International business finance is the process of investing abroad or receiving foreign investments from banks and other lending institutions in order to finance business activities. This is the age of globalization and the involvement of firms in international financial activities is on the rise. The monetary system all over the world has been relaxed and it is now both flexible and volatile. A number of new markets and institutions like the Euro currency markets have evolved over the years and this has resulted in greater financial intermediation. In 1971, with the US dollar being allowed to float, the fixed exchange rate was changed into a floating exchange rate.
International business finance has the following marked features:
- The presence of multiple currencies
- Presence of obstacles to financial flows
- Differential taxation
The multiple currencies and exchange rate issues are of utmost importance. Foreign investments involve a close look into certain factors. The cash flows need to be identified. A discount rate that suits the trader needs to be negotiated and the net present value must obviously be determined. There are a lot of risks involved in foreign investments. The different currency values keep on changing. There is also a perennial fear of expropriation. The exchange rate also fluctuates and creates problems for investors. A lot of political considerations are to be taken into account, which leads to selective control and invidious treatment to foreign investors.
There are two kinds of sources of business finance. The internal sources are obtained from the proceeds of sale of the business itself. The outside sources are banks and other international sources of loans. Some popular ways of international business finance are personal money, money borrowed from friends, bank loans, bank overdrafts and assistance from government institutions. Finance can be short term, medium term and long term. Money is needed to set up business, buy machinery, other infrastructural facilities, stocks and other raw materials, undertake insurance measures and a lot of other things.
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