Comparison beween Multinational Financial Management and Domestic Financial Management? Discuss evolution and International Financial Management System? Write Special features of foreign exchange? Describe the country risk Analysis in International Business? Short notes on: (i) Franchise system (ii) Short term assets and liabilities (iii) Foreign direct investment

1. INSTITUTE OF PROFESSIONAL EDUCATION
AND RESEARCH (IPER), BHOPAL
Submitted to-
Prof. Anil Tandon
Submitted By-
Sandeep patel
MBA- IIIrd Sem.
Section- I

2. INDEX
S.NO. QUESTIONS
1 Compare Multinational Financial Management and Domestic
Financial Management?
2 Discuss evolution and International Financial Management System?
3 Write Special features of foreign exchange?
4 Describe the country risk Analysis in International Business?
5 Write short notes on:
(i) Franchise system
(ii) Short term assets and liabilities
(iii) Foreign direct investment

3. Ans. Multinational Financial Management
 A corporation that operates in two or more countries.
 Decision making within the corporation may be centralized in
the home country, or may be decentralized across the countries the
corporation does business in.
Domestic Financial Management
 Domestic financial management can include financial
operations in a home country for a corporation.
 In the sense of handling financial matters for a corporation,
domestic financial management focuses on issues within home
borders.
 This can include topics like budgeting, determining sources
of revenues, and regulatory compliance with financial issues. For
corporations, domestic financial management keeps the company
viable in its home nation and creates a firm base for operations. A
company with poor domestic finances may have trouble abroad as a
result of its financial disorganization.
Q.1 Compare
Multinational Financial
Management and
Domestic Financial
Management?

4.  Different currency denominations.
 Economic and legal ramifications.
 Language differences.
 Cultural differences.
 Role of governments.
 Political risk.
 To seek new markets.
 To seek raw materials.
 To seek new technology.
 To seek production efficiency.
 To avoid political and regulatory hurdles.
 To diversify.
What factors distinguish
multinational financial
management from
domestic financial
management?
Why do firms expand
into other countries?

5. The 1980s and 90s saw a rapid integration of international capital
and financial markets. The impetus for globalized financial markets
initially came from the governments of major countries that had
begun to deregulate their foreign exchange and capital markets.
For example, in 1980 Japan deregulated its foreign exchange
market, and in 1985 the Tokyo Stock Exchange admitted as
members a limited number of foreign brokerage firms.
Additionally, the London Stock Exchange (LSE) began admitting
foreign firms as full members in February, 1986.
Perhaps the most celebrated deregulation, however, occurred in
London on October 27, 1986, and is known as the “Big Bang.”
On that date, as on “May Day” in 1975 in the United States, the
London Stock Exchange eliminated fixed brokerage commissions.
Additionally, the regulation separating the order-taking function
from the market-making function was eliminated.
In Europe, financial institutions are allowed to perform
both investment-banking and commercial-banking; functions.
Hence, the London affiliates of foreign commercial banks were
eligible for member-ship on the LSE.
These changes were designed to give London the most open and
competitive capital markets in the world. It has worked, and today
the competition in London is especially fierce among the world's
major financial centers.
The United States recently repealed the Glass-Steagall Act, which
restricted commercial banks from 10 investment banking activities
(such as underwriting corporate securities), fur-ther promoting
competition among financial institutions. Even developing
countries such as Chile, Mexico, and Korea began to liberalize
by allowing foreigners to directly invest in their financial markets.
Deregulated financial markets and heightened competition in
financial services provided a natural environment for financial
innovations that resulted in the introduction of various instruments.
Q.2 Discuss evolution
and Q.2 Discuss International
Evolution
Financial and International
Management
System?
Financial System?

6. The sale proceeds are often used to pay down sovereign debt that has
weighed heavily on the economy.
Additionally, privatization is often seen as a cure for bureaucratic
inefficiency and waste; some economists estimate that privatization
improves efficiency and reduces operating costs by as much as 20 per
cent.
There is no one single way to privatize state-owned operations. The
objectives of the country seem to be the prevailing guide. For the
Czech Republic, speed was the overriding factor. To accomplish
privatization en masse, the Czech government essentially gave away
its businesses to the Czech people. For a nominal fee, vouchers were
sold that allowed Czech citizens to bid on businesses as they went on
the auction block.
From 1991 to 1995, more than 1,700 companies were turned over to
private hands. Moreover, three-quarters of the Czech citizens became
stockholders in these newly privatized firms.
In Russia, there has been an ‘irreversible’ shift to private ownership,
according to the World Bank. More than 80 per cent of the country’s
non- 11farm workers are now employed in the private sector. Eleven
million apartment units have been privatized, as have half of the
country’s 240,000 other business firms.
Additionally, via a Czech-style voucher system, 40 million Russians
now own stock in over 15,000 medium- to large-size corporations
that recently became privatized through mass
auctions of state-owned enterprises.
Examples of this
innovative instrument
include,
Currency futures and
options,
Multicurrency bonds,
International mutual
funds,
Country funds, and
Foreign stock index
futures and options.
International financial
management is related to
managing finance of
MNCs.
There are five methods by
which firms conduct
international business
activities–
Licensing,
Franchising,
Joint ventures,
Management contracts
and establishing new
foreign subsidiaries.

