Scribd
Upload
238 views

Mirza Nasir Jahan Mehdi

Mirza Nasir Jahan Mehdi has an MBA in finance from COMSATS University and over 8 years of teaching experience in international financial management. She has also worked in export/import and banking industries for 8 years total. Her document provides an overview of key concepts in international finance including the balance of payments, components of the current and capital accounts, factors affecting international trade and foreign direct/portfolio investment.

Uploaded by

Asad Abbas Khadim
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
238 views

Mirza Nasir Jahan Mehdi

Mirza Nasir Jahan Mehdi has an MBA in finance from COMSATS University and over 8 years of teaching experience in international financial management. She has also worked in export/import and banking industries for 8 years total. Her document provides an overview of key concepts in international finance including the balance of payments, components of the current and capital accounts, factors affecting international trade and foreign direct/portfolio investment.

Uploaded by

Asad Abbas Khadim
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 18

Mirza Nasir Jahan Mehdi

Ms Finance COMSATS ISLAMABAD


MBA(B&F) ALLAMA IQBAL UNIVERSITY ISLAMABAD
Job experience:
1.KK TRADING COMPANY (EXPORT BASED COMPANY) 5 YEARS
2. KASB BANK (PERSONAL Banker) SHADMAN LAHORE 3 YEARS.
3. Teaching experience 8 years
International Financial Management

 International finance is the branch of


economics that studies the dynamics of
exchange rates, foreign investment, and how
these affect international trade. It also studies
international projects, international
investments and capital flows, and trade
deficits. It includes the study of futures,
options and currency swaps. International
finance is a branch of international economics
.
International Flow of Funds

 Balance of Payments : Summary of transactions


b/w domestic and foreign countries for a specified
period (months, quarters, years).
 Transactions by individuals, governments and
business etc…….
 You can say the differences between exports and
imports is a balance of payments.
 Difference b/w the services provided and availed is
also called balance of Payments.
Components of the Balance of Payments

 Two components.
 1. Current Account
 2. Capital Account.
 Current Account
Summary of the flow of funds b/w one specified countries and all other
countries due to purchases of goods and services and the provision of
income on the financial assets.
 1. Balance of trade
The difference b/w the merchandise exports and imports is called
balance of trade.
 Products are tangible.
 If services then difference b/w services exports and imports.
 When Cash inflow?????????
 When Cash outflow????????
continue….

 Trade deficit ( Exports < Imports)


 Trade surplus ( Exports > imports)
 Positive Balance of trade.
 Negative balance of trade.
 2. What is factor income:
 Income from interest and dividend payments is called factor
income.
 Factor income is the result of direct foreign investment on the
financial assets.
 Factor income received is inflow of funds.
 Factor income paid is outflow of funds.
continue………

 3. Transfer Payments
 Aid, grants and gifts from one country to another country.

 Capital Account:
 Key components are
 1. DFI (Direct foreign investment).
 2. Portfolio Investment (PI).
 3. Other capital investment.
continue………

 1. Direct foreign Investment


Investment in fixed assets in foreign countries is called direct
foreign investment.
Fixed Assets: land, Building, machinery.
 Firm’s acquisition of a foreign company.

 What is Acquisition cost????????????????????????

 Construction of new manufacturing plants…………

 Expansion of an existing plant……………

 Cash inflow????????

 Cash outflow???????
continue………

 2. Portfolio Investment.
 Transactions involving long term financial assets’
 Assets are stocks and bonds……….
 Do not affect the transfer of control ( purchase of US stocks by
Pakistani investor is classified as Portfolio investment).
 Purchase of financial assets without changing the control of
company.
 How portfolio investment becomes DFI????????
 Ans. If a foreign firm Purchases all stocks of the company
(acquisition).
 Transfer of control would occur, so that is DFI and not PI.
Factors affecting International trade flows.
 The most influential factors are:
 1. Inflation.
 2. National Income.
 3. Government restrictions.
 4. Exchange rates.

 1. Impact of Inflation
 If inflation increases than the country with which it trades
then.........
 Current Account will decrease.
 Demand for foreign goods will increase (overseas goods)
 Negative balance of payments.
continue………

 2. Impact of National Income:


 If income level increases then
 Current Account is expected to decrease.
 People of the home country will prefer foreign goods resulting a
decrease in exports &&&&& resulting an increase in Imported
goods.
 3. Impact of Government restrictions.
 Governments can increase or decrease imports from other
countries.
 Tariffs (Taxes on imported foreign goods)
 Quota (maximum limit that can be imported)
continue………

 4. Impacts of Exchange Rates.

 The value of one country’s currency in terms of another country


is called foreign Exchange rates.
 Weak home country’s currency results in increase of
exports.
 Strong home country’s currency will decrease exports of
that country.
How to correct a balance of trade deficit?????

 Balance of trade deficit is not always a problem.


 People get benefits from the imported goods which are cheaper.
 Less reliance on local goods.
 Large balance of trade deficit causes a transfer of jobs to some
foreign countries.
 How??????
 Reshape the policies regarding exports.
 Prices for the foreign customers should be attractive.
 Inflation rate should be low.
 Currency’s value is reduced.
 Floating exchange rate would correct international trade deficit.
Is weak home currency a solution????

 Sometimes balance of trade deficit is not corrected due to the


following reasons.
 1. Counter pricing by competitors:
When prices fall down, become attractive for the foreign
customers, in response of that some foreign companies reduce
the prices of their goods.
 2.Impact of other weak currencies

 3. Prearranged International Transactions.


 International transactions are pre arranged and takes time to be
adjusted.
 But… over time they may take advantage of weaker
currency( Rupee, dollar etc……………….)
Is weak home currency a solution????
 The lag time period is 18-months or even longer.
 J- curve effect
 Balance of trade may disturb in the short run due to weaker
currency But…. It improves when US and non- Us importers
respond to the change in the purchasing power resulting due to
weaker dollar.
 The further decline in the trade balance looks like a letter J.
 4. Inter- company trade
 Many company purchase products from their subsidiaries.
 It is referred as Intracompany trade.
 More than 50% trade is like this.
 Exchange rates movements do not disturb it at all…………….
What are Factors affecting DFI………….

 1. Changes in restrictions.
 Many countries have lowered their restrictions.. Why????
 To increase international Trade
 For example: Colgate, GE, Have been penetrating less developing
countries.
 2. privatization
 Some Governments engage in privatization, or the selling of some of its
operations to the corporations and other investors.
 Where it was used????????
 In Chile it was used to prevent few investors from taking hold of all the
major shares.
 In France to prevent nationalized economy.
 In UK, to promote spread stock ownership across investors,
 To allow people to have direct stake in British Industry.
What are Factors affecting DFI………….

 3. Potential Economic growth.


 4. Tax Rates.
 Countries that impose low tax rates on corporate earnings are
more likely to attract DFI.
 5. Exchange Rates.
 Investors prefer to invest in countries where exchange rates is
stable and expected to increase.
Factors affecting Int. Portfolio investment.

 Individuals and institutional investors are affected by the


following factors.
 1.Tax rates on interest or dividends.
 Investors invest in stocks of those countries where tax rates are
low, Actually they assess their EAT.
 2. Interest Rates
 Money tends to flow towards those countries where interest
rates are high.
 3. Exchange rates.
 Return is affected by (1) Change in the value of the
security(2)Change in the value of the currency where invested.
 Foreign investors willing to invest where exchange rate is
expected to strengthen.
What is Dumping????

 Dumping
 The exporting products which are produced with the
help of government subsidies are called dumping.
 Dumping is selling the goods below the Cost price.

You might also like