Essay on International Finance

Published: 2021/12/02
Number of words: 4481

Introduction 

Currently, globalization has made it important and imperative for organizations to take care of their finances. As part of managing, preserving, and controlling wealth, various financial activities are considered. An organization’s financial resources are managed and invested by its financial resource management function, as it relates to finance. Analyses and investments are required for capital management. Throughout its business activities, the company will aim to acquire financial resources in accordance with its fiscal policy. It is because national-level financial trends influence business (Müllner, 2017), government, and organization activities that international finance actually takes place. The fact that countries often borrow from one another is well known as international finance in the market for business. A lot of nations have a distinct currency when trading with one another. To determine how currencies compare, it’s necessary to know the characteristics of international finance. Further, it is important to understand the process by which commodities have been bought and sold, in addition to what determines the value of different currencies (Hellmanzik and Schmitz, 2017). Increasingly, globalization has made international finance more important to companies in order that they can compete in foreign markets. There is a significant difference between international and national financing when it comes to exposure to currency fluctuations.

Task-1 

AC 1.1 Describe and assess the objectives of developing International Accounting Standards 

  • Increasing the standard of finance

It is important to use IAS and apply those in the standards of finance equally. In order to succeed in achieving different business objectives, this has been quite important that entities of a variety of types and varying sizes are able to be considered using the right way. As a result of increased convergence with the facilitation of government reporting practices and established IAS (Alves and Toporowski, 2019), global perspectives on reporting practices have also evolved. In order to develop IAS and even to strengthen and standardize regulatory requirements, industry-specific financial standards will need to be established.

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  • Facilitate decision-making

There is a need for the establishment, as a public service, of transparent, independently enforceable, and consistently followed financial reporting standards. As a matter of international finance, International Accounting Standards might be meant to achieve this goal. It is essential that the standard also includes more ways to record financial information if investors, as well as those participating in financial activities (Lam and Graddol, 2017), are making financial decisions that are economically viable. IAS in addition promotes financial statement integrity by making financial statement information available to all.

AC 1.2 Identify and explain the relevant International Accounting Standards that are applied to specific financial situations

  • Valuation of inventory

As a rule, all inventories must meet this Standard, with the exception of ongoing projects, which include services required for making. Consultants in finance and different organizations provide a variety of different services. Besides shares and loans also allows investment in a variety of types of financial instruments. Identifying unsold items is just one step in the valuation of inventory. Furthermore (Khattak, 2020), a final value can be determined by multiplying an amount through a rate. It is important for an organization to choose a method for calculating a common rate considering it has paid different prices for them throughout the year.

  • Valuation of non-current assets

Among the most useful financial resources for the organizational business are intangible assets. Such of this asset which is currently not being used are commercial property, automotive, equipment, and machinery. By subtracting the acquisition price from its depreciable value, we’re able to determine the present value of such non-current assets.

  • Application of accounting concepts and conventions

In the accounting profession, accountants find it necessary to make financial statements that are reliable and informative. The objective of complying with regulatory requirements encompasses complying with regulatory standards while adhering to laws and regulations.

AC 2.1 Examine the key features of international finance and the major institutions involved in the international financial environment 

Key features

  • Because of the global nature of the markets and products, certain countries have different taxation, transportation, etc. policies. As a result of imperfect markets, Luxury Chocolate Ltd.’s financial managers are often in a position to invest abroad in order to increase profits.
  • Despite foreign exchange risk, and unprofitable transactions may turn profitable if currency fluctuations are significant. As a result, an organization is better prepared to handle situations such as these (Krugman et al., 2018).
  • Financial managers from Luxury Chocolate ltd. can navigate the complex international environment of foreign exchange risk.
  • If the business organization increases its operations across national borders with international finance, it will be able to produce goods with an entirely different market.
  • Despite the low rate of positive earrings, the firm was able to demonstrate the effective effects of the application in the early stage. It is also related to the fact that the loss rate increases after the application procedure.

Major institutions involved

Global financial institutions play an important role in contributing to the financial growth and development of several developing or transitioning countries. New developments can be planned and implemented with the help of advisory services (Chen, 2019). Among them are the Asian Development Bank, the Development Bank of Latin America, and the World Bank.

