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INTERNATIONAL FINANCIAL MANAGEMENT

INTERNATIONAL FINANCIAL . MANAGEMENT . MCOM. Semester - I. MCOM - 104. SHRI VENKATESHWARA UNIVERSITY. UTTAR PRADESH-244236. BOARD OF STUDIES. Prof (Dr.) Vice Chancellor Dr. Rajesh Singh Director Directorate of Distance Education SUBJECT EXPERT. Dr. , Professor Dr. Shrinivas Shirur, Professor Mr. Ashotosh, Asst. Professor COURSE CO-ORDINATOR. Mr. Shakeel Kausar Dy. Registrar Authors Neelesh Kumar, Assistant Professor, MBA Department Hindustan College of Science & Technology Sharda Group of Institutions, Agra Units ( , , , , , , ) Neelesh Kumar, 2019. DN Dwivedi, Professor of Economics, Maharaja Agrasen Institute of MANAGEMENT Studies, Delhi Units ( , , ) DN Dwivedi, 2019. Dr Harmeet Kaur, Deputy Director, PAMETI Punjab Agricultural University Units ( , , , , , , ) Dr Harmeet Kaur, 2019.

2.5 European Monetary System 2.5.1 Background to the Emergence of the European Monetary System 2.5.2 Establishment of the European Monetary System 2.5.3 Functions of the European Monetary System 2.5.4 Benefits of the European Monetary Union 2.5.5 Challenges Faced by the European Monetary System 2.6 World Bank 2.7 Summing Up 2.8 Key Terms

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Transcription of INTERNATIONAL FINANCIAL MANAGEMENT

1 INTERNATIONAL FINANCIAL . MANAGEMENT . MCOM. Semester - I. MCOM - 104. SHRI VENKATESHWARA UNIVERSITY. UTTAR PRADESH-244236. BOARD OF STUDIES. Prof (Dr.) Vice Chancellor Dr. Rajesh Singh Director Directorate of Distance Education SUBJECT EXPERT. Dr. , Professor Dr. Shrinivas Shirur, Professor Mr. Ashotosh, Asst. Professor COURSE CO-ORDINATOR. Mr. Shakeel Kausar Dy. Registrar Authors Neelesh Kumar, Assistant Professor, MBA Department Hindustan College of Science & Technology Sharda Group of Institutions, Agra Units ( , , , , , , ) Neelesh Kumar, 2019. DN Dwivedi, Professor of Economics, Maharaja Agrasen Institute of MANAGEMENT Studies, Delhi Units ( , , ) DN Dwivedi, 2019. Dr Harmeet Kaur, Deputy Director, PAMETI Punjab Agricultural University Units ( , , , , , , ) Dr Harmeet Kaur, 2019.

2 Dr Sudershan Kuntluru Units ( , , , , ) Reserved, 2019. Vikas Publishing House: Units ( , , , , , , , , , , , , , , , , , ) Reserved, 2019. All rights reserved. No part of this publication which is material protected by this copyright notice may be reproduced or transmitted or utilized or stored in any form or by any means now known or hereinafter invented, electronic, digital or mechanical, including photocopying, scanning, recording or by any information storage or retrieval system, without prior written permission from the Publisher. Information contained in this book has been published by VIKAS Publishing House Pvt. Ltd. and has been obtained by its Authors from sources believed to be reliable and are correct to the best of their knowledge.

3 However, the Publisher and its Authors shall in no event be liable for any errors, omissions or damages arising out of use of this information and specifically disclaim any implied warranties or merchantability or fitness for any particular use. Vikas is the registered trademark of Vikas Publishing House Pvt. Ltd. VIKAS PUBLISHING HOUSE PVT LTD. E-28, Sector-8, Noida - 201301 (UP). Phone: 0120-4078900 Fax: 0120-4078999. Regd. Office: A-27, 2nd Floor, Mohan Co-operative Industrial Estate, New Delhi 1100 44. Website: Email: SYLLABI-BOOK MAPPING TABLE. INTERNATIONAL FINANCIAL MANAGEMENT Syllabi Mapping in Book Unit I: INTERNATIONAL Finance - Importance, Finance Function in Multinational Firm, Trends in INTERNATIONAL Trade and Cross-border Unit 1: INTERNATIONAL Finance FINANCIAL Flows, Gains from INTERNATIONAL trade and investment, Balance (3-31).

4 Of Payments, Currency convertibility, concept of revenue account and capital account convertibility. Unit II: INTERNATIONAL monetary System - Exchange Rate Regimes, Unit 2: INTERNATIONAL INTERNATIONAL monetary Fund, European monetary System, European Monetory System monetary Union, World Bank. (33-62). Unit III: INTERNATIONAL Finance Markets - Euro-markets Institutions. Unit 3: INTERNATIONAL FINANCIAL Markets (63-88). Unit IV: Foreign Exchange Market - Structure of Foreign Exchange Unit 4: Foreign Exchange Market Markets and participants, Types of Transactions, Mechanism of (89-128). Currency Dealing, Exchange Rate Quotations, Arbitrage, Forward Rates, Foreign Exchange Market in India. Unit V: Exchange Rate Theories - Purchasing Power Parity Theory, Unit 5: Exchange Rate Theories Interest Rate Parity, future spot exchange rate, methods of forecasting (129-149).

