RU/SAMS/IFM/ANS

Lesson 1: Significance of International Financial

Management

Learning Objectives:

• To help you understand the concept of finance in global

context
• To help you understand financial management as
international investment opportunity
• To elaborate the scope of investment under fast changing
globalizes economy.
• To help you understand and appreciate the rationale for
India’s participation in the field of international finance in
deregulated environment – both in the financial and banking
sector

Why study International Finance?

Dear students, as we all know, since the beginning in the 1980, there
has been an explosion in the international investment through mutual
funds, insurance products, bank derivatives, and other intermediaries
by individual firms and through direct investments by institutions.
On the other side of the picture, you must have realized that the
capital raising is occurring at a rapid speed across the geological
boundaries at the international arena. In the given scenario, financial
sector – especially the international financial and banking institution,
cannot be anything but go international. With the India’s entry into
the world trade organization since 1st January 1995 and consequent
upon a series of economic and banking reforms, initiated in India
since 1991, barriers to international flow of goods, services and
investments have been removed. In effect, therefore, Indian economy
has been integrated with the global economy with highly
interdependent components.
Rapid advancement in science and technology – especially
supported by astronomical development and growth in
telecommunication and information technology, has provided a
cutting- edge and global leadership for India to participate in the
international business. This, in turn, has stimulated a phenomenal
growth in India’s proactive participation in international exchange of
goods, services, technology and finance so as to knit national
economies into a vast network of global economic partners.
In the given scenario, as you are exposed to above, the
financial managers now, in a fast growing economy, such as India,
must search for the best price in a global market place. A radical
restructuring of the economic systems, consisting of new industrial
policy, industrial and banking deregulation, liberalization of policies
relating to foreign direct investment, public enterprise reforms,
reforms in taxation, trade liberalization etc. in the post- liberalization

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era, has provided the right ambience for India to participate more
aggressively in international financial market.
To accommodate the underlying demands of investors and
capitals raisers, financial institutions and instruments need now to
change dramatically to cope with the global trends.
Financial deregulation, first in the United States, and then in Europe
and in Asia, has prompted increased integration of the world
financial markets. As a result of this rapidly changing scene,
financial managers today must have a global perspective
In this unit we try to help you to develop and understanding
of this complex, vast and opportunistic environment and explore
how a company or a dynamic business manager goes about making
right decisions in an international business environment with sharp
focus an international financial management.
The field of international finance has witnessed explosive
growth dynamic changes in recent time. Several forces such as the
following have stimulated this transformation process:
(1) Change in international monetary system from a fairly
predictable system of exchange
(2) Emergence of new institutions and markets, involving a greater
need for international financial intermediation
(3) A greater integration of the global financial system.