Globalization & International Financial Management
This article focuses on international financial management. International financial management is a growing management practice with significant implications for the economic relationship between countries and the global economy as a whole. This article provides a description and analysis of the main international financial management practices including exposure management, capital financial management, international supply chain management, capital budgeting management, currency swap management, distribution management, futures, options, and derivatives management, investment management, and international accounting management. The issues associated with the use of international financial management software will be discussed.
Keywords Benchmark Return; Capital Budgeting; Currency Swap; Emerging Markets; Exceptional Return; Exposure Management; Financial Management; Futures; Global Economy; Global Markets; Globalization; Information Ratio; International Financial Management; Interpenetration; Investment Management; Liberalization; Objective Value; Opportunity Loss; Options; Organization; Securitization
International Business: Globalization
International financial management is a growing field with significant implications for the economic relationship between countries, businesses, and the global economy as a whole. International financial activity requires active management practices and tools. International financial management combines the fields of international finance and financial management. International finance refers to the field of economics that involves exchange rates, foreign investment, and international trade. Financial management refers to a division of management responsible for both resource management and finance operations. International financial management concerns multinational corporations as whole entities and involves cross-disciplinary decision-making. International financial management is a holistic endeavor involving international financial planning, financial control, and financial decision-making.
Multinational corporations rely on international financial management to achieve the goals of creating a competitive advantage in the global marketplace and maximizing shareholder profits (Delk, 2000). Traditional models of corporate financial management are changing as a result of new technological, business, and market environments. International financial managers now manipulate and combine unbundled financial products, such as futures, swaps, collars, and floors, to meet the needs of individual clients (Levich, 1989). Common concerns for international financial managers include the following: Exchange rate fluctuations, forecasting efficiency, transactions exposure, long-term financing, direct foreign investment, futures and options, country risk, international working capital management, transfer pricing, and economic exposure (Madura & McCarty, 1989).
The Global Economy
International financial management is growing in importance as international financial activity and global markets become increasingly common. Global markets are characterized by an increasing mobility in capital, research and design processes, production facilities, customers, and regulators. Global markets, created through socio-economic changes, political revolutions, and new Internet and communication technology, have no national borders. The modern trend of globalization, and resulting shifts from centralized to market economies in much of the world, has created opportunities for increased trade, investment, business partnerships, and access to once closed global markets.
Economic environments around the world are changing due to the forces of globalization. Globalization is characterized by the permeability of traditional boundaries of nations, culture, and economic market. The fundamental economic forces and events influencing globalization around the world include the end of communism; the shift from an economy based on natural resources to one based on knowledge industries; demographic shifts; the development of a global economy; increased trade liberalization; and advances in communication technology (Thurow, 1995).
Business opportunities, including international investments and joint ventures, in the global economy are increasingly tied to trade pacts. In addition, business opportunities are resulting from privatization worldwide. Countries are privatizing many state-owned industries and allowing foreign investors to purchase pieces of them through joint ventures or local operations so that they can participate in these projects.
Emerging markets, often occurring in countries experiencing political upheaval, will continue to increase in the expanding global market. Businesses, participating in the new global economy, will continue to seek out new manufacturing and sales opportunities in foreign markets and countries (Sites, 1995).
The Financial Management Association
Multinational corporations in the global economy require new forms of financial management. Professional finance organizations have contributed to the development of international financial management tools and practices. For example, one of the most influential professional international financial management organizations, the Financial Management Association (FMA), was founded in 1970. The Financial Management Association, which brings together academic and business interests, is considered to be one of the global leaders in developing and disseminating knowledge about international financial decision making. The goals and objectives of the Financial Management Association include "broadening the common interests between academics and practitioners; providing opportunities for professional interaction between and among academics, practitioners and students; promoting the development and understanding of basic and applied research and of sound financial practices; and enhancing the quality of education in finance" (History, 2007, ¶2).
International Financial Innovation
In the twenty-first century, international financial innovation is impacting and directing corporate financial management practices. International financial innovation is associated with product innovation, securitization, liberalization, globalization, and interpenetration.
- Financial product innovation refers to the development of new risk management and funding vehicles.
- Securitization refers to a greater tendency toward marketable financial instruments rather than bank loans.
- Liberalization refers to the expansion of domestic financial market practices through deregulation.
- Globalization refers to the internationalization of financial markets.
- Interpenetration refers to the increased competition among financial institutions that result from reduced boundaries between types of banks and securities firms (Levich, 1989).
The following section provides a description and analysis of the main international financial management practices including international supply chain management, exposure management, capital financial management, capital budgeting management, currency swap management, distribution management, futures, options, and derivatives management, investment management, and international accounting management. This section serves as a foundation for later discussion of the growing trend in international financial management software use.
International Financial Management Practices
There are a common set of international financial management practices found across businesses and industries. Popular international financial management practices include:
- International supply chain management
- Exposure management
- Capital financial management
- Capital budgeting management
- Currency swap management
- Distribution management
- Futures, options, and derivatives management
- Investment management
- International accounting management.
These international financial management practices are described and analyzed below (Delk, 2000).
International Supply Chain Management
International financial managers oversee and engage in supply chain management in an effort to coordinate business operations across and between countries. Supply chain refers to the connections between trading partners extending from the supplier's supplier to the customer's customer. International supply chains are those that cross national boundaries. Issues related to logistics, taxes, quotas, regulations, and differences in currencies, languages, and cultures challenge and complicate international supply chains. International supply chains often involve multiple currency exchanges. International supply chain management is three stage process...
(The entire section is 3961 words.)