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Lecture International finance: An analytical approach (2/e) – Chapter 1: An overview

The goals of this chapter are: To identify factors that have led to the prominence of international finance, to explain the role of the financial manager, to verify the internationalisation of finance, to identify the developments leading to the formation of the present environment,. | Chapter 1 An Overview Objectives To identify factors that have led to the prominence of international finance. To explain the role of the financial manager. Objectives (cont.) To verify the internationalisation of finance. To identify the developments leading to the formation of the present environment. The Importance of International Finance International finance has assumed increasing importance at an accelerating rate. Things started to change with the collapse of the Bretton Woods system. The Importance of International Finance (cont.) The shift to floating exchange rates was accompanied by a trend towards the abolition of capital controls and the implementation of financial deregulation. International Business Firms Traditionally, the term refers to firms involved in importing and exporting. A multinational firm carries out some of its production activity abroad. International Business Firms (cont.) As the distinction between ‘home’ and ‘abroad’ becomes blurred, transnational firms emerge. Here, international firms indulge in international operations in the modern sense. Examples of International Interdependence A decision to change US interest rates affects Australian home owners. The Asian crisis affected the operations of Australian companies. The US accounting scandals (e.g. Enron) affected stock markets worldwide. The Micro and Macro Aspects of International Finance The micro aspects pertain to the financial operations of business firms, including financing, investment, hedging, arbitrage and speculation. The Micro and Macro Aspects of International Finance (cont.) The macro aspects pertain to the international monetary system and the determination of interest and exchange rates. The Role of the Financial Manager The financial manager needs to be concerned about: Fluctuations in exchange and interest rates Balance-of-payments difficulties The international debt problem The Effect of Exchange Rate Fluctuations Exchange rate fluctuations can demolish . | Chapter 1 An Overview Objectives To identify factors that have led to the prominence of international finance. To explain the role of the financial manager. Objectives (cont.) To verify the internationalisation of finance. To identify the developments leading to the formation of the present environment. The Importance of International Finance International finance has assumed increasing importance at an accelerating rate. Things started to change with the collapse of the Bretton Woods system. The Importance of International Finance (cont.) The shift to floating exchange rates was accompanied by a trend towards the abolition of capital controls and the implementation of financial deregulation. International Business Firms Traditionally, the term refers to firms involved in importing and exporting. A multinational firm carries out some of its production activity abroad. International Business Firms (cont.) As the distinction between ‘home’ and ‘abroad’ becomes blurred, transnational .