International Finance Paper Essay - 1,106 words

International Finance Paper For the past twenty years, financial markets throughout the world have become more and more interconnected. Globalization of finances has brought considerable benefits to different economies and to investors and changed the composition of markets. It has created new risks and challenges for market members and policymakers. The worldwide marketplace continues to present opportunities for companies. But change is constant and prudent so companies must work to minimize their risks while maximizing their opportunities. The International marketplace can offer considerable financial returns to companies conducting business but there are risks that have to be considered such as trade, foreign exchange, cash management, cross border financing, investment, and multi currency requirements.


In conducting business overseas, there is need to deal with multi currency financial flows, fluctuating market conditions, and exchange risks. Risk management internationally has always been a critical issue, due to financial deregulation and innovations. The unpredictability in the financial market has increased tremendously. Instability in exchange rates due to floating exchange rates, unstable interest rates both with domestic and foreign assets has exposed all the financial mangers to a greater uncertainty in achieving companies financial objectives. Rapid advances in corporations and governments having to rely more heavily on national and international capital markets to finance their activities have heightened the emphasis on money management performance. At the same time, cross-border financial activity has increased. Investors that manage a growing share of global financial wealth are trying to enhance their risk adjusted returns by diversifying their portfolios internationally and are seeking out the best investment opportunities from a wider range of industries, countries, and currencies.


Also non-bank financial institutions are competing sometimes aggressively with banks for national and international markets, driving down the prices of financial instruments. A significant portion of many companies business is conducted outside the United States. For the years ending December 31, 2001, 2000 and 1999, approximately 60%, of United States based companies revenues were generated from customers outside of the United States. (PanAmSat) This made them vulnerable to be harmed financially and operationally by changes in foreign regulations and telecommunications standards, tariffs or taxes and other trade barriers. Although almost all of their contracts with foreign customers require payment in U.S. dollars, customers in developing countries could have difficulty in obtaining the U.S. dollars they owe these companies, including as a result of exchange controls.


Exchange rate fluctuations may adversely affect the ability of their customers to pay us in U.S. dollars. If these companies ever need to pursue legal remedies against their foreign business partners or customers, they may have to sue abroad, where it could be hard for them to enforce their rights. (PanAmSat) Banks have an integral part in the international chain, and their contributions can have a direct impact on a U.S. companys success and profitability. A number of market factors are creating an opportunity for banks to significantly enhance the value they add to their customers cross border risk mitigation efforts. The first factor is what method is available to measure currency exposure, secondly, based on the nature of the exposure and the companys ability to forecas ...................................................................................................................................................................................................................................................................................................................................................................

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Essay Tags: exchange rate, exchange rates, exchange risk, foreign exchange, interest rate

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