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INTERNATIONAL FINANCE

International Finance is a discipline of financing of the international subtitle style commercial Click to edit Master economic and relations between or among countries

Issues involved in international finance

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Varied Economic Systems Tariff and Non-Tariff Barriers Political Risk Environmental Safeguards Dumping Cultural Differences Language Difference Intellectual Property Rights Cyber Crimes Transfer Pricing International Taxation(Tax havens) Economic and Currency Crisis

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Credit rating

Credit worhiness is an essential part of entering in to any trade or payment agreement. India receipts can be permitted in the currency of the importing country or in any convertible currency.

In

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Methods of payment
Cash

in Advance/Prepayment

Cash in Advance/Prepayment occurs when a buyer sends payment in the agreed currency and through agreed method to a seller before the product is manufactured and/or shipped. Upon receipt of payment this seller then ships the goods and all the necessary shipping and commercial documents directly to the buyer.
Documentary

Collections

Using a documentary collection process requires that a seller ship the product and create a negotiable document, usually a

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Letters

of Credit

A letter of credit is a bank instrument that can be used to even the risk between a buyer and a seller since a buyer is guaranteed to receive payment if when he/she has complied with the exact requirements of this buyer. A letter of credit offers a seller numerous advantages but only if that seller complies exactly with its terms and conditions of the transaction. In addition to providing reduced risk for both a seller and a buyer, there are many variables that can be used with a letter of credit to reduce the political and commercial risks that may accompany the transaction as

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Open

Account

Open account occurs when a seller ships the goods and all the necessary shipping and commercial documents directly to a buyer who agrees to pay a sellers invoice at a future date.
Combining

Methods of Payment

The important thing to remember about methods of payment is that they are not absolute. They can be combined in many ways to reduce risk for all of the parties involved. For example, should a new customer require custom-made products, but cannot afford 100% prepayment, an exporter could offer 50%

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Definitions
Transfer Pricing: The price at which goods,services,technology and other resources are transferred between the parent company and foreign subsidiaries, and among subsidiaries is called transfer pricing. Tax Haven : Tax Havens are countries that impose little or no corporate income taxes. Cayman Islands, the Bahamas, Bermuda are tax havens. Some firms use tax havens to minimize their

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Definitions
Dumping: Dumping refers to selling a product at a high price in the home country and at relatively low price in the host country by an MNC. Intellectual Property Rights: The trinity of Intellectual Properties are patents, trade mark and copy right. The problem of privacy is haunting several leading companies and brands.

SCOPE OF INTERNATIONAL FINANCE

International Institutio ns Internati onal Finance

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Foreign Exchan ge Markets

Internationa l Financial Instruments

Balance of paymen t

Internatio nal Risk managem ent

International markets

Internati onal financial services

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Features of International Finance

In

IF, the important players are MNCs,TNCs,Global Companies, International Institutions such as IMF,ADB and World Bank. involves international economic and commercial transactions between or among the countries of the world. covers currency conversibility,exchange rates and foreign exchange markets. deals with inflow and outflow of funds on current account and capital account of Balance of Payments accounts of different countries.

IF IF IF

International companiesare importers and exporters, they have no investment outside of their home country. Multinational companieshave investment in other countries, but do not have coordinated product offerings in each country. More focused on adapting their products and service to each individual local market. Global companieshave invested and are present in many countries. They market their products through the use of the same coordinated image/brand in

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Features of International Finance

IF

covers international financial environment such as political,legal,exchange control,economic free trade agreement,mulitlateral and bilateral agreements. involves methods of financing international business and foreign trade. is concerned with product, technological developments in the countries of the world apart from FDI and FIIs Cash inflow. main aim of Global companies in IF is optimization of profit,maximisation of wealth and shareholder value by minimizing cost.

IF IF

The

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Domestic Finance Vs International Finance

There are three major dimensions that set international finance apart from domestic finance. They are;

Foreign Exchange and Political Risk Market Imperfections Expanded Opportunity Scenario

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Domestic Finance Vs International Finance

Domestic

Finance

International

Finance

Domestic finance does not exposed to foreign exchange risk and political risk of trading partner countries. It is not subject to market imperfections, which represent various frictions and difficulties preventing markets from functioning perfectly. Availability of portfolios for investments is limited.

IF is related to cross border transactions and they are potentially exposed to foreign exchange risk and political risk. It is very much subject to market imperfections because the MNCs have to operate in different economies such as communist, capitalist, socialist and mixed. Availability of portfolios for investments is wide and large across the nations in the world.

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Domestic Finance Vs International Finance

It hasMNCs venture into The no scope for access

the arena of to global markets. global Domestic Finance International Finance markets and thereby they can benefit from an expanded business opportunities including economies of scale.
It

has wider scope. It is limited in scope