1M1 Evaluate the implications of introducing specified International Accounting Standards for Hichrom

  • In order for stakeholders and participants in the Hichrom to make an informed decision about the risks and opportunities of international monitorial markets, IAS has continuously deliberated about them. To keep the organization in the world of financial functionality, this involved assessing the economic business functions of the organization.
  • Furthermore, they must maintain the international financial reporting standards for their accounting records (Annachhatre, 2020), such that they represented the monitorial condition accurately and at all times in an efficient manner.
  • HICHROM’s foreign exchange markets help investors, financial analysts, and other participants understand the differences involved in international financial statements.
  • Using IFRSs, which are designed to maximize profits and serve to further align Hichrom’s IAS with industry standards, the organization has been implementing and adapting those guidelines.
  • The IAS has been used to determine whether Hichrom’s ability to meet its financial obligations will allow the organization to be successful in foreign markets (Ahn, 2020).
  • Additionally, IAS has been intended to establish a system that is efficient, transparent, and accountable so that it can improve global competitiveness in every market.

Task-2

AC 1.3 Discuss the effect on financial statements of the application of specific International Accounting Standards 

  • In some financial situations, the IAS is used to evaluate how an organization is managing its capital resources. Nevertheless, adopting the International Accounting Standard is the only major factor that will affect a company’s consolidated financial statements.
  • Most of the time, non-current assets are valued according to IAS. As a consequence, IAS deducts accumulated depreciation from the total purchase cost. An international economic operation’s long-term assets would normally be considered as such under these contexts (Kenny et al., 2018).
  • According to IAS, there is a significant emphasis on financial statement values in combination with accounting estimations. In addition to a greater degree of fluctuation in net income, the adoption of the IAS causes significant changes in cash flow.
  • The organization performs a valuation of the inventory in order to determine its value for the purposes of preparing its financial statement. These have not been applied to the domestic economy but can be tapped into through international financial transactions.
  • If organizations apply IAS to operational activities (Madura, 2020), including financial statements, and make the reports easily accessible to a wide range of stakeholders, they will have a greater chance of implementing monetary terms or valuing their assets properly.

AC 2.2 Assess the contribution of international financial markets and financial instruments as sources of finance 

  • International financial markets

International financial markets have caused many unforeseen difficulties to occur within the finance sector. Changing financial policies and rules of performing an organizational operation in the international marketplaces are essential parts of the international economy today. Communities of finance maintain a key aspect for creating the financial standards for any business organization. Decisions made by businesses are significantly influenced by the markets related to international finance. Additionally, it contains elements of the global economic and financial systems (Best, 2016), such as contributions to the global policy process, competitive markets, global standards of economic and fiscal governance, as well as international law and policy.

  • International financial instruments

The most important long-term finance is those that generate future revenue. Therefore, they will also be considered to have some significant measures. As a financial asset, an entity’s ownership interests or monetary value can be quantified. Legal agreements or contractual rights are what they constitute. The international finance category of financial instruments includes derivative securities and cash instruments.

AC 2.3 Conduct an analysis of the currency market and the importance of the exchange rate

  • Interest rate

Exchange rates and currency prices are affected by interest rate movements. Anything else, such as higher national interest rates, will help the domestic currency since more international investors will want to deposit at higher interest rates and invest in national foreign capital.

  • Inflation rate

Changes in the inflation rate impact the value of a currency (Bai and M, 20200). Despite the fact that the country’s inflation rate is greater, the demand for local currencies falls significantly more than for other Foreign Monetary Units due to their temporary loss of value.

Aside from that, the currency rate takes into account government debt, export or import activity, and political stability.

Task-3

AC 3.1 Determine the capital requirements of Unilever

A global capital system provides financial resources for financing, manufacturing growth, and acquisitions. For multinational firms, the two capital alternatives are stock and debt, and each has advantages and disadvantages (Jung and H, 2020). The cost of monetary assistance appears to be an important aspect of the financing choice.

Unilever Plc ADR has a capital expenditure of 7.33 billion dollars, according to the corporation’s filings. This is considerably less than the average for the Consumer Defensive sector, and it is considerably less than the average for the Domestic & Individual Goods industry. The capital expenditure of all stocks listed in the United Kingdom is much greater than the operating capital of the business (Ball and Mazumder, 2021).

AC 3.2 Contribution of the financial theories in developing capital structure 

A company’s modified capital system is an optimal mix of debt and capital financing that maximizes market price while lowering loan costs. Because of the tax deduction for mortgage interest, financial leverage usually has the lowest interest rate.

Financial theories contribution –

  1. The right mix of stocks and bonds may boost a company’s market performance while lowering its capital expenses, making it a crucial source of funding.
  2. One method to optimise the least expensive mix of financing is to decrease the weighted average capital costs (WACC).

