Introduction to introduction finance
international finance money and investment
classification of international business operation
problems facing multinational corporations
classification of international business operation
problems facing multinational corporations
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FIN 535 Week 1 Homework
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LESSON ONE: INTRODUCTION TO
INTERNATIONAL FINANCE
DR. TIRIMBA IBRAHIM
At the end of this topic the student should be able to:
Explain the meaning of international finance, money and investment
Discuss the classification of international business operations
Disseminate the problems facing multinational corporations
Describe the concept of international trade and the underlying theories
Class Activity
Define the term money, categories and functions of money
Name some of the complexities of international finance as compared to domestic finance
1.1 International Finance, what does it mean?
International finance is the branch of economics that studies the dynamics of foreign exchange,
foreign direct investment and how these affect international trade. Also studies the international
projects, international investment and the international capital flow.
It is a field that deals with the study of investments, the management of money and other
valuables which can be easily converted into cash and cash equivalent
International Finance can be broadly defined, as the study of the financial decisions taken by a
multinational corporation in the area of international business i.e. global corporate finance.
International finance draws much of its background from the preliminary studies in the topics of
corporate finance such as capital budgeting, portfolio theory and cost of capital but now viewed
in the international dimension.
1
, 1.2 Reasons to Study International Finance
1. Career requirement
2. Course requirement
3. Acquisition of knowledge to understand & venture into the global economy
4. Acquisition of knowledge to understand global finance on business & events global likely to
significantly affect companies, which do not have foreign operations
5. Acquisition of relevant knowledge to make financial intelligent decisions involving global
financial matters
1.3 Classification of International Business Operations
The international business firms are broadly divided into three categories:
(a) International Firm
The traditional activity of an international firm involves importing and exporting. Goods are
produced in the domestic market and then exported to foreign buyers.
Financial management problems of this basic international trade activity focus on the payment
process between the foreign buyer (seller) and domestic seller (buyer).
(b) Multinational firm
As international business expands, the firm needs to be closer to the consumer, closer to cheaper
sources of inputs, or closer to other producers of the same product gain from their activities. It
needs to produce abroad as well as sell abroad. As the domestic firm expands its operations
across borders, incorporating activities in other countries, it is classified as a multinational.
Hence Multinational Corporation is a company engaged in producing and selling goods or
services in more than one country. It ordinarily consists of a parent company located in the home
country and at least five or six foreign subsidiaries, typically with a high degree of strategic
interaction among the units.
2
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