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(EDITED) Lesson 18

International finance involves the proper management of finances on a global scale to maximize shareholder value and profits. It aims to identify optimal strategies for managing assets, liabilities, political risk, and foreign exchange risk. Companies expand internationally for reasons such as accessing cheaper resources, extending to new markets due to domestic market saturation, and gaining competitive advantages. Major regulators of international finance include the World Bank, International Monetary Fund, and government agencies that implement trade rules and regulations.

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68 views6 pages

(EDITED) Lesson 18

International finance involves the proper management of finances on a global scale to maximize shareholder value and profits. It aims to identify optimal strategies for managing assets, liabilities, political risk, and foreign exchange risk. Companies expand internationally for reasons such as accessing cheaper resources, extending to new markets due to domestic market saturation, and gaining competitive advantages. Major regulators of international finance include the World Bank, International Monetary Fund, and government agencies that implement trade rules and regulations.

Uploaded by

Mai Ruiz
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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LESSON 18: What is International Finance?

TARGET

At the end of the lesson, you should be able to:

 Understand what international finance is;


 Know the goals of international finance; and
 Explain why companies decide to go global.

EXPLORE

Create a graphic organizer by writing down what you know about international finance
using the following guide questions. Compare and discuss your answers with a group.

Guide questions:

1. Define international finance.


2. Enumerate the goals of international finance.
3. Identify the reasons why companies go global.

EXAMINE

In today’s world, competitive strategies include expanding to other markets, which


includes the international scene. Although there are differences in laws and regulations
for every country, there are similarities in the issues that businesses face in dealing with
the international market.

Knowing the international landscape will assist business owners in dealings that may
affect the firm. Strategic movement and trade flexibility has made international
exchanges more rampant and quite famous in the past years. Aside from this, there has
also been some form of saturation in domestic markets. Industries that have established
strong domestic market dominance would look into exporting and trading as global
companies.

1
International Finance

International Finance, also known as International Financial Management (IFM),


discusses the proper management of finances at a global scale. The goal of financial
management still holds true which is to maximize shareholder value.

Goals of International Finance

International Financial Management has two primary goals - maximization of


shareholder wealth and maximization of profits. It aims to identify how assets should be
properly managed to ensure that cash inflow is uninterrupted and is used optimally.
Once this is achieved, the business is expected to bring high yields.

Aside from the aforementioned primary goals, international financial management also
has two secondary objectives concerning risk management. Firstly, IFM aims to assist
business owners in identifying the optimal interest rate on liabilities to be incurred by
the business. It determines the best cost and capital structure to maximize returns.
Secondly, IFM helps business owners in the proper management of political risk and
foreign exchange risk. The volatility of foreign exchange rates and the instability of the
international political scene affect the way businesses carry out their operations.
Changes in laws and regulations in different countries may cause delays or trouble with
the operations of global companies. IFM assists managers and owners in dealing with
these risks in order to maximize returns.

Reasons Why Companies Go Global

Several companies aim to internationalize their operations, as going global means a new
level of success for them. Advances in technology made trade more efficient and
convenient. Listed below are the reasons why companies aim to go global.

Cost Efficient Opportunities

Some countries offer cheaper labor and resources compared to the others. Companies
find it as a cost-cutting measure to uproot their assembly line and shift their supply
chain into a country that offers lower costs on labor and resources.

2
Extending to International Markets

Saturation in domestic markets limits a business’ opportunities to yield higher returns.


It is for this reason why for some companies, the best and most strategic move is to
extend selling their goods and services into the global scene.

Competitive Advantage

In order to thrive in tight competition, some companies strategically expand their


business operations into the international market. This is a way for businesses to
diversify as they penetrate different markets. For example, companies engaged with
technology modify their products to fit different tastes and standards of living to
uncover new markets.

Due to the rise of new and more flexible trade agreements, barriers to entry in the
international market is not as tight as it was before.

Regulators of International Finance

When currencies are exchanged for foreign goods, transactions pass through different
intermediaries. To prevent fraud, like money laundering, from occurring, there are
agencies that ensure and regulate the international movement of finance.

World Bank Group

The World Bank Group was established in 1944 with the aim to assist in the
development of the poorest countries. The Group includes the International Bank for
Reconstruction and Development (IBRD), International Development Association
(IDA), International Finance Corporation (IFC), Multilateral Investment Guarantee
Agency (MIGA), and International Centre for Settlement of Investment Disputes
(ICSID). They assist companies worldwide by giving them opportunities to be a part of
the global trading system.

3
International Monetary Fund

The International Monetary Fund, comprised of 183 countries, promotes global


monetary cooperation, boosts exchange stability, and advocates economic growth by
providing financial assistance to countries.

Government Agencies of Different Countries

Governing bodies in different countries implement rules to ensure that international


trade is not used to guise illegal activities. There are regulations to ensure that
companies are complying with laws to duly register their business and transactions. In
the Philippines, importation and exportation of goods are regulated by requiring
businesses to register such transactions and ensuring the quality and safety of products
among the consuming public. Agencies such as the Bureau of Customs regulate the
movement of goods and impose customs duties.

4
INTEGRATE

1. Which do you prefer more when buying products, local or international?


2. What makes people choose international over local products? Cite references.
3. Study the importation and exportation data of the Philippines. How does the
Philippines stand in the international or global arena?

EQUIP

“International Financial Management” by eFinanceManagement

https://www.youtube.com/watch?v=O3PPzdqwRd8

“Methods of Entering International Markets” by tutor2u

https://www.youtube.com/watch?v=drK_S95gCJU

“Factors Influencing the Attractiveness of International Markets” by tutor2u

https://www.youtube.com/watch?v=9t61OlAIdDc

“Why Businesses Go International – International Business, Trade and Marketing” by


Rexel Agapay

https://www.youtube.com/watch?v=2dCHppzU5W0

“International Finance Lecture Series” by Understanding Finance

https://www.youtube.com/playlist?list=PLKmyivlcwsOL1FBQTXjKYyVCwuvV2

A1-i

BUILD

Reflect on your day-to-day activities and surroundings. Write a 3-page reflection paper
on how you view local vs international products. Tackle colonial mentality and
#supportlocal.

5
CHECK

A. Essay (30 Points)


1. Compare and contrast local, national and international companies. (10 Points)
2. Explain how Business Process Outsourcing helps companies. (10 Points)
3. Discuss the positive and negative effects of labor outsourcing for both the
companies and the laborers. (10 Points)
B. Enumeration (20 Points)
1. Goals of International Finance (8 Points)
2. Reasons Why Companies Go Global (6 Points)
3. Regulators of International Finance (6 Points)

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