ISSUES OF INTERNATIONAL FINANCE

THE VARIOUS ISSUES ARE AS FOLLOWS

Varied

economic systems Tariff and non-tariff barriers Political risks Environmental safeguard Dumping Cultural difference Language differences Intellectual property rights Cyber crimes Transfer pricing

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 Economic

and currency crisis Interest rates Foreign exchange risk Cold war International business cycle Operational risks Global terrorism International cash management Credit worthiness Methods of payment Foreign exchange market

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VARIED ECONOMIC SYSTEM

Economic system refers to the kind of governance of a country. It my be based on Communism, Socialism and mixed economic principles.

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TARIFF AND NON-TARIFF BARRIERS

Tariff- Its a kind of tax imposed in international trade. Non-tariff- the WTO is an agency to reduce tariffs. By rejecting the goods for the reason of environmental safety, health hazards, labor standers etc is called as non-tariff barriers.

POLITICAL RISK
The instability in the governance in different countries. The change in government policies makes MNCs to step back in many occasions.

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ENVIRONMENTAL SAFEGUARD
The major issue today is global warming i.e. Ozone layer depletion and Green House effect. The global business and the environmental protection should go hand in hand.

DUMPING
It means selling a product at a high price in the home country and at low price in host country. It ruins industries and employment opportunities in the host country especially small scale industries.

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CULTURAL DIFFERENCES
The MNCs should cope with cultural differences and adopt themselves to the cultural and subcultures of the host country. They define their goals, attitude, dealing with employees etc very dramatically from one country to another.

LANGUAGE DIFFERENCES

Different countries negotiate in different languages like India and America in English, France in French etc.
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INTELLECTUAL PROPERTY RIGHTS

Intellectual property rights are patents, trade marks, copy rights etc. The invention of new things require R&D set up by firm. The problem of privacy is haunting several leading companies and brands.

CYBER CRIMES
It is a crime committed with the use of computer and internet The privacy is interrupted, money in some others account are withdrawn, manipulated and transferred.

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TRANSFER PRICING

In any international business there are normally many transactions of goods or services between parent and subsidiaries. The price at which goods or services are transferred within the firm is called Transfer Price.
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ECONOMIC AND CURRENCY CRISIS

During the time of economic crisis and currency crisis the international business and finance also faces the impact such as Asian crisis or Malaysian crisis etc.

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INTEREST RATES
The rate of interest charged by the world bank is increasing day to day which raises cost of capital and the profitability of the firm is thus reduced. Interest rates is a parameter in global finance which plays a prominent role in production and operational risks of a global firm.

FOREIGN EXCHANGE RISK

It is referred to the difficulties faced by a firm or an individual owing to the fluctuations in exchange rate. The exchange rate is based on the market forces of demand and supply of foreign currencies at a particular time.

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COLD WAR
The cold war is because of hatred and jealous between two countries. Due to this cold war the international business and finance is also affected.

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INTERNATIONAL BUSINESS CYCLE

The business cycle has various stages such as inflation, deflation, revival and recession. The MNCs operating in different countries have to take care of the issues arising out of the different phases.

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OPERATIONAL RISK
A global firm operates in various countries. Its production plant, assembly unit and service units are spread all over the world. Risk involved here are political risk, foreign exchange risk, commercial risk and country-specific risk.

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GLOBAL TERRORISM
Terrorism obstructs the flow of economic activities. It worsens the import and export trade. The countries which want have cordial relationship with other countries will hesitate to have relation with terror hit countries.

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INTERNATIONAL CASH MANAGEMENT

It is the major task for the financial managers of MNCs. They have to minimize cash balances, currency conversion cost and foreign exchange risk.

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CREDIT WORTHINESS
Trade and payment between two countries are an integral part of international finance. The importance of credit worthiness of country party and counter country and their credibility in sticking to contractual terms.

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METHODS OF PAYMENT
Every shipment abroad requires some kind of financing while in transit. The exporter needs funds to buy or manufacture goods and importer has to carry these goods in inventory until they are sold.

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Letter of credit

Cash in advance

Drafts

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IF
Consign ments Open account
Electronic fund transfer

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FOREIGN EXCHANGE MARKETS

Foreign

exchange market is the market in which currencies are bought or sold against each other. The currency appreciation and depreciation of a particular country will affect MNCs business considerably. Eg. When Indian rupee got appreciated many global firms experienced decline in profitability and productivity

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International Finance