Financial decision making in the real world progressively involves circumstance of transactions with an international element. In this course we examine involving or operating in several nation corporations' that is investing with an expectation of profit, finance, and risk direction system of decision making that require the apprehension of economic and financial causal factor of exchange rates for furnish the analytical model and techniques for taking suitable decisions in this corporate competitor world. First, it covers the course study of fundamentals of exchange rates and international financial markets. We can address specific issues of international financial management including: assessing or exploring the risk in hedging due to the inflations in market, uncertainty; to international cost of working capital, capital budgeting decisions, and evaluation under different levels of nation risk; and the expansion import of global markets. Specific topics that covered include: spot, forward, swaps, and options markets for foreign exchange; interest rate arbitrage and parity; exchange rate analysis; criterion and negotiates currency exposure; long run financing with swaps; cross border valuation; and the cost of working capital for international projects.
Introduction: Most finance courses implicitly assume that business operates in only a single state and that deviation between countries are irrelevant. However, by the end of II World War, the foreign activities of company or firms have grown substantially, and this grown, if anything appears to be accelerating. Companies of any kind whether small or large in size now face determination about how to better obtain and expand their resources abroad. As a consequence, about basic financial decisions now it involves cross-broader complexness. Choice about bringing up capital, investment, risk management, accomplishment activity, reconstitute, and other views of financial plan typically implies international financial conditions. When making such kind of choice, manager must analyse the exchange rates, differences in tax rules, nation risk factors, and fluctuation in legal authorities. This course helps in laying down the cornerstone for learning how finance works in this great worth cross-broader setting. (C. Fritz Foley)
(A) Economic risk assessment: It is progressively evident that, contempt before hopes, the global economic unstable situation will have a substantial impact on the economy of sub-Saharan Africa. In order to organize and trade the most appropriate results for African economies to hold up and recover from the economic unstable situation, it is essential to identify the degree to which the continent, as well as the individual African countries, which are at risk of being harmful impacted. This depends on exposure to trade and financial shocks, as well as the resilience of state to cope with this impact. Based upon exposure resilience matrix, the African state most risk are the Democratic Republic of the Congo, Ghana, Cape Verde and Angola. As Democratic Republic of Congo is poorest country in the world has been effected by the economic crisis in the year 2009, which was current global economic crisis, that was forecasted to see world Gross Domestic Product was descent by 1.3 per-cent in 2009, this was largely not expected and substantial external shock to the world's poorest continent. The (Democratic Republic Congo) DRC was totally depended on foreign inflows and even more dependent on assets-based export-led growth. E:\COLLEGE ASSIGNMENTS & NOTES\IFMGT\Capture.JPG In the graph we can see that economic crisis which has affected the DRC economy in the year's 2007, 2008, and 2009 (International Monetary Fund Washington, D.C).The DRC was colonized by Belgium in 1885, and got independent in the year 1960. Their vast minerals and other resources in the region. As Rio Tinto Plc. Are going to invest in DRC as foreign direct investment of £250 million for mining and extracting iron ore and also the Rio Tinto Plc. which is the third largest mining company in the world. As looking last available three years of that country's national accounts the DRC was faced economic crisis. As joint venture with An-gang Steel Company the largest steel manufactures in the world which is in China. And as a senior analyst of Rio Tinto Plc. Wants my partly own steel manufacturing Chinese plant to receives its iron ore material on time. Using the cost of capital which is invested as foreign direct investment as low as possible that techniques and low cost finance wherever possible, building direct relationship with major authority to reduce the barriers that can in financing low to project also. Project fast track production, major long term customer partnership which will help in reducing shipment barriers of raw material iron ore to their partly own company in other country. Barriers to increasing can arise from international (or) domestic policies, as well as geographic trade-related and or regional features. The another reason or serious barrier to trade in Democratic Republic of the Congo is the country's poor infrastructure, which includes the poor road transportation system that force exporters to use much more expensive air transport to export their goods. An international impediment to increase export is the inability to meet sanitary standards in certain markets. Various rebel groups still control some areas, in Democratic Republic of Congo including the areas rich in natural resources such as minerals and coffee. Foreign currency restriction and government created monopolies have adversely affected the economy. However, despite economic instability, there is still a large external trade sector driven primarily by diamond mining.
(B) SOURCES OF FINANCE: There are two types of sources of finance they are, Internal and External. The sources of finance features can also be shown by tree diagram also.