2M1 Foreign exchange evaluations via the use of forwarding contracts, currency futures, and money market hedges

Alternatively, a currency trading buffer is a financial transaction made only to protect an existing position or to enhance the probability of monetary gain. Because international shipping is conducted in a denomination other than the organization’s native or local currency, the risk of monetary loss or foreign exchange loss is referred to as monetary risk or foreign exchange loss, depending on the context in which it occurs. Hedging one’s foreign currency exposure is a widely used financial technique for mitigating the risks connected with changing foreign exchange rates that may occur while doing business in other nations. Hedging one’s foreign currency exposure may assist mitigate the risks associated with currency fluctuations. In the context of currency trading, the word hedging refers to a strategy in which the exchange rate used to execute a transaction is set for a future time rather than using the current forex value on the day in question (LAILAN, 2021).

2D1 Planning, monitoring, and management of short-term assets of Microsoft

To execute short-term securitization of the investment business in the analysis of current assets and obligations, Microsoft utilises a guarantee with a holding duration of one year or less. Short-term assets are assets kept for a year or less, and accounts are anticipated to be converted into currency in the next year by the phrase “current” (Yarqulova and M, 20200). On current or short-term assets, numerous significant financial ratios, such as a corporation existing ratio, asset turnover, and liquidity evaluation, are calculated. Both the quantity of accounts and the amount of storage are current assets.

3M1 Interest rate management using swaps and interest options and rate agreement 

  • A rate swap is a transaction in which two parties exchange future interest on a set sum of money (Moşteanu and N, 2020). One of the main reasons financial institutions employ interest rate swaps is to reduce credit risk damage, control, or trade.
  • An FRA is based on the concept of a futures contract with a profit or loss forecasting interest rate. The parties will pay a flat interest rate in accordance with this agreement that is equivalent to the current interest rate.
  • Finally, interest rate risk management is becoming increasingly essential, and many strategies for dealing with credit risk have been created.

3D1 Working capital management strategies in Ferrero Rocher

Cash management

Cash is by far the most liquid of all total assets. All current assets, such as loans and inventories, will be converted to cash at some point. As a result, money management is critical. Cash management is also an important aspect of working capital management.

Coins, currencies, drawers, checks, and bank deposits are all protected. There are also marketable securities available, which can be readily turned into cash. As a result, cash makes up a significant percentage of existing assets (Migliorelli and M, 2021). As a result, a company’s present assets should always be sufficient. This demonstrates that there is insufficient cash and that further funds are not required. Money doesn’t mean there’s a shortage of cash or that there’s an abundance of it. This is due to a lack of money being created. While additional capital sits idle, the company’s profitability suffers.

Inventory management

Manufactured goods may refer to the materials required to create products that will be processed into finished goods. On the one hand, there are the finished products, while on the other, there are the items for sale. The type and amount of inventory that will be held presently depends on the company’s nature. Finally, stocks are an important part of a business’s current assets. As a result, inventory management must be effective and efficient.

The investment of maximum inventory work capital is inventory management. Inventory management is either not too expensive or not too expensive to invest in. The production process is halted due to a lack of inventory investment. Excessive stock investments, on the other hand, result in money being blocked. As a result, inventory investment should not be either minimal or excessive. This implies that a company’s inventory level is ideal for identifying and maintaining.

Account receivable management

Accounts receivable are debtors resulting from the selling of products on credit to customers. A firm must sell things on loan to develop its business and attract consumers (Shen et al., 2020). Companies’ present liabilities, of course, have a risk component. This hazard is related to the possibility of debt default. As a result, a firm must manage its receivables in order to maximise the total return on these receivables. As a result, receivables investments must be of the highest quality. While sustaining these claims, the benefits are weighed against the costs. Increased receivables investment reduces sales and the risk of toxic loans, whereas insufficient receivables investment increases sales and the risk of toxic loans. As a result, in order to effectively manage receivables, a firm must weigh the expenses of holding accounts receivable against the benefits of keeping them.

As a result, overinvesting in accounts receivable improves sales. However, there is a significant risk of defaulting on a loan.

Finally, issues are handled as part of the Ferrero Rocher company’s capital management plan.

Task 4

AC 4.1 Analysis of the micro-environmental and macro-environmental factors influencing international management decision making

When making financial choices, companies and other factors must be thoroughly examined. Along with many other factors, it is essential to evaluate both the macro and microenvironment throughout the evaluation process. If a cash basis contract results in increased lending rates, which affects people seeking to borrow money, borrowing becomes more expensive. Those in positions of authority may have an impact on the business’s development. Although the customer is tiny in comparison to the supply firm, the supplier is nevertheless capable of handling the client’s product or business as a significant component of its finished product or business (Otto Syk, 2021).

