international financial management vs.domestic financial management

1. SUBMITTED TO : PRESENTED BY:
PROF.L.N.KOLI ANUJ KUMAR
(FACULTY OF COMMERCE) ROLL NO. 152502
M.COM.(4TH Sem.)

2.  INTRODUCTION
 IFM VS. DFM
 CONCLUSION

3. International Financial
Management is a well-known
term in today’s world and it is
also known as international
finance. It means financial
management in an international
business environment. It is
different because of the
different currency of different
countries, dissimilar political
situations, imperfect markets,
diversified opportunity sets.
International
Financial
Management came
into being when the
countries of the
world started
opening their doors
for each other. This
phenomenon is well
known by the name
of “liberalization”.

4. International finance is different from domestic finance
in many aspects and first and the most significant of
them is foreign currency exposure. There are other
aspects such as the different political, cultural, legal,
economical, and taxation environment. International
financial management involves a lot of currency
derivatives whereas such derivatives are very less used
in domestic financial management.
In domestic financial management, we aim at
minimizing the cost of capital while raising funds and
try optimizing the returns from investments to create
wealth for shareholders. We do not do any different in
international finance. So, the objective of financial
management remains same for both domestic and
international finance i.e. wealth maximization of
shareholders. Still, the analytics of international
finance is different from domestic finance.

5. IFM
It’s an additional risk which a finance
manager is required to cater to under an
International Financial Management setting.
Foreign exchange risk refers to the risk of
fluctuating prices of currency which has the
potential to convert a profitable deal into a
loss making one.
DFM
In domestic financial management
the finance manager is required to
deal in domestic currency only,
there is no need to deal with foreign
exchange, so there is no currency
exchange risk.

6. IFM
The most significant difference is of foreign
currency exposure. Currency exposure
impacts almost all the areas of an
international business starting from your
purchase from suppliers, selling to
customers, investing in plant and machinery,
fund raising etc. Wherever you need money,
currency exposure will come into play and as
we know it well that there is no business
transaction without money.
DFM
In domestic financial management exposure
to a single currency of particular country.
Entire business transaction takes place in
single currency.

7. IFM
In international
financial
management we
use derivatives
instrument to
hedge the risk.
DFM
In domestic financial
management we do
not use derivatives
because there is less
risk.

8. IFM
The other important aspect to look at is the
legal and tax front of a country. Tax impacts
directly to your product costs or net profits
i.e. ‘the bottom line’ for which the whole
story is written. International finance
manager will look at the taxation structure
to find out whether the business which is
feasible in his home country is workable in
the foreign country or not. The manager has
to deal with different tax structure and legal
laws & it’s difficult to manage this.
DFM
In domestic financial management the
finance manager have to deal with
domestic country’s legal rules and tax
structure. He is more familiar with the
laws of domestic country.

9. IFM
An international business is exposed to
altogether a different economic and
political environment. All trade policies
are different in different countries.
Financial manager has to critically
analyze the policies to make out the
feasibility and profitability of their
business propositions.
DFM
In domestic financial management
the manager is well aware the
local macro business environment
and he have to deal with macro
business environment of single
country.

10. IFM
If the business has a presence in say US and
India, the books of accounts need to be
maintained in US GAAP and IGAAP.It is not
surprising to know that the booking of assets
has a different treatment in one country
compared to other. Managing the reporting
task is another big difference. The financial
manager or his team needs to be familiar
with accounting standards of different
countries.
DFM
In domestic financial management
have to deal with reporting standard
of domestic country only.

11. IFM
In an MNC, the financial managers have
ample options of raising the capital. A
number of options create more challenge
with respect to the selection of the right
source of capital to ensure the lowest
possible cost of capital.
DFM
In domestic financial management,
there is single market to raise capital,
there is no option go outside the
domestic boundaries.

12. IFM
The international financial
management have to deal and
follow the banking regulations
of different countries. The
different banking rule and
regulations may negatively
impact the international
financial management.
DFM
The domestic financial
management have to deal with
banking rules and regulations of
domestic country. There is more
familiarity with banking rules
and regulations

13. IFM
The international financial
management deals with cultural
differences of different countries,
values, traditions etc differ
country to country. It effects the
international financial
management
DFM
The domestic financial
management deals with
cultural environment of
domestic country, so there is
less risk due to cultural
differences.

14. IFM
It is not only which along matters, there
are other things which carry greater
importance as the group of
suppliers,customers,lenders,shareholders
etc.All they carry altogether a different
culture, a different set values and most
importantly the language also may
different. All this effect the international
financial management.
DFM
The domestic financial
management deals with
stakeholders of single country and
more information available about
their like,dislike,preferences etc.

15. may be such more
points of difference
between international
and domestic financial
management.
Mentioned above are
lists of major
differences. We need
to consider each of
them before taking
any decision involving
multinational financial
environment.
Just like domestic financial management,
the goal of International Finance is also to
maximize the shareholder’s wealth. The goal
is not only is limited to the ‘Shareholders’
but extends to all ‘Stakeholders’ viz.
employees, suppliers, customers etc. No
goal can be achieved without achieving
welfare of shareholders. In other words,
maximizing shareholder’s wealth would
mean maximizing the price of the share.
Here again comes a question, whether in
which currency should the value of the share
be maximized? This is an important decision
to be taken by the management of the
organization.

16.  www.wikipedia.com
 www.myairtceljournal.com