SOURCES OF FINANCE
INTERNAL EXTERNAL
PROFIT WORKING SALE OF SHORT TERM LONG TERM
CAPITAL ASSETS
OVERDRAFT SHARE LOAN
CAPITAL CAPITAL
LOAN
TRADE CREDIT ORDINARY SHARE MORTGAGE
DEBT FACTORING DEBENTURES
VENTURE CAPITAL
These are sources of finances which companies can use it for financing the projects which they have got with them in process. As we can see in the internal sources of finance, the company might use from profit of company to refinance in project even the working capital can be used or it can also be from sale of assets of company. The alternative is external finance which can either be short term or long term, if it short term finance can come from overdraft, loan, trade credit or debt factoring. If its long term finance is needed it can be share capital or loan capital, loan capital includes mortgage, debentures or venture capital. Will start with internal sources of finances. Profit is the main source of finance which the most companies uses for investing in to projects, as you don't have to pay anyone else to use profit as a source of finance. But don't forget that the shareholders may expect profit to be used as their dividends rather than being re-invested, if a firm can't use profit it can sell of unused assets can be a source of finance by this way. And depends on the company weather the it has a unused assets to sale off. The last internal way of raising sources of finance is through working capital, if a firm improves it working capital it can rewind the sources of finance it could do this trying to get back its money own to it or cutting credit terms, so that any one time it should be owned less money. The frim can also pay some suppliers alter, but actions may well up-set some customs and suppliers and lead not wanting to do business with them. Another way free up the money will be less tight up in stock, but again that could be a drawback because the firm want to make sure that company meet certain increases in order of shares. So we looked in internal sources, but if enough can't be raised the company has to look or use of external sources of finance. This could dividend into short term and long term sources which company ops for; it depends on the situation of the company. For example, how much money they need or how much they prepared for it to re-pay it. An overdraft is common short term option and it's useful it can be arranged quickly but it won't give the business large sums of money and interest will be charged on the overdraft. A loan might be better if the business needs more finance because set amounts can be borrowed and paid back regularly to the bank with the great interests charges. Debt factoring could also be used as a source of finances; it's one a business own the money decides to sell its debts to a debt factor that advances payments against the debts, for a fee. Finally the short term sources of finance you use trade credit, now this when you pay your creditors in other words the people whom you own money to pay as late as possible. For example, your supplier might give you 90 days to pay this can help raise finance without paying any interest on it; but consider how supplier would view this. As it part of working capital it can't be classed as internal source of finance or no its own it's an external source of finance. Long term source of finance larger amount of sources tend to come from this source that can be either share capital or loan capital, share capital can be raised in limited companies which can sale shares to the public to raise sources of finance. In return those buying the shareholders will be paid a dividend from the firm's profit. The problem for shareholders is they won't necessarily get paid a dividend from the firm's profit, because if the business is getting the profit it might be re-invested. The problem for the business owner it that by selling shares they might loss control of the business is lost. So, that shares capital. The other type is loan capital, it include debentures, mortgages and venture capital. The debenture can only be used by limited companies, so can an alternative for issuing shares, than long term loans to business they have fixed interest rate and a final payment date but as we know that this are only limited company. The company is limited than mortgages can be used a mortgage is like a long term loan; the generally used as films property as security. So, property may be repossessed if film fails to keep up its payment. The final source of finance is venture capital, venture capitalists provides investment in return for shares and charges on the business. While other investor willing to invest in return for shares and charges on the business. In this case the company is using foreign direct investment as it might be a taken from profits of the business and re-invest the sum of £250 million in Domestic Republic of Congo. This would make it possible for a company to decease it's per dollar costs of external finance by under larger investment projects. It is straightforward to extend our analysis to the case where systematic risk is priced in equilibrium. The company which internally generates funds, there will typically be a benefit to hedging: hedging adds value to the extent that it helps to ensure that a company has enough internal finance available to undertake advantage of attractive investment opportunities. (KENNETH A. FROOT AND JEREMY C. STEIN)
(C) REPATRIATION ISSUES: Company main aim is to gain still profit; they owe this to their shareholders. The corporation social responsibility has earned a significant impulse in recent years. There is frequently a price tag associated with CSR projects and this creates a conflict: that is a choose of CSR project, or tailor the project to meet CSR objectives or focus on increased ROI? The CSR is the rarely clear cut and there are a lot of cases different social groups have aims and objectives which are opposed to one another. The company can't satisfy the objectives of both groups and will be seen as irresponsible when it choose one or the other. These issues are compounded when a corporate citizen of one country is engaged in work with in another different social value. The chances of conflict between two social parties who are shareholders in the venture increase because of cultural differences between the shareholders in the same country or community and those in the foreign country. As company has invested millions of pounds as foreign direct investment. In the recent debate over the behaviour of Canadian mining companies overseas and south America for example: The exposure was triggered by a private member bill (C-300) proposed by a member of the Canadian parliament. The bill asks that the federal government to assume with power to investigate complaints that any Canadian mining company failed to comply with international human rights and environmental standards. Some of the companies have gone to great way and expense to create a reputation as social, economically, and ethically responsible corporate citizens, only to look that reputation threatened by these stories. Now, I'm not suggesting that the allegations are false. The companies claim to have followed all the mining laws, rules, regulations, and standards of the countries they are operating in. They further claim to have followed their own code of ethics. These ethics have been developed and implemented at significant expense in some cases. The conflicts will be there when the company is operating in foreign country. And I'm sure that many of the software company's projects will lead to a corporation that is facing the allegations of physical abuse or rape.
