial operations
relating to international activities of business organizations, in the form of expansion of
existing business in foreign countries, decision of setting up a plant abroad or
participating in the investment in another country. Setting up of joint ventures, exporting
and importing of goods and services, financing of subsidiaries abroad and distribution of
dividends on the profits earned by a multinationals etc.,
The process of economic reforms and globalization and the emphasis on privatization by
the World Bank and IMF, increased international economic activity.
The following are the important stake holders for international Financial Management
- Multinational corporations having subsidiaries in several countries.
- Public sector companies dealing with foreign companies;
- Small enterprises that may have to deal with foreign companies once in a while ;
- Banks and financial establishments.
2. Balance Of Payments
Balance of Payments (BOP) records commercial, financial and economic flows between
the residents of a given country and those of the rest of the world during a certain period
of time, generally a year. It measures flows rather than stock.
The resident of a country means any individual, business organization, government
agency or any other institution.
A BOP statement is kept in the form of sources (credits) and uses (debits) of funds. This
record enables us to know whether the country has/had a net surplus or deficit during the
referred period. If a country receives more funds from abroad than it spends, it has a
surplus of BOP. If expenditures abroad by residents exceed what the residents earn or
receive from abroad, the country has a deficit of BOP.
The major sources of funds for a country accrue from:
- Exports of goods and services;
- Sale of existing foreign financial assets ;