Financial Aspects

of
International Business
Session 15 & 16

Ravenshaw Business Center

MBA-II : December, 2009
B.S.Pani
 Financing
International
Operations

• Finances are needed to fund and support operations in

any business.
• Questions to be addressed:
- How do we raise funds to do off-shore business?
-Where is the money to be deployed?
- How is the money to be invested?
- How is the earning to be retrieved?
- How to evaluate international Investment potential
appraisal
• Invests are made as either “Direct Foreign Investments”
or “Portfolio Investments”.
 Features of International
Business Investments
• Overseas operations involve sending capital out of home
country.
• Capital can be in the form of money or kind to finance
equipments, , plants, establishments and operations.
• The capital thus sent out cannot be returned to home
country except under strictly defined conditions set by the
recipient country.
• Investments are vulnerable to currency and interest rate
fluctuations, protective duties and restrictive entry and exit
regulations.
• Involvement of both home and recipient Governments.
 Factors supporting
overseas
investments
• Interests of Governments to attract and retain large scale investments to
create local jobs and industrial, economic and social development.
• Utilize tax and fiscal incentives offered by prospective host countries.
• Utilize avenues to make excess domestic funds more productive.
• Utilize host country’s resources ( raw material, manpower, local skills,
overall manufacturing/production and operational advantages, etc.) for
the home country’s advantage.
• Utilize market access to maximize life cycle utilization use of home
country technologies and products.
• Create derived demand for home country products and technologies.
• Follow competition to new grounds.
• Secure source of supplies for home country industries and businesses.
 Impact of Foreign
Direct Investments
Positive Impact Negative Impact
Capital Formation Industrial dominance
Technology and Management skill Technological dependence
acquisition

Regional and sartorial development Disturbances to economic plans

Internal competition and Cultural Changes

entrepreneurship

Balance of payment Interference by home Governments

of MNCs

Labour utilization and skill

development
 Raising International Finance
• Sources of funds for doing International Business
- Self Finance.
- Trade credits and financial assistance from traders
- Borrowings from affiliated firms and self accruals
- Raisings from equity markets
- Buying in the international fund markets (London,
Paris, New York, Singapore, Bahrain)
- International banking circles of home, host and
international circles.
- Inter Govt. and economic block credits and export
incentives.
 Foreign Exchange Markets
• Companies needing to make payments for foreign
transactions need foreign currency.
• There are no specific trading floors for FE transactions.
• Purchase, parking and selling deals are managed by
banks and foreign exchange dealers.
• It is a virtual market that operates 24 hrs .
• FE transactions can take place for :
- Providing credit for IB for L/C, Bill of Exchange,
Long Term Loan etc.
- Clearing functions
-Fund Hedging
- Insuring investments, profits and market operation
( Spot & Forward)
 Finance Related Managerial actions
in IB
• Investment Decision – Risk analysis, Assessment
of payback, market access
• Currency Management – Forward currency
contracts to reduce both buyer risk and buyer
resistance.
• Export Credit and insurance- Use of credit and
export policies as part of marketing mix.
• Pricing Policy- Pricing Research, Trade off
analysis, Implementation of market based pricing,
cost monitoring, offshore book keeping and
financial MIS
• Business audit
• Financial risk assessment