7. A case of an MNC having two subsidiaries

8. A foreign exchange rate is the price of one currency expressed in
terms of another currency.
A foreign exchange quotation (or quote) is a statement of willingness
to buy or sell at an announced rate.
Ans. Features of Foreign Exchange Market
The foreign exchange market is the mechanism by which
participants:
1. Transfer purchasing power between countries;
2. Obtain or provide credit for international trade transactions,
3. Minimize exposure to the risks of exchange rate changes.
4. Largest of all financial markets with average daily turnover
of over $2 trillion!
5. 66% of all foreign exchange transactions involve cross border
counterparties.
6. Only 11% of daily spot transactions involve non-financial
customers.
7. London is the largest FX market.
8. US dollar involved in 87% of all transactions.
Foreign Exchange Rates
& Quotations
Q.3 Write Special
features of foreign
exchange?
Market Activity – 24hrs

9. Increasing Turnover
Daily Foreign Exchange
Market Turnover in billions of
US dollars
(Bank for International
Settlement Triennial Central
Bank Survey 2004)
Important Currencies

10. Country Risk Analysis – Defined –
“Study of business environment in different countries with an
objective of predicting the likelihood of various kinds of risks that
businesses operating in those countries may face. The term ‘business
environment’ is defined by a certain set of predetermined and
observable social, political and economic variables. ”
Time and Purpose
Country Risk Rating is (i) time and (ii) purpose specific.
The time dimension would mean that the concerned Country has
been analyzed at a specific point of time and the rating is based on
the situation prevailing at the particular point of time.
Further, different sets of users would look at different aspects of a
country depending on their respective needs. Eg. –
(i) An investor in stock market portfolio of country A
(ii) A manufacturer exporting his products to country A
(iii) An MNC having its production facilities in country A
Each of the above users would be interested in knowing different
aspects of a country’s social, political and economic performance.
Factors affecting Country Risk may be classified as –
(i) Economic
(ii) Political
(iii) Social
Q.4 Describe the country
risk Analysis in
International Business?
Factors Affecting
Country Risk

11. Certain specific economic parameters are analyzed while evaluating
Country Risks. Here the basic issue is to examine the (i) ability of a
country to honor its external obligations and (ii) the possible strain it
would put on the exchange rate.
It is important to note here that both the above issues would directly
depend on the external sector situation. However, external sector of
any country cannot be examined in isolation. It is equally important
to understand the domestic economy by means of various GDP,
Fiscal Policy and Monetary policy related parameters.
Again depending upon the time horizon that one is looking at it is
important to focus not only on the immediate values of these
parameters but also on long term trends as also on the long term
sustainability of these trends.
The internal economic situation as reflected by the GDP, Fiscal and
Monetary variable becomes more important if one is considering a
long term involvement by way of FDI in the country.
These can be grouped as –
(a) GDP related parameters
(b) Fiscal sector parameters
(c) Monetary policy parameters
(d) External sector parameters
(1) GDP in nominal and real terms
(2) GDP growth rate and its trend over long term
(3) Per Capita GDP
(4) Sectoral distribution of GDP – Contribution of Primary,
Secondary and Tertiary sectors
(5) Saving / GDP ratio
(6) Investment / GDP ratio
(7) Investment / Saving ratio
(8) Investment/GDP growth ratio
(9) Unemployment
EEccoonnoommiicc FFaaccttoorrss
Economic Factors
(a)GDP related
Parameters
related Parameters

12. (1) Deficits – Fiscal, Revenue, Monetized
(2) Deficits as % of GDP
(3) Tax collection as % of GDP
(4) Tax buoyancy
(5) Internal Debt / GDP ratio
(6) Debt maturity profile
(1) Inflation
(2) Interest rate
(3) All other monetary policy tools such as CRR, SLR, Bank rate –
different countries would have different monetary policy tools.
(1) Balance of Trade
(2) Balance of Payments
(3) Composition of Exports and Imports
(4) Trends in import and export growth
(5) Terms of Trade
(6) BOP Deficit /GDP ratio
(7) Forex reserves
(8) Forex Reserves / imports
(9) External Debt – quantum and maturity profile
(10) External Debt / GDP
(11) Debt Servicing / export earnings
(12) Capital flows
(13) Exchange rate stability
A change in political situation of a country is likely to change the
business environment. Some of the important political factors to be
looked into would include –
(a) System of government – democratic, authoritarian, etc.
(b) Major political parties and their ideologies
(b) Fiscal Sector
Parameter
(c)Monetary Policy
Parameter
External Sector
Parameter
Political Factors

