Question

1. Compare the differences between conducting business internationally versus domestically. What additional challenges does an international financial manager face compared to their domestic counterpart?

2. What are the various ways that are employed to forecast exchange rates and comment on their strengths and weaknesses? To what extent should the international financial manager take account of these forecasts in carrying out their function?

3. One of the greatest challenges the international financial manager faces is in understanding how to deal with international accounting differences. Discuss this contention explaining the nature of the challenge and the ways in which it can and should be dealt with.

Answer 1

1. Domestic business refers to the business when business is done within the geographical area of the country, and when it extends beyond the geographical area of the country it is known as international business.

international finance manager face additional exposure to foreign exchange movement between two currency and interest rate risk of foreign currency along with political risk associated with another country and difference in accounting rules.

2. There are different ways of prediction of foreign exchange rate and they are purchasing power parity which is looking at the price of goods in different countries and it is used as a very sophisticated method for forecasting foreign exchange rates due to difference in price in different countries.

Foreign exchange rate also can be predicted using relative economic strength which advocates looking at the strength of economic growth in different countries. It can also be calculated using econometric models.

these models can only be used for forecasting and they should not guarantee the accuracy between the prices existing between different countries so it can always be taken as a relative comparison not as a accurate comparison between exchange rates.

3.accounting standards are modified and adopted differently across the different section of global economy so an international finance manager will always face the problem of recording of different transaction into the books of accounts and deriving conclusion out of it because they have been subjected to different accounting standards and policies so he needs to carefully interpret and modify according to the needs of domestic company.