5 Exchanges rates. Unit VI: Nature and measurement of exposure and risk - defining Unit 6: Nature and Measurement foreign exchange exposure, transactions exposure, translation of Exposure and Mix exposure, operating exposure, hedging strategies (151-173). CONTENTS. INTRODUCTION 1. UNIT 1: INTERNATIONAL FINANCE 3 31. Introduction Objectives Importance of INTERNATIONAL Finance Finance Function in Multinational Firms INTERNATIONAL Trade Basis of INTERNATIONAL Trade Trends in INTERNATIONAL Trade Cross-border FINANCIAL Flows Gains from INTERNATIONAL Trade Balance of Payments Components of BOP. Currency Convertibility Currency Devaluation Capital Account Convertibility Summing Up Key Terms Answers to Check Your Progress'. Questions and Exercises References and Suggested Readings UNIT 2: INTERNATIONAL MONETORY SYSTEM 33 62.

6 Introduction Objectives History of INTERNATIONAL monetary System Exchange Rate Regimes INTERNATIONAL monetary Fund Globalization and the Crisis (2005 - present). European monetary System Background to the Emergence of the European monetary System Establishment of the European monetary System Functions of the European monetary System Benefits of the European monetary Union Challenges Faced by the European monetary System World Bank Summing Up Key Terms Answers to Check Your Progress'. Questions and Exercises References and Suggested Readings UNIT 3: INTERNATIONAL FINANCIAL MARKETS 63 88. Introduction Unit Objectives INTERNATIONAL FINANCIAL Markets Instruments of INTERNATIONAL FINANCIAL Markets Global FINANCIAL Markets Foreign Exchange Market Structure of Foreign Exchange Market in India Euro Markets Eurocurrency Market Eurobond Market INTERNATIONAL Equity Summing Up Key Terms Answers to Check Your Progress'.

7 Questions and Exercises References and Suggested Readings UNIT 4: FOREIGN EXCHANGE MARKET 89 128. Introduction Objectives Introduction to Foreign Exchange Markets Fixed and Floating Rates Functions of Foreign Exchange Market Participants in the Market Structure of Foreign Exchange Market Types of Foreign Exchange Transactions Spot and Forward Transactions Mechanism of Currency Dealing Significance of Foreign Exchange Rate Rate of Exchange; Exchange Rate Determinants Exchange Rate Quotations Spread; RBI's Reference Rate Interpreting Foreign Exchange Quotation Arbitrage INTERNATIONAL Arbitrage Forward Rates Forward Exchange Contracts Foreign Exchange Market Indian Foreign Exchange Market India and Foreign Currency Markets Summing Up Key Terms Answers to Check Your Progress'.

8 Questions and Exercises References and Suggested Readings UNIT 5: EXCHANGE RATE THEORIES 129 149. Introduction Objectives Determination of the Exchange Rate in a Free Market: The Market Theory Derivation of the Demand Curve for Foreign Exchange Derivation of the Supply Curve for Foreign Exchange Criticism of the Market Theory Purchasing Power Parity Theory Absolute Purchasing Power Parity Theory Relative Purchasing Power Parity Theory Empirical Test of the Purchasing Power Parity Theory monetary Approach to Exchange Rate Determination Overshooting Effects of a Rise in Money Supply Drawbacks of the monetary Approach Empirical Test of the monetary Approach Portfolio Balance Approach to Exchange Rate Determination Portfolio Adjustment and the Exchange Rate Interest Rate Parity Theory INTERNATIONAL Fisher Effect Unbiased Forward Rate Theory Future Spot Methods of Forecasting Exchange Rates Summing Up Key

9 Terms Answers to Check Your Progress'. Questions and Exercises References and Suggested Readings UNIT 6: NATURE AND MEASUREMENT OF EXPOSURE AND MIX 151 173. Introduction Objectives Defining Foreign Exchange Exposure and Risk Economic Exposure Risk Transactions Exposure Operating Exposure Translation Exposure Managing Translation Exposure Hedging Strategies Currency Swap Interest Rate Swap Currency Futures and Currency Options Hedging in Currency Future Markets Summing Up Key Terms Answers to Check Your Progress'. Questions and Exercises References and Suggested Readings Introduction INTRODUCTION. INTERNATIONAL FINANCIAL MANAGEMENT , as the name suggests, deals with all the FINANCIAL NOTES. decisions taken in the area of INTERNATIONAL business.

10 Expansion in world trade has led to the growth of multinational companies, in the developed countries as well as in developing nations. Their operations have led to a significant increase in the cross-country flow of funds. This two-way flow of funds requires efficient MANAGEMENT . This explains the necessity to study INTERNATIONAL FINANCIAL MANAGEMENT . Due to the involvement of more than one country in the transaction, FINANCIAL decisions have become more complicated. So, it is not enough to just decide how much to invest, when to invest and where to invest. It is equally important to adhere to the varying policies of the different countries involved. The funds moving to the developing countries and the funds moving out in the form of interest and amortization payments need to be strictly managed.


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