13. (c) Party in power, it vision, succession plan, etc.
(d) Leading opposition parties and their ideologies and visions
(e) Maturity of political institutions
(a) Culture and history
(b) Values
(c) Educational levels
(d) Major fault-lines / dividing lines in the society
(e) Attitudes towards foreigners, change, technology, profits, etc
Apart from the above factors one would also look at conjectural
factors such as –
(a) Economic and Financial Institutional Set-up
(b) Law and order situation
(c) Social stability
(d) Performance on Human Development Index
(e) World opinion about the country
(f) Possibilities of war, external and internal aggression, etc.
(g) Vulnerability to natural disasters such as floods, earthquakes,
etc
Social Factors
Other Factors

14. What is a franchise?
A franchise is a right granted to an individual or group to market a
company's goods or services within a certain territory or location.
Some examples of today's popular franchises are McDonald's,
Subway, Domino's Pizza, and the UPS Store.
There are many different types of franchises. Many people
associate only fast food businesses with franchising. In fact, there
are over 120 different types of franchise businesses available today,
including automotive, cleaning & maintenance, health & fitness,
financial services, and pet-related franchises, just to name a few.
If we are thinking about buying into a franchise system, it is
important that we understand exactly how franchising works, what
fees are involved, etc.
An individual who purchases and runs a franchise is called a
"franchisee." The franchisee purchases a franchise from the
"franchisor." The franchisee must follow certain rules and
guidelines already established by the franchisor, and in most cases
the franchisee must pay an ongoing franchise royalty fee, as well as
an up-front, one-time franchise fee to the franchisor. Franchising
has become one of the most popular ways of doing business in
today's marketplace. In most states you cannot drive three blocks
without seeing a nationally recognized franchise company.
Franchising began back in the 1850's when Isaac Singer invented
the sewing machine. In order to distribute his machines outside of
Q.5 Write short notes on
(i) Franchise system
(ii) Short term assets and
liabilities
(iii) Foreign Direct
Investment
How Franchising Work

15. his geographical area, and also provide training to customers, Singer
began selling licenses to entrepreneurs in different parts of the
country. In 1955 Ray Kroc took over a small chain of food franchises
and built it into today's most successful fast food franchise in the
world, now known as McDonald's. McDonald's currently has the
most franchise units worldwide of any franchise system.
Today, franchising is helping thousands of individuals be their own
boss and own and operate their own business. Franchising allows
entrepreneurs to be in business for themselves, but not by themselves.
There is usually a much higher likelihood of success when an
individual opens a franchise as opposed to a mom and pop business,
since a proven business formula is in place. The products, services,
and business operations have already been established.
There are many advantages to buying a franchise. Some of these
advantages are:
 Corporate image - The corporate image and brand awareness
of the company is already established. Consumers are always more
comfortable purchasing items from a familiar name or company they
trust.
 Training - The franchisor usually provides extensive training
and support to the franchise owner.
 Savings in time - Since the franchise company already has
the business model in place you can focus on running a successful
business.
Q.History 5 Write of short Franchising
notes on
(i) Franchise system
(ii) Short term assets and
liabilities
(iii) Foreign Direct
Investment
How Franchising Work
Advantages of Buying a
Franchise
History of Franchising

16. A balance sheet account that represents the value of all assets that are
reasonably expected to be converted into cash within one year in the
normal course of business.
1. Cash available with company
2. Bank balance of the company
3. Debtors of the company after deducting provision for bad
debts.
4. Bills receivables or accounts receivables
5. Short term investments of the company
6. Prepaid expenses paid by the company
7. Stock of goods available with the company (which are
expected to be sold within a year).
A company's debts or obligations that are due within one year.
Current liabilities appear on the company's balance sheet.
1. Trade and other payables
2. Short-term borrowings
3. Current tax liabilities
4. Provisions
Current assets
Current liabilities

17. Foreign direct investment (FDI) is a direct investment into
production or business in a country by an individual or company
of another country, either by buying a company in the target
country or by expanding operations of an existing business in that
country.
Foreign direct investment is in contrast to portfolio
investment which is a passive investment in the securities of
another country such as stocks and bonds.
Broadly, foreign direct investment includes "mergers and
acquisitions, building new facilities, reinvesting profits earned
from overseas operations and intra company loans".
In a narrow sense, foreign direct investment refers just to building
new facilities.
Horizontal FDI arises when a firm duplicates its home country-based
activities at the same value chain stage in a host country
through FDI.
Platform FDI Foreign direct investment from a source country
into a destination country for the purpose of exporting to a third
country.
Vertical FDI takes place when a firm through FDI moves
upstream or downstream in different value chains i.e., when firms
perform value-adding activities stage by stage in a vertical fashion
in a host country.
Foreign Direct
Investment
Definitions
Types

18. 1. By incorporating a wholly owned subsidiary or company anywhere
2. By acquiring shares in an associated enterprise
3. Through a merger or an acquisition of an unrelated enterprise
4. Participating in an equity joint venture with another investor or
enterprise.
Methods