StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

International financial management - Essay Example

Cite this document
Summary
Most investors in the UK and other parts of the world choose to place a portion of their portfolios in foreign securities. The decision, however, should involve an analysis of various mutual funds, exchange traded funds and bond offerings…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER96.8% of users find it useful
International financial management
Read Text Preview

Extract of sample "International financial management"

International Financial Management By: Most investors in the UK and other parts of the world choose to place a portion of their portfolios in foreign securities. The decision, however, should involve an analysis of various mutual funds, exchange traded funds and bond offerings. To be successful in this venture of overseas investment, the company must begin first by determining the risk that characterizes the investment climate of the countries under its consideration. This would involve a careful analysis of both the economic, political and business risks associated with such investments in these countries (Michalet, 1997, p.19). The main factor to be considered by the company before investing overseas would be the types of the markets to be penetrated. There exist the developed, emerging and the frontier markets. The developed markets are those that consist of the largest and most industrialized economies whose economic systems are well developed, with politically stable environments and where the rule of law is well entrenched. These markets are considered by several economists to be the safest investment destinations, but with lower economic growth rates often trailing those of countries in earlier stages of development. An investment analysis of such markets would concentrate more on the current economic and market cycles and less by the political considerations. This would be the situation when the firm decides to invest in the United States of America (Organization for Economic Co-Operation and Development, 2011, P.77). The Emerging Markets, on the other hand, represent those markets experiencing rapid industrialization with remarkably higher levels of economic growths. Such market conditions often translate into superior returns on investment as compared to the developed markets. They, however, are more risky with higher political uncertainties as compared to the developed markets. In these markets, closer attention should be paid to the country’s political environments and the potential for unexpected political developments when evaluating their economic potentials. Such is the case when investing in the Chinese market (Gómez et al., 2014, p.42). The other market consideration is the frontier markets that represent traditionally smaller markets as compared to the emerging markets. In such markets, there exist more restrictions on the ability of foreign investors to invest within its boundaries. They are potentially riskier than the emerging markets with low liquidity but could result in exceedingly high returns on investments. The markets provide more diversification benefits than the other markets and are associated majorly with the developing nations (Gómez et al., 2014, p. 48). When compared, investing overseas in the US would be less risky as compared to investing in China. More considerations and analysis would thus be given to the Chinese market. In such uncertain markets, the factors to be usually considered involve; Political Stability and legal considerations; this would be done with consideration to the government in place, its stability and policies. In the US, the government is more stable and with stable economic policies as compared to China. It should be a great concern for investors considering investing in the Chinese markets, with constantly changing governments, weaker regimes and economic policies. It is paramount to ascertain the attitude of the government and the people of the host countries before the company decides to commit resources overseas. Some of the indicators of a government’s willingness to foreign investment would include proper and streamlined procedures, the absence of bureaucratic hurdles and subsidies and incentives. It is also necessary to assess the tax structures and other legal systems and procedures in the host countries before deciding to invest in them. In most of the emerging markets as that of China, the legal systems tend not to be stringent, thus could present the company with the difficulty of implementing and enforcing its policies and contracts. The United states indices relating to corporate governance, legal/judicial effectiveness, public sector ethics and corporate ethics rates; are higher than that of China and goes to show the stability that exists in the developed markets as opposed to the emerging ones (Liaw, 2007, p.56). Trade Balance; another factor to consider would be the balance of trade payments of a country. Many emerging markets including that of China takes their strength from strong exports that indicate stronger domestic industries. These points towards a variety of things that include the country’s infrastructure, technological advancement and the government support (Liaw 2007, p.56). The existence of Investor Friendly Policies; another important factor would be whether the governments of the countries encourage direct foreign investments. This would be provided by the data on the existing inward foreign direct investment activities on the chosen county destinations. Several countries in most cases do not encourage foreigners to purchase companies or take larger stakes in their existing companies. On the other hand, some countries encourage foreign investments in order to grow their markets by giving such foreigners rebates and incentives (Chaudhuri & Mukhopadhyay, 2014, p.81). Infrastructure; another factor to consider and which applies across the board in terms of localities, industries and businesses are their access to the necessary infrastructures. In the developed markets, including that of the United States, access to these infrastructural facilities including roads, internet and electricity aren’t a major concern. However, in the emerging and frontier markets, they denote major inputs whose availability and access must be considered (Chaudhuri & Mukhopadhyay, 2014, P.90). China, despite most of the uncertainties associated with its market, present better overseas investing opportunities for the company more than the United States. This is majorly because of the superior returns of investments gained in its market. Other reasons making China a better alternative for investment include; Capital availability; China had emerged one of the largest recipients of foreign investments even surpassing the United States in 2000. With a thriving global economy, capital market, and a sustainable business environment, China has become one of the hotspots for interested foreign investors and multinational companies (GÓMEZ et al., 2014, p. 66). Competitiveness. Due to its rapid development, as an emerging market in infrastructure, resource availability, the productivity of its workforce and development of the business value chain, China has become a very attractive destination for foreign investors. There has been an increasing availability of low-cost and skilled employees in China, and this too has attracted investors as this has helped them in increasing their returns (Liaw, 2007, p.72). Market availability and an improved business climate; China’s population, the size of its market and the potential for growth presented by this size has been a pull factor for most foreign investors. The company’s products would require a sizeable and a receptive market in order to make gains on its investments, and this could be adequately provided for by the Chinese market (Liaw, 2007, p. 84). In a nutshell, most of the considerations to be made before investing overseas would depend on the nature of the market to be entered. Most investors are, however, attracted to the emerging markets because of the huge market availability. This is also motivated by the fact that the government and the local investors are not able to satisfy the local market due to inadequate expertise or financial resources. In these circumstances, it would be most prudent for the investor to consider the political and economic stabilities of their target countries before making the decision to invest (Turk, 2015, p.90). Reference CHAUDHURI, S., & MUKHOPADHYAY, U. (2014). Foreign direct investment in developing countries: a theoretical evaluation. http://dx.doi.org/10.1007/978-81-322-1898-2. GÓMEZ MERA, M. L., KENYON, T., MARGALIT, Y., REIS, J. G. A. D., & VARELA, G. (2014). New voices in investment: a survey of investors from emerging countries. http://search.ebscohost.com/login.aspx?direct=true&scope=site&db=nlebk&db=nlabk&AN=843009. LIAW, K. T. (2007). Investment banking and investment opportunities in China a comprehensive guide for finance professionals. Hoboken, N.J., John Wiley & Sons. http://www.123library.org/book_details/?id=7690. MICHALET, C.-A. (1997). Strategies of multinationals and competition for foreign direct investmen: the opening of Central and Eastern Europe. Washington, DC, World Bank ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT. (2011). Attractiveness for innovation location factors for international investment. [Paris], OECD. http://public.eblib.com/choice/publicfullrecord.aspx?p=714196 TURK, R. (2015). Financial Decisions and Investment Outcomes in Developing Countries: The Role of Institutions. Washington, United States, INTERNATIONAL MONETARY FUND. http://lib.myilibrary.com?id=763478. Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“International financial management Essay Example | Topics and Well Written Essays - 1000 words - 3”, n.d.)
International financial management Essay Example | Topics and Well Written Essays - 1000 words - 3. Retrieved from https://studentshare.org/finance-accounting/1689321-international-financial-management
(International Financial Management Essay Example | Topics and Well Written Essays - 1000 Words - 3)
International Financial Management Essay Example | Topics and Well Written Essays - 1000 Words - 3. https://studentshare.org/finance-accounting/1689321-international-financial-management.
“International Financial Management Essay Example | Topics and Well Written Essays - 1000 Words - 3”, n.d. https://studentshare.org/finance-accounting/1689321-international-financial-management.
  • Cited: 0 times

