1. International Financial Management
International Financial Markets
UNITS
Madura & Fox International Financial Management*
1. International monetary system
Ch 2
2. The market for foreign exchange
Chs 3, 4, 6, 7 & 8
3. The derivative market and hedging strategies
Ch 5
Financial Management and the Multinational Firm
4. Globalisation and the multinational firm
Ch 1
5. Foreign investment
Chs 13, 14 & 15
6. Multinational treasury management
Chs 17,18 & 19
7. Review
Ch 20 1

2. International Financial Management Module Summary
The International Perspective
International Financial Markets
Financial Management and the Multinational Firm
Madura & Fox
Academic Papers
Academic Papers background
Multinational treasury management
Ch 17 to 19
Current topics 2

3. International Financial Management Treasury management3

4. International Financial Management Treasury management
Example of an Irrevocable Letter of Credit
If you present the right documents we will pay the amount on this letter 4

5. International Financial Management Treasury management
Documentary Credit Procedure
Buyer
(Importer)
1. Sale Contract
Seller
(Exporter)
5. Deliver Goods 2.
Request
for Credit
Importer’s Bank
(Issuing Bank) 8.
Documents
& Claim for
Payment 6.
Present
Documents 4.
Deliver
Letter of
Credit
7. Present
Documents
3. Send Credit
Exporter’s Bank
(Advising Bank)
9. Payment 5

6. International Financial Management Treasury management6

7. International Financial Management Treasury management foreign borrowing
Borrowing from abroad
Year 1
Year 2
Year 3
Swiss interest rate 4% 3% 5%
Change in value of Swiss franc 2%
(4%) 1%
total 6%
(1%)
Home (US) cost 7

8. International Financial Management Treasury management foreign borrowing8

9. International Financial Management Treasury management foreign borrowing multicurrency risk
investA
invest B
invest C
Invest D
invest E
invest A
wA2 x Var(A)
wA x wB x Cov(A,B)
wA x wC x Cov(A,C)
wA x wD x Cov(A,D)
wA x wE x Cov(A,E)
WB2 x Var(B)
wB x wC x Cov(B,C)
wB x wD x Cov(B,D)
wB x wE x Cov(B,E)
WC2 x Var(C)
wC x wD x Cov(C,D)
wC x wD x Cov(C,E)
invest D
WD2 x Var(D)
wD x wE x Cov(D,E)
WE2 x Var(E) 9

10. International Financial Management Treasury management
Loans or Investment
Interest &/or Principal
Short-Term
Securities
Long-Term
Projects
Purchase
Investment
Subsidiary
Funds for
Supplies
Sale
Return on
Investment
Fees & Earnings
Excess Cash
Parent
Sources
of Debt
Stock-
holders
Loans
New Issues
Cash Dividends
Repayment 10

11. International Financial Management Treasury management non market methods
minimising currency conversion costs (cash flows)
payments netting
owed to >> Canada France UK
by: Œ
Canada l 40 80
France 60 l 40
UK l
 - Œ = bilateral netting
owed to >> Canada France UK by
Canada l
France 20 l 20
UK l

12. International Financial Management Treasury management non market methods
leading and lagging – speculation(?)
matching foreign revenues with costs in the same currency
Parallel loans and other swap type transactions
Invoicing policy - in home currency