IFM NotEs

International finance management IFM is concerned with international business related financial function. International Business IB means international trade of goods and services and international productions and provision of services. Modes of International business 1. Foreign direct investment - Merger and acquisition, joint ventures. - Greenfield Greenfield investment can be made through opening of branch in a host country or through making investment in the equity capital of the host country, - Brownfield Brownfield is an combination of Greenfield and merger and acquisition. When a company goes for an international merger and acquisition and then makes huge investment by replacing plant and machinery in the target company. 2. International trade - Direct - Indirect 3. Contractual entry modes - eg, licensing franchising management contracts and turn key projects. Nature of international finance 1. Dynamic 2. Open system 3. Wide area 4. Versatile Libralisation In general, liberalization (or liberalisation) refers to a relaxation of previous government restrictions, usually in areas of social or economic policy. In some contexts this process or concept is often, but not always, referred to as deregulation Impact of Liberalistion 1. Economic integration 2. Competitive pricing 3. Economic development 4. Infrastructure development due to FDI and FII. 5. Up gradation in social and technological area 6. Boundary less trade Reason for integration of financial markets 1. Equal access of information 2. Equal development and growth opportunity 3. Pulling of resources 4. Increasing revenues 5. Better monitoring 6. Effective working 7. Proper guiding and mentoring Challenges of integration of financial services 1. Cut-throat competition 2. Small scale industry suffer

3. Massive fund flow 4. Different operating structure 5. Cultural issuev 6. Entry Barreiros 7. Political inferences 8. Economic crises International monetary system 1. Bartol System -\ Before 1875 2. Gold Standard1876-1913 In gold standard currency is pegged to a specific value of gold with 100% gold backing and with restriction free flow of gold. A country on the gold exchange standard linked its currency to the currency of a country on the gold standard. If a country on the gold exchange standard held the pounds as its reserve its currency was cover table into pounds and the pound was convertible into gold. Eg. If India want to do purchase any goods from Germany then first he have to purchase pond from rupees and then gold from pound than after only he can able to purchase goods from Germany. Rupees ------- Pound ---------------Gold ------------- Trade Suspension of gold standard 1. At the advent of 1st world war in 1940 the warring nations required expansion in monetary supply for financing the war activities this was not easy under gold standard. 2. It was leaded by transfer of fund policy 3. Currency area represented a group of countries which maintain a fixed exchange rates among themselves. 3. Breton wood system (Fixed rate Regime)1945- 1972 Developed at Breton wood conference Fixed parity system linked the value of currencies with a fixed amount of gold /us dollar. Adjusted peg meant deviation/upward revaluation of a currency. Us dollar was an intervention currency as it was directly convertible into gold. Other currencies were convertable into gold through us dollars. Eg. If India wants to do purchase an goods from Germany then first he have to convert rupees into us dollar or gold and than after he can purchase because acceptable currency is us dollar in this system Ruppes ------------ US Dollar/Gold------------Trade The IMF articles provide it for an orderly exchange rate regime each country was to setup for the par value of its currency in term of gold or us dollar. Change up to 5% currency exchange rate did not require any prior approval of IMF but beyond it approval of IMF was necessary. Exchange / Floating rate regime since1973 Floating rate regime involves market forces determining the exchange rate its merits are: 1. Exchange rates are automatically adjusted to changes in macro- economic variables . 2. Exchange rate is almost stable around the equilibrium in the long run. 3. Currency remains untouched from the global shocks. 4. Trade and investment get stimulus