2 - BSA
FINANCIAL MANAGEMENT - MODULE 7
International
Financial
Management
Exploring Financial Management Across Borders
LAGRIMAS. NGUYEN. SOLIS
Why do we need to tackle financial
management across borders?
Our economy is not dependent on
Introduction
activities within the country alone.
We interact with other nations,
specifically currencies, resulting in
populated industries.
SHORT
VIDEO
ICEBREAKER
LET’S PLAY!
Instructions
Check the Comment Section!
Kahoot link
coming up : )
General Introduction
Watch Video Related to the Topic
Icebreaker
Overview
International Financial Management
Introduction of the Topic A: Global Financial
Markets
6.1 In-depth Discussion of Topic A
Introduction of the Topic B: Exchange Rates & Risk
Management
7.1 In-depth Discussion of Topic B
Introduction of the Topic C: International Capital
Budgeting
8.1 In-depth Discussion of Topic C
Combining All Sub-Topics
Importance to the Course
Relevance to Accountancy Students
Conclusion
Multiple-Choice Quiz
International
Financial
Management
The concept of international financial management describes how financial
decisions, actions, and plans are managed on an international level. It entails
managing cross-border financial activities and investments while taking into
various factors including exchange rates, regulations governing international
trade, geopolitical concerns, and variations in culture.
Main Goals of International Financial Management:
Ensuring an uninterrupted supply of funds for the business
?
activities of the organization
hat Is It
W
Optimum utilization to generate the highest possible
returns for the business.
Financial markets refer
broadly to any marketplace
where securities trading
Global occurs, including the stock
market, bond market, forex
Financial
market, and derivatives market.
Markets
Global financial markets
encompass the entire
worldwide system where
financial assets are traded
across borders.
TYPES OF FINANCIAL MARKETS
About it...
Financial markets can be
categorized into various types,
each serving distinct purposes and
participants.
These markets provide platforms
for buying and selling financial
assets
in a general manner
financial markets can be broken down into...
The money market is
The OTC marketplace
Capital markets refer an organized exchange
is an alternative for
to the venues where market where
small companies or
funds are exchanged participants can lend
those who do not want
between suppliers and and borrow short-
to list or cannot list on
those who seek capital term, high-quality debt
the standard
for their own use securities with average
exchanges.
maturities of one year
or less.
Current events have the potential to affect
investor sentiment, economic outlook, and
Factors in
market conditions worldwide.
Global these events include:
Financial Technological changes
Markets
Inflation or deflation
Economic indicators
Natural calamities
Non-resolution doubts
Wars or other conflicts
starting with...
CURRENT EVENTS
INTERNATIONAL
TRANSACTIONS
These involve transactions such as
the exchange of goods, services, and
financial assets between countries,
which highly impact various aspects
of the global economy SPECULATIONS &
EXPECTATIONS
Consumers, investors, and politicians
all hold different views about where
they think the economy will go in the
future, and that affects how they act
today.
SUPPLY & DEMAND
Supply and demand for products,
services, currencies, and other GOVERNMENT
investments create a push-pull
dynamic in prices
The government holds much sway
over the free markets. The fiscal and
monetary policies that governments
LEGAL & REGULATORY and central banks put in place
FACTORS profoundly affect the financial
marketplace.
Legal and regulatory barriers can
impact a company's ability to operate
in a foreign market.
Checkpoint
ARE YOU
READY?
DUCK RACE
IF YOUR NAME WON THE RACE, YOU HAVE
TO ANSWER THE QUESTION WHICH WILL
BE GIVEN IN A SHORT WHILE.
In the context of
International Financial
Management...
Exchange Rates Exchange rates directly
impact the financial
& performance of businesses
Risk Management
operating internationally.
Effective risk management
strategies become essential
to navigating the
uncertainties arising from
exchange rate fluctuations.
What is an
exchange It is influenced by
factors such as
rate? economic activity,
prevailing market
Exchange Rate This refers to the interest rates, and
value in which a the GDP, in both
currency is expressed respective countries.
in another currency or
how much of a currency
is in exchange for
another currency.