The first step is to understand the conflict or the issues that can affect the project, which includes the pre-existing local issues in that foreign country. It is important that the project manager have to look in conflict between the two local communities which involved in it. As I will say that give more education on the local issues and the likelihood that project would only directly financially profitable of one the two communities. Here is risk identification must be expanded to include not only the risks of culture conflicts between the foreign country hosting the project and the corporation's country, but also to those of different shareholder groups within the host country. But there is also another issue which affects the project in host country, classic example of this clash is collection and payment. Recently in Rio Tinto Plc. which was work in China with the steel manufacturing company, in that company the issue was bribe was occurred with some of company members taken bribe.
(D) DISPUTE STRATEGIES: The dispute led to government also withdrawing first iron ore's permits for another of its mine in the Democratic Republic of Congo, an undeveloped field of study; which now lies abandoned. Recently the thousands of people have lost their jobs and the mining equipment is falling into disrepair. If trying to continue the social programmes that were attached to mine, but even that is difficult for the company in such countries. The Rio Tinto Plc. has to invest in the social projects also in the hosting mining country where they are conducting the project of extracting the iron ore. As they can build schools and hospitals, roads and all manner of social infrastructure projects. As the Democratic Republic of Congo is richest in minerals, but poorest in the financial position when compared to other countries. The Rio Tinto Plc. has to continue to sustain the schools and clinics as far as possible, so that they can be given a change to allow in the country to programmes. If no nobody steps up or identification of anybody stepping up to the plate to take what you did means it's going to be a tragic for the people of the Democratic Republic of Congo. The Democratic Republic of Congo has fabulous natural resources, which if they were developed would make that country certainly one of the richest, if not the richest in Africa. If the mining license of Rio Tinto Plc. being withdrawn and the assets are being confiscated by the Democratic Republic of Congo investment of £250 million that it's going to a long time to overcome the damage that has been done to the investment environment. As it sounds like a warning to other investors in the Democratic Republic of Congo to think very carefully before committing money to the country. But there's no doubt that there is plenty of money to be made. The Democratic Republic of Congo is similar in size to the whole of Western Europe and has some of the richest mineral resources in the world.
CONCLUSIONS: As foreign direct investment which is Rio Tinto Plc. is going make of £250 million in the Democratic Republic of Congo for to extract the iron ore. And to supply it to it does jointly venture partly own company which is in North China the An-gang Steel Manufacturing company. No doubt that the China is now biggest in importing the largest amounts of dry mineral iron ore from around the world, and it has also overcome on Japan which was one of the largest iron ore importer in the world. The Rio Tinto Plc. license is withdrawn then it's going to take long time to overcome the damage that has been done to the investment environment, it sounds like a warning to other investors in the DRC to think very carefully before committing money to the country.
REFERENCING:
UNITED STATES INTERNATIONAL TRADE COMMISION (Export Opportunities and Barriers in African Growth and Opportunity Act-Eligible Countries)
BBC NEWS JOURNALS
RISK MANAGEMENT: Coordinating Corporate Investment and Finance Policies (KENNETH A, FROOT, DAVID S. SCHARFSTEIN, and JEREMY C. STEIN)
INTERNATIONAL MONETARY FUND: (DEMOCRATIC REPUBLIC OF CONGO ARTICLE)