CHECK THESE SAMPLES OF International financial management

Expanding a Company to Operate Internationally in Israel

hellip; In international trade, terms of sale help to set out the obligations and rights of the buyer and the seller in a transaction.... These terms were mainly set and standardized by the international chamber of commerce (ICC) for world-wide use (Madura, 2011)....
3 Pages (750 words) Research Paper

Real Case study: Decisions in USASuperCars

Real Case study: Decisions in USASuperCars Name Professor Course Institution Date Executive summary This report focuses on understanding the effect of the financial decision made by the CFO of USASuperCars to sell its product to seven countries.... Introduction The objective of the report is to design a framework, which the USASuperCars can use in making proper financial decision in line with the statistical analysis.... The results would help in concluding on the significance of the realized variation, between the exchange rates, and the company's financial background required to withstand any witnessed fluctuations....
10 Pages (2500 words) Assignment

Foreign Exchange System

International financial management (2nd ed.... Considering that your company possesses only U.... .... dollars, identify the spot and forward exchange rates. The spot rate per Table 11.... is Y1 = $0.... 0903.... 0,… The forward exchange rate for a month from now is $0.... 0904....
3 Pages (750 words) Essay

Hedging Foreign Exchange Exposure

‘Hedging Foreign Exchange Exposure: Risk Reduction from Transaction and Translation Hedging', Journal of International financial management & Accounting, vol.... ) Maintenance and overhauling cost of each subsidiary is shown in their financial statement as opposed to financial statement of parents.... If the functional currency of the subsidiary of Qantas Limited is Australian dollar (AUD) then the subsidiaries financial statements would involve the statement of Assets and liabilities, revenue and income in the Australian dollar only....
2 Pages (500 words) Essay

The implications of the deviations of the purchasing power

Knowing that you have training in International financial management, they ask you for advice.... Exchange Rate Risk Measurement and management: Issues and Approaches for Firms.... The implications of the deviations of the purchasing power PPP of a multi-national company will get violated, when there exists any barriers to international trade or when there are any differences in the consumption taste of the people.... Question 3: Discuss the implications of the international parity theories for decision making in international business operations....
2 Pages (500 words) Essay

Exam - problems - multiple choices Paper

Covered interest rate arbitrage cause market realignment in the relationship between the interest rate differential of two currencies and the forward premium on the forward exchange rate between the two currencies. From the formula, future spot rate= current spot rate… ic inflation rate/1+ foreign inflation rate....
4 Pages (1000 words) Essay

Fundamentals of Finance

The international financial markets are in a very bad state.... nbsp; The state of the art technology is capable of detecting frauds, counterfeiting, theft, and management of goods as well as protection from potential threats to national security.... The company is originally a Bermuda-based which was made public in 2003 to allow more amenable financial options....
7 Pages (1750 words) Case Study

Exchange Rate Risks - Tiffany

(2011) International financial management, 6th edition, New York, NY: McGraw-Hill/Irwin.... It will also act as an opportunity to use policies flexibly in sourcing other forms of supply chain management ventures and diversify its options to spread the risks elsewhere.... The accountant or the CFO should take up the management of risks.... This way, Mitsukoshi will value its services and offer better returns. The aim of managing the risks is to adapt new measures that will induce financial hedging and improve operating exposure....
2 Pages (500 words) Case Study
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us