Currencies?
What about it?
SEE MORE
there are two classifications of currency...
Domestic Currency Foreign Currency
alue?
y v
nc
curre
TS & EXP
R O
O
RT
IMP
S
IMPORTS VS EXPORTS
these are the goods and these are the goods and
services that a country buys services produced
from other countries domestically and sold to
other countries.
EXPORTS
IMPORTS
Determinants
of Exchange
Rates
Inflation
Government Interest Rates
Policies
factors that
affects the
exchange rate
Public Debt
movements... Trade Deficits
Political Stability &
Economic Performance
1 floating vs.
Exchange Free-floating
managed,
Rate exchange rates identified!
Systems
2
Managed float
exchange rates
PURPOSE: 3
To establish rules and
Fixed exchange
mechanisms for determining
rates
the value of one currency
relative to another.
1
Transactional Exchange
Risk Rate Risks
2
Economic Risk
SIGNIFICANCE:
3
Understanding this allows for
better financial planning and
Translational management, helping to
Risk ensure stability and
profitability in an increasingly
globalized economy
Checkpoint
ARE YOU
READY?
DUCK RACE
Budgeting is the process of
NEXT TOPIC allocating particular resources
towards efficiency. We usually do
this unconsciously in managing our
weekly allowance as students.
International Capital budgeting is the
process of determining or
Capital evaluating the potential of major
projects held
Budgeting
International Capital Budgeting
tackles creativity towards
searching for business
opportunities, economic analyses,
and doing generations of forecasts
-- Internationally.
PROC
E
ES
TH
S
However...
More factors are being considered in an international view of this concept. This revolves around
special nature of foreign or international capital budgeting.
Think of it
this way...
Inputs
Initial Price & Exchange
Investment Consumer Rates
Demand
Risk & Return Tax Laws,
Assessment Government
Policies &
Laws
Techniques
in Capital
Budgeting
If NPV > 0, ACCEPT.
If NPV < 0, DECLINE.
Net Present
A technique that considers the
Value 1
Time Value of Money as it
deducts the cash outflows
from its inflows. SITUATIONAL!
Analyzes an investment or a
project’s profitability and
2
tackles the specified figures’
present value.
Formula:
Cash Flows/ (1 - Discount
Rate)^Number of Period A positive NPV must be chosen
Less: Initial Investment in pursiuit of a project. A
3
negative NPV is bound to
= Net Present Value
incur losses if pursued.
Jolly Be Inc. wants to invest in a particular project amounting to
P2,500,000. The project has an initial investment of P500,000 for the 3
years. Jolly Be. desires to know their company’s Net Present Value with
the given investment as they are also expecting a rate of 7% for its
return.
→ P2,500,000/ (1 - 0.0 7or 7%)^3 - P500,000
= P1,685,596.75
Checkpoint
ARE YOU
READY?
DUCK RACE
The shorter the Payback
Period is, the better. Formula:
(but it may not always be the case)
Payback Cost of Investment / Average
Annual Cash Flow
Period = Payback Period
Number of years when
investment is returned or the
1
time where the investment/
project reaches its breakeven.
ESVEE
Payback period targets liquidity
2 more than the project’s
profitability.
SITUATIONAL!
Computed by dividing the Net
Investment by Cash Flow After-
3 Tax if the cash flows are even. But
if it is uneven, the Payback Period
is computed manually.
Esvee Food & Beverages wants to know which of the advertising projects pitched to them is
worth the investment. Accordingly, the first project costs P300,000 and its potential earnings
annually are around P75,000. Using the formula above, we’ll have 4 years as its payback period.
On the other hand, the second project is set to earn P65,000 per year but costs less amounting
to P230,000. From the formula given, its payback period is 3.54 years.
If IRR > Discount Rate > 0, ACCEPT.
If IRR < Discount Rate < 0, DECLINE.
Internal
Rate of
1
Estimates profitability unlike
the Net Present Value which Return
focuses more on liquidity.
TAKE NOTE !
