INTERNATIONAL FINANCIAL MANAGEMENT

VS
DOMESTIC FINANCIAL MANAGMENT

 INTRODUCTION
 IFM VS. DFM
 CONCLUSION
 International Financial International
Management is a well-known Financial
term in today’s world and it is Management came
also known as international into being when the
finance. It means financial countries of the
management in an international
business environment. It is world started
different because of the opening their doors
different currency of different for each other. This
countries, dissimilar political phenomenon is
situations, imperfect markets, well known by the
diversified opportunity sets. name of
“liberalization”.
International finance is different from domestic finance
in many aspects and first and the most significant of
them is foreign currency exposure. There are other
aspects such as the different political, cultural, legal,
economical, and taxation environment. International
financial management involves a lot of currency
derivatives whereas such derivatives are very less used in
domestic financial management.

In domestic financial management, we aim at minimizing

the cost of capital while raising funds and try optimizing
the returns from investments to create wealth for
shareholders. We do not do any different in international
finance. So, the objective of financial management
remains same for both domestic and international finance
i.e. wealth maximization of shareholders. Still, the
analytics of international finance is different from
domestic finance.
IFM
It’s an additional risk which a finance
manager is required to cater to under an
International Financial Management setting.
Foreign exchange risk refers to the risk of
fluctuating prices of currency which has the
potential to convert a profitable deal into
a loss making one.

DFM
In domestic financial management the
finance manager is required to deal in
domestic currency only, there is no need to
deal with foreign exchange, so there is no
currency exchange risk.
IFM
The most significant difference is of foreign
currency exposure. Currency exposure impacts
almost all the areas of an international
business starting from your purchase from
suppliers, selling to customers, investing in
plant and machinery, fund raising etc.
Wherever you need money, currency exposure
will come into play and as we know it well
that there is no business transaction without
money.
DFM
In domestic financial management exposure to
a single currency of particular country.
Entire business transaction takes place in
single currency.
 IFM
In international
financial
management we DFM
use derivatives In domestic financial
instrument to management we do
hedge the risk. not use derivatives
because there is less
risk.
IFM
The other important aspect to look at is the
legal and tax front of a country. Tax impacts
directly to your product costs or net profits
i.e. ‘the bottom line’ for which the whole
story is written. International finance
manager will look at the taxation structure
to find out whether the business which is
feasible in his home country is workable in
the foreign country or not. The manager has
to deal with different tax structure and legal
laws & it’s difficult to manage this.
DFM
In domestic financial management the
finance manager have to deal with domestic
country’s legal rules and tax structure. He
is more familiar with the laws of domestic
country.
IFM
An international business is exposed to
altogether a different economic and
political environment. All trade policies
are different in different countries.
Financial manager has to critically
analyze the policies to make out the
feasibility and profitability of their
business propositions.

DFM
In domestic financial management the
manager is well aware the local macro
business environment and he have to
deal with macro business environment
of single country.
IFM
If the business has a presence in say US and
India, the books of accounts need to be
maintained in US GAAP and IGAAP.It is not
surprising to know that the booking of assets
has a different treatment in one country
compared to other. Managing the reporting
task is another big difference. The financial
manager or his team needs to be familiar
with accounting standards of different
countries.
DFM
In domestic financial management have to
deal with reporting standard of domestic
country only.
IFM
In an MNC, the financial managers have
ample options of raising the capital. A
number of options create more challenge
with respect to the selection of the
right source of capital to ensure the
lowest possible cost of capital.

DFM
In domestic financial management,
there is single market to raise capital,
there is no option go outside the
domestic boundaries.
 IFM
The international financial
management have to deal and
follow the banking regulations
of different countries. The
different banking rule and
regulations may negatively
impact the international
financial management.

DFM
The domestic financial
management have to deal with
banking rules and regulations of
domestic country. There is
more familiarity with banking
rules and regulations
 IFM
The international financial
management deals with cultural
differences of different countries,
values, traditions etc differ
country to country. It effects the
international financial
management

DFM
The domestic financial
management deals with
cultural environment of
domestic country, so there is
less risk due to cultural
differences.
IFM
It is not only which along matters, there
are other things which carry greater
importance as the group of
suppliers,customers,lenders,shareholders
etc.All they carry altogether a different
culture, a different set values and most
importantly the language also may
different. All this effect the international
financial management.

DFM
The domestic financial management
deals with stakeholders of single country
and more information available about
their like,dislike,preferences etc.
 may be such more Just like domestic financial management,
points of difference the goal of International Finance is also to
between international maximize the shareholder’s wealth. The
and domestic goal is not only is limited to the
‘Shareholders’ but extends to all
financial ‘Stakeholders’ viz. employees, suppliers,
management.
Mentioned above are customers etc. No goal can be achieved
lists of major without achieving welfare of shareholders.
differences. We need In other words, maximizing shareholder’s
to consider each of wealth would mean maximizing the price of
the share.
them before taking Here again comes a question, whether in
any decision involving which currency should the value of the share
multinational financial be maximized? This is an important decision
environment. to be taken by the management of the
organization.