International Business Cartoon 2

Importance of International Financial Management

International financial management deals with the financial decisions taken in the area of international business. The growth in international business is, first of all, evident in the form of highly inflated size of international trade. In the immediate post-war years, the general agreement on the Trade and Tariffs was set up in order to boost trade. It axed the trade barriers significantly over the years, as a result of which international trade grew manifold. Naturally, the financial involvement of the trader's exporters and importers and the quantum of the cross country transactions surged significantly. All this required proper management of international flow of funds for which the study of International Financial Management came to be indispensable.

Not unexpectedly, the second half of the twentieth century witnessed the emergence, and fast expansion, of multinational corporations. Normally, with the growth of international trade, the products of the exporter become mature in the importing countries. When the product becomes mature in the importing countries, the exporter starts manufacturing the product there so as to evade tariff and to supply it at the least cost. Thus it would not be wrong to say that the emergence of the multinational companies was the by-product of the expansion in world trade. There were some countries in the developing world too which were liberal in hosting the multinational companies. They imported technology on a big scale and built up their own manufacturing base. As a result, their own companies went international. Thus multinational company's emergent not only in developed countries but also in the developing world and because of their operation the cross country flow of funds increased substantially. The two way flow of funds, outward in the form of investment and inward in the form of repatriation divided, royalty, technical service fees, etc., required proper management and so the study of International Finance Management become a real necessity.

With growing operation of Multinational companies, a number of complexities arose in the area of their financial decisions. Apart form the considerations of where, when and how much to invest, the decision concerning the management of working capital among their different subsidiaries and the parent units become more complex especially because the basic polices varied from one Multinational companies to the other. Those Multinational companies that were more interested in maximizing the value of global wealth adopted a centralized approach while those not interfering much with their subsidiaries believed in a decentralized approach.

The second half of the twentieth century has also experienced a vast magnitude of lending y international and regional development asks and different governmental and non-governmental agencies. The movement of funds mostly to the developing world and the reverse movement of funds in form of interest and amortization payments needed proper management. Besides, there were big changes in the character of the international financial market with the emergence of Euro banks and offshore banking centre and of various instruments, such as Euro bonds, Euro notes and Euro commercial papers. The nature of the movement of funds become so complex that proper management become a necessity and the study of International Finance Management become highly relevant. In fact, International Finance Management suggests the most suitable technique to be applied at a particular moment and in a particular case in order to hedge the risk.

Source : Importance of International Financial Management