When making financial choices, it is critical to do a thorough analysis of companies and external circumstances. The study must take into account a variety of factors that are important at both the macro and micro levels. Although management accounts are a subset of financial management, they are significantly influenced by the macroeconomic climate. If we utilize a basic example rather than our own, we may get a better understanding of macroeconomic issues. Reduced exchange rates would benefit a country’s Capital Adequacy and Legal Financial Leverage. Bank centrale. When the money supply is reduced, the interest rate paid to people seeking to borrow money will increase as the cost of borrowing rises. A market position that has a significant impact on the growth of a business is said to be ‘dominant.’ Although the supply chain’s suppliers are the only or most significant businesses in the chain, the supply chain’s suppliers are critical to both the provider and the final product or company (Krasnyuk and Krasniuk, 2021).

AC 4.2 International financial management analysis of mergers, acquisitions, and investment policies

Before making financial choices, companies and other factors must be thoroughly researched. Along with many other factors, assessing the macro and microenvironment is a critical component of the evaluation process. If a cash basis contract results in increased lending rates, which affects people seeking to borrow money, borrowing becomes more expensive. Those in positions of authority may have an impact on the business’s development. Although the customer is tiny in comparison to the supply firm, the supplier is nevertheless capable of handling the client’s product or business as a significant component of its finished product or business (Van Kerckhoven, 2021).

When making financial choices, it is critical to do a thorough analysis of companies and external circumstances. The study must take into account a variety of factors that are important at both the macro and micro levels. While management accounting is a subset of financial management, the former is significantly influenced by the macroeconomic climate. If we utilize a basic example rather than our own, we may get a better understanding of macroeconomic issues. Reduced exchange rates would benefit a country’s Capital Adequacy and Legal Financial Leverage. Bank centrale. When the money supply is reduced, the interest rate paid to people seeking to borrow money will increase as the cost of borrowing rises. A market position that has a significant impact on the growth of a business is said to be ‘dominant.’ The supply chain’s suppliers are the only or main entities in the supply chain, even though supply chain supplies are critical to both the provider and the final product or business (Sbeiti, 2021).

4M1 Foreign governments’ fiscal and monetary policies have a significant impact on global financial flaws

Fiscal policy is a term used to refer to the decisions made by the government about taxes and spending, which are formally referred to as “taxation and expenditure decisions” in the academic language of economics. It is necessary to strengthen the state’s finances to spur economic growth (Qian, 2021). As a result, the cost of goods and services will increase. Because of the growing pressure on manufacturers to increase their production, inflation has grown in recent years. Increased output may need the hiring of more workers. People who have been out of work for some time may utilize their wages to buy clothes, furniture, and other household goods after they have found employment. Following the Great Recession, the vast majority of monetary authorities in the Pacific kept their interest rates at historically low levels, according to statistics from the International Monetary Fund. Governing bodies all around the globe comply with current Federal Reserve law (Vijayakumar and Kepes, 2021).

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4D1 Benefits and hazards of international financial management mergers and acquisitions

Recognizing the risks associated with cross-border mergers and acquisitions may need changes to purchasing companies’ risk perceptions and due diligence procedures. Similar considerations, such as state and international tax laws, the target business’s assets, and other financing sources, should be made. While the vast majority of countries in the region liberalized their economic and regulatory systems, it acted as a catalyst for these transactions. The emphasis has been on recent cross-border mergers and acquisitions in Western Europe and Asia (Bickley et al., 2021).

Global fusions and acquisitions activity has grown substantially over the past two decades. Additionally, it is no longer restricted to a single regional or national market. Businesses are increasingly searching for consumers in countries other than their own country to grow. Europe, the Arab Peninsula, and the United States are all experiencing fast development, which attracts a huge number of businesses seeking to expand. Purchases and transformations of local companies result in the acquisition of purchasers who agree on the terms of the purchase. Fusions and acquisitions are used to accelerate the development of a company and increase the wealth of its owners. As such, it is a vital weapon in a company’s arsenal. When a firm seeks to acquire a company in another nation, this is referred to as a cross-border purchase. This is referred to as cross-cutting fusions and acquisitions. Fusions and acquisitions, particularly cross-border transactions, may assist a company is growing and prospering over time (Ioannou and Wójcik, 2021).

Appendices

References

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