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Discuss the role of financial management in an international setting with particular reference to: (i) Currency exchange rates. (ii) Sources of finance (iii) Investing in overseas countries.

      

Discuss the role of financial management in an international setting with particular reference to:
(i) Currency exchange rates.
(ii) Sources of finance
(iii) Investing in overseas countries.

  

Answers


Kavungya
(i)Currency exchange rates
The problem of fluctuating exchange rates can be reduced by decreasing the level of exposure.
Protection can be achieved by requiring the invoice to be at a fixed rate of exchange (from
supplier) or by buying forward the necessary amount of foreign currency. Incase of longer
term transactions (e.g investing in an overseas country) it may be desirable to reduce the level
of exposure buy gearing up through foreign currency borrowings.

(ii) Sources of finance
As export trade often mean a longer period of credit, the company may well need to
raise additional finance. The more likely sources are euro-currency borrowings, dollar borrowings,
documentary credits and loans from banks; the latte may need insurance.

(iii) Investing in overseas countries
Apart from the problems outlined above, investing in overseas countries involves one
further problem – the need to translate the assets or investment into Head Office currency
at the year end. The rates used will depend on the particular transaction under consideration
but the most important principle is that the treatment should be consistent from year to
year.
Kavungya answered the question on April 17, 2021 at 21:23


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