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International financial management (IFM) is a term that grew out of the need for individuals and organizations to consider the implications of financial decisions due to cross-border transactions prevalent in the world economy. Thus, international financial management is the study and application of financial strategy that takes into account the differences and complexities involved in cross border transactions. The term accounts for such topics as raising capital, making acquisitions, investment strategy, managing risk, organizational restructuring, and overall financial policy in global context. Finance managers of such international activities are concerned with aspects like exchange rates, rules regarding taxation, legal complexities and regulations, and risk factors associated with doing business in another nation. Familiarity with international trade agreements is an important part of the topic as well.
Currency exchange rates and differing methods to determine price of assets can have a major impact on the bottom line in international financial management. As such, the topic accounts for the structure of the currency exchange system and how to determine asset prices in a global setting. In addition, IFM is also concerned with how different currencies impact the prices on stock markets.
Decision making in international financial management must account for potential impacts related to various capital structures, approaches to risk management, and how to best leverage taxation systems. IFM will examine how a firm may take advantage of local partnerships in other countries or how to capitalize on international subsidies that are available. Taking into account taxation and exposure to exchange rates, IFM managers will research and decide how to best hedge those exposures and responsibilities.
Valuation and policies for obtaining financing internationally are usually modified when a dealing cross-border investment. International finance management will consider the cost of placing operations in other nations and discern how to best value investments in developing nations. Other areas of concern include penetrating markets and sustaining a presence in those markets effectively.
Additionally, international financial management accounts for differing institutional arrangements, whether formal or informal, that reflect decision making. Differences in legalities, such as protection of creditors and shareholders, impacts both investment and restructuring decisions. This means IMF requires excellent communication skills and building relationships in order to get the job done correctly.
Overall, the main goal of international financial management is to create the most wealth possible for shareholders. Stakeholders also are important for IFM managers. They include suppliers, vendors, employees and end customers who all must be observed from a financial perspective when considering cross-border transactions.
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