International Financial Management
The changing global economies have brought various implications into the structures of the international finance. In order to ensure an incorporated integration into the international business which is implied by the exchange of economic parameters across the global states, various financial regulations and exchange structures have therefore been founded to safeguard this exchange. However, various benefits and threats have continued to accompany the diversely changing structures of the global financial imagery. International financial management is the complex outlay which compounds the international cross-boarder financing, investment decisions, asset valuations, risk assessments and other precepts that are of concern in the international finance.
Conceptually, a wide framework of factors affects the nature of international finance. These are legal rules country risks, exchange rates and the international taxes. Multinational companies and other enterprises usually source their investment finance from cross borders. Consequently, the development of concise knowledge into the fundamental of the global exchange rates, institutional rigidities, taxation rules, global capital markets and other factors involved in the international financial management is of importance. Due to the broad controls, rigidities and regulations in the international business and finance relations, global investment too many investors have resulted to down falls and losses due
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The broad aspect of international financial management has therefore brought out four fundamental scope of international finance related aspects that govern and model the nature of transactions and business conduct within the international portfolio. These are;
Asset prices and currencies exchange. This tries to model the most functional mechanisms and systems of exchange rates by evaluating the most viable and economically plausible determinants of these rates. Factors such as the roles of the central banks and stock currencies are of influential in the foreign exchange markets.
Decision in multinational financing. This is an evaluation into the factors that challenge corporations in their sourcing of global finances. It captures factors such as various tax related considerations in the global outlook.
Cross-border financing and asset valuations. Since different regularities and provisions relate to the international considerations into financing and valuation, this process seeks to intervene the regulatory framework which is of necessity in making such decisions.
International finance and institutions. Various institutions both of financing and regulatory make the foundations of the international financial sourcing. The controls for these regulations are a compound of various factors that are of concern in valuing and scheduling the financing procedures that concur with different economic requirements (Timothy, 2006, p. 99)
Major threats experienced by the international financial system in the last decade
The current nature of international finance has been a compound of both benefits and threats tot the international community. Various regulations, controls and restrictions in the global exchange phenomena has been a benchmark of negative influence towards negative influences and threats in the manner of conduct and business regulation in the international plane. Since mid 1990s, international financial systems have been affected by various shocks. Perhaps however, the steadily moving integration into the global business between nations has led to counteractive implications in terms of the stability into their structural dispensations (Michael, Prasanna, 2005, p.66). The escalation in the trade restrictions and exchange controls has led to various macroeconomic policy conflicts between variables global trading partners. The move towards harmonization of both macro and microeconomic variables within the international arena has resulted into various chaos and conflict that has consequently waged differing regulations, control and laws regarding exchange of economic benefits and capital inflows and outflows. In the move to create a harmonized regulatory framework therefore, various crises have emerged in the last decade within the contemporaries of the global international finance (Timothy, 2006, p. 109)
Firstly, the conflicting precepts in the international finance have led to a disruption of the system of international financial market in capital allocation and plummeting prices of assets. Their have been various debt defaults, disturbances in the equilibrium functions of the financial markets and failures in the banking system which has led to instability in asset prices. The issue of debt and debt repayment posits a great influence into this factor. Debt defaults has therefore been the benchmark into the falling levels of various commodity prices which consequently destabilize the demand, supplies and prices of international markets (Brent, 1999, p. 75)
An important aspect is the system of banking within the international portfolio that has led to widely varying conflicts in the dispensation of international banking and exchange rates. Notably, differences and conflicts in the banking scenario in the international arena can be noted with great concern of its negative influence in the international financial management. A conflict outlook in terms of bank interest rates has influenced the nature of loan markets, bank runs, international deposits, equity returns from bank deposits, and credit rationing. Though the international banking industry is developing to offer substantial attractive climate in the way of international banking and credit facilitation, it however notable with a lot concern that the existing discrepancies between the regulatory frameworks of the banking industry is a threat in decisions of entering into financial contracts with the banks (Jim, 1999, p.132) Various risks allied to the banking such volatility in the exchange rates has also led to lack of adequate financial sourcing framework, high costs of such finances due to the risks accompanied in the international market and other national regulatory frameworks.
Additionally, the highly growing global integration has also posited risk of exchange into financial matters. This has been noted by the regulatory framework of the central banks in the controls of reserve ratios and the financing controls into the foreign investors. Conflict of interest in the national laws regarding the regulations into such financial matters has been a core threat into the success of the international finance.
There has also been deterioration into the quality status of portfolios of bank assets. This has been basically due to direct use of finance in the security markets. Consequently, banks have been more susceptible into the aspect of contagious runs.
The major world’s industrial nations have conflicting policies that act to negatively impact the currency exchange and trade controls. The patterns of the global finance and business processes have therefore been widely affected by the negative influence of these countries. (Ben, 1999, p. 80)
Current regulations in international financial management.
