International Finance
In the last few decades we have seen the Internationalization of firms scaling heights owing to the revolution in communications, transportation, information and trading systems. Keeping up with the latest internationalfinance trends of Globalization and Internationalization, many firms are looking out for new markets and resources outside their regular regions of operation and a lot of countries today have become more receptive to foreign competition for their economies, hence evolving in sophistication and industrialization providing many opportunities for import and export.
In this scenario, International Finance doesn’t stop at national boundaries but there is no distinct line separating Inter and Intra- national Financing.
What is international finance?
International Finance is funds and currencies that are globally acceptable. The funds are International in the sense that
the demand for and supply of funds come from any part of the world. International Finance is concerned with International dimensions of Corporate Financing, access to International Financial markets, institutions and instruments and techniques and their inter linkages. Global Finance markets comprise of both short, medium and long term finances and the demand and supply for them. These markets arise from demand and supply for foreign currencies by corporate firms, individuals, Governmental and Semi-Governmental bodies.
As the agencies belong to a nation and it has its own currency, the demands for all other currencies from International markets necessitate conversion of those foreign currencies into domestic currencies. The foreign exchange market comes into picture and this is an adjustment to the foreign currency markets. International Finance Markets thus comprise of Money and Capital Market for convertible currencies and off shore funds and encompass both the foreign currency markets and foreign exchange markets.
Key Players of the International Market:
The main users of International Market are the MNCs, Domestic Companies and Government and Government Bodies, PSUs, Banks and Security dealers, and firms are important constituents of these markets.
Investors everywhere in the world look for investing in companies which would provide them with highest returns and for this they wouldn’t mind investing the securities of institutions in countries other than their own country. Similarly even corporations are in constant search of potential markets and resources in countries other than that of their origin.
By definition, Multi-National Corporations are those corporations which operate in more than one country. They are engaged in producing and selling in many countries or producing in some countries and selling in the same/other countries. The modusoperandi is that the parent company in one country would have subsidiaries or joint ventures in a number of other countries.
Features of MNCs
MNCs have a different state of mind. They think, globally, plan globally and act globally. In any decision of expansion or diversification they think in terms of where in the world they should set up their next plant. They establish themselves in countries which provide them the benefit of:
» Unique abilities to exploit natural resources, favorable regulator or tax climate high labor productivity, low wages, low raw material costs.
» Unique Abilities from intellectual property like patients, copyrights, brands, managerial expertise or technological process.
» Expertise to apply their abilities described above to exploiting market imperfections in the International Market.
There are many factors that segregate MNC Finance from the normal domestic Finance, these factors include:
• The MNCs seek out its capital needs from low cost markets on International Basis.
• Its investment proposals are decided on a global basis and decided on simple cost benefit principle. The investment opportunities are spread over the whole world and not confined to a single country,
• It was a commitment, dedication and perseverance to seek out opportunities in other countries for a joint venture, subsidiaries or branches for integrated production or sale for integrating production to marketing. It has no national barriers. It has competence and management skills and financial support to think and act globally.
• It is necessary for MNCs to integrate worldwide operations. Its expertise lies in identifying its core competence and spread this expertise across nations without any natural barriers.
• MNCs have flexible plans, adaptability and quickness in decision. Innovation, Initiative and Competence with a vision are necessary inputs to the International Players. They have the best talented management and put the right person in place to operate on an independent basis and show results by which he is judged. Competition is taken as a challenge and they meet this with ease by lowering costs and raising the profit margins. The global operations are planned in a manner that overall total operations result in maximum profits. It is not always necessary that each country units show net profits or that each unit should be self sufficient and profitable but the total net profits of all units should be maximized and share holders’ wealth is optimized.
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