In contrast with the Net Present
Value, IRR calculates the annual
2
return that makes the NPV equal
to zero. Formula:
Net Initial Investment / Net
Annual Cash Flow
The project or investment = Internal Rate of Return
which has the highest IRR can
3
Present Value be considered as the best Locate: Present Value Annuity
choice for the company Table
Annuity Table
Other
Techniques
Accounting Rate Discounted
and Return Payback
Bail-Out Period Profitability Index
Relevance to the course:
Financial
Management
Checkpoint
ARE YOU
READY?
As Accountancy Students...
RELEVAN
T
I
T?
IS
Assessment: MCQ
Check the comment
section!
(for the multiple-choice questions quiz)
2 - BSA
FINANCIAL MANAGEMENT - MODULE 7
Thank you for
Listening!
Exploring Financial Management Across Borders
LAGRIMAS. NGUYEN. SOLIS
REFERENCES
Adam Hayes, (2023, October 24), Financial Markets: Role in the Economy, Importance, Types, and Examples, Retrieved from:
https://www.investopedia.com/terms/f/financial-market.asp
Adam Hayes, (2023, December 17), Money Markets: What They Are, How They Work, and Who Uses Them, Retrieved from:
https://www.investopedia.com/terms/m/moneymarket.asp
Chen, J. (2022, July 21). Exchange rates: what they are, how they work, why they fluctuate. Investopedia. Retrieved from: Exchange Rates: What
They Are, How They Work, Why They Fluctuate (investopedia.com)
Chris B. Murphy, (2024, March 5), Over-the-Counter (OTC) Markets: Trading and Securities,
https://www.investopedia.com/terms/o/otc.asp#:~:text=The%20OTC%20marketplace%20is%20an,capabilities%20of%20many%20smaller%20c
ompanies
Picardo, E. (2023, August 16). Exchange rate risk: economic exposure. Investopedia. Retrieved from: Exchange Rate Risk: Economic Exposure
(investopedia.com)
Kagan, J. (2020, October 17). What is International Finance, and Why Is It Important?. Investopedia. Retrieved from: What Is International
Finance, and Why Is It So Important? (investopedia.com)
Kagan, J. (2024, February 23). Payback Period Explained, With the Formula and How to Calculate It. Investopedia. Retrieved from: Payback Period
Explained, With the Formula and How to Calculate It (investopedia.com)
Publisher, A.R.a.r.O.O. (2016, June 17). 30.0 exchange rate systems. Pressbooks. Retrieved from: 30.3 Exchange Rate Systems – Principles of
Economics (umn.edu)
REFERENCES
Team, I. (2023, June 9). How does inflation affect the exchange rate between two nations? Investopedia. How Does Inflation Affect the Exchange Rate Between
Two Nations? (investopedia.com)
Twin, A. (2024, February 15). 6 factors that influence exchange rates. Investopedia. 6 Factors That Influence Exchange Rates (investopedia.com)
Team, C. (2023, April 3). Foreign exchange risk. Corporate Finance Institute. Foreign Exchange Risk (corporatefinanceinstitute.com)
(n.d.) Internal Rate of Return. Vedantu. Retrieved from: Internal Rate of Return - Explanation, Formula, Limitations, and FAQs (vedantu.com)
Global Financial Management: Navigating International Markets. FasterCapitals. Retrieved from: https://fastercapital.com/content/Global-Financial-Management--
Navigating-International-Markets.html#Understanding-International-Markets.
CrashCourse. (2015, November 20). Imports, Exports, and Exchange Rates: Crash Course Economics #15. YouTube. Imports, Exports, and Exchange Rates: Crash
Course Economics #15 - YouTube
Capital Budgeting: NPV, IRR, Payback | MUST-KNOW for Finance Roles by Kenji Explains. Retrieved from: Capital Budgeting: NPV, IRR, Payback | MUST-KNOW for
Finance Roles - YouTube
Capital Budgeting by Prof Karim Abitago. Real Excellence Online CPA Review. Retrieved from: Capital Budgeting by Prof Karim Abitago - YouTube