In order to regulate the threats that are bound in the increasing state of global integration and its effects on international financial management, various tools/regulations have been developed. These are basically aimed at ensuring harmony between various global market structures sop as to reduce the liabilities and costs involved in the international finance sourcing. The source for the international finance regulations is both multilateral institutions and national governments. Generally a broad scope of regulation is provided for the international finance. These sources include;
(i) National governments: Various regulations by national governments have been constructs aimed at providing attractive governance and control into the international finance process. This has been through various impositions that regulate the national banking systems, international capital inflows and other regulations between a country and the global world. These regulations have provided standards of exchange into bilateral and multilateral commitments of financial transactions and investments. (Raffer, 2004, p. 54)
(ii) Multilateral institutions
(a) World Bank and IMF: In order to secure a harmonized international financial system, both the World Bank and the IMF have played important roles into this. The two have consistently made foundations of regulations into exchange rates and financial relationships between different nations.
(b) Intergovernmental groups (G8): Various polices, laws and regulations have been modeled by the members of the G8 that govern exchange controls between themselves and the outside world. Its policies and laws have been a success factor in the uniformity of financial matters, foreign exchange controls and international relations for themselves and their trading partners.
(c) Functional regulators/institutions
In order to have a uniform financial system that safeguards the interests of the international investors, various regulatory institutions have been developed. Their role is to issue out regulations that act as the base of adherence in the financial transactions within the international portfolio. They include the International Organization of Securities Commissions (IOSCO), Banking Supervision Committee (BSC), International Accounting Standards Board (IASB) and International Association of Insurance Supervisors (IAIS) (Michael, Prasanna, 2005, p.59). The role of these institutions is to ensure a uniform methodology of handling financial matters which therefore limits the levels of conflicts and possible insecurities.
(d) Trade associations
Various provisions of trade associations help to formulate the framework of the contractual standards that govern its member states. They have helped to set regulations on market derivatives, exchange rates, interest rates and other aspects of the financial market. These include associations such as International Swaps and Derivatives Association (ISDA) and the Bond Market Association (BMA), International Securities Market Association, (ISMA), International Capital Market Association and International Primary Market Association (IPMA)
In order to safeguard the interests of the players in the international finance the above bodies have instituted various regulations that monitor the provisions of the exchange (Jane, 2000, p. 164) These include
(i) Securities regulation: This is the subjective law that governs the international capital markets to ensure attractiveness and competitiveness. Regulation in securities has therefore ensured investor confidence in the investment in the international capital market to avoid rigidities and losses.
(ii) Harmonization is a complex outlay and encompasses various aspects.
(a) Disclosure rules: This is a tool that is used in the international initial listings and cross-boarder offerings involved by foreign issuers. It requires the disclosure of the financial maters that are involved in such offerings. It is considered as of materiality benefit to indemnify the investors of any possible rigidities held in the capital market.
(b) Accounting standards: Uniform accounting standards have been set by regulations such as Generally Accepted Accounting Procedures ( GAAP), and the International Financial Reporting Standards (IFRSs) The role of these standards is to ensure uniformity in the accounting and reporting systems, auditing and finance management
Risks under mitigations
Generally, the legal frame of the regulatory framework in the international finance is to avoid the costs of various risks to the investor. Firstly, it a method of securing investors confident. Since the different accounting standards are aimed at providing adequate financial statement about the areas of investment of the foreign investor, he is at the inclination that his assets are protected by internationally recognized accounting standards. These regulations are important component that monitor the varying thresholds into volatility of market prices and exchange rates. Various controls such as interest rate and foreign exchange offer security in the wide scope of the highly volatile international exchange rates and financial derivatives. Elsewhere, regulatory controls are important component in formulating the flow of economic capital across countries. This is an important component in the instrumentation process of the stability in balance of payments between countries (Marc, Harold, 2003, 92). Trade associations offer lucrative conditions that seek to monitor the levels of capital inflow and outflow in order to safeguard consumer interests over the inequalities that may be brought about rigidities in foreign transactions and investment. As an important component, regulations of the capital markets ensure feasibility and asset viability within the international investment climate. Investors are able to monitor the conditions occurring in the markets with absolute confidence of the level of transactions and transfer risks that may be involved in the investment choices they make. (Patrick, 2002, p.72)
Ben, T (1999) The International Financial Crisis. Challenge, Vol.42, p.80
Brent, M (1996) International Financial Instability and the Financial Derivatives Market, Journal of Economic Issues, Vol.30, p.75
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Jim, M. (1999) Financial Introduction. London, Routledge, p.132
John, H (1994) The Law and Structure of the International Financial System: Regulation in the United States, EEC, and Japan, London, Routledge, p.41
Marc, F & Harold, J (2003) International Financial History in the Twentieth Century: System and Anarchy. Cambridge, Cambridge University Press, p.92
Michael, C & Prasanna, G (2005) Private Sector Involvement and International Financial Crises: An Analytical Perspective. Oxford, Oxford University Press, p. 59, 66
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Timothy, S (2006) International Financial Management: An Introduction, London, Routledge, p.99, 109