Learning International Corporate Finance - Assignment Example

Learning International Corporate Finance

Introduction

The world has stepped into a modern era where the trade between various countries is now open. The previous generation used barter system to trade between themselves but this method became obsolete as the value was not properly determined. However, when people became more advanced, they started trading within themselves and started using money as a medium of exchange. However, this has worked better when the transactions were with the nation but when same began to trade internationally, this method also got a severe challenge. It is so because people could not determine the value of money as they could not compare which currency was strong.

The concept of International finance came into act when people became more advanced and started making good use of financial policies. It is so because international trade is not the only thing here but the globalisation of the companies are also getting common these days. International finance is not only about the foreign exchange determination but also the various risks associated to it. It also determines the marketing opportunities that are available to the companies in an alien demography.

In this study, the concept of international corporate finance will be discussed in context to the globalisation of companies as well as the exchange rate policies and its cross relationship with the foreign currency.

1. Critically evaluate the cross relationship between a foreign currency unit in relation to Omani Rial.

The banks those are present in Oman are under the regulation of the Central Bank of Oman. The main task of the central bank is to establish a stability of the national currency in the international market. It also ensures the stability of both the financial as well as monetary policies in the market (Al-Muharrami, Matthews and Khabari, 2006).

The bank is working towards the establishment of advanced baking institutions in the country which will help in keeping the financial status of the country in the foreign market as well as contribute towards the economic growth of the nation. The priority of the bank of Oman is to maintain the value of their currency in the market as well as improve the position of the Sultanate of Oman in the domestic and international economic affairs (Al-Muharrami, 2015).

The free market economy also gets enhanced by the international policies of the Oman. The free market economy is an economy where the prices of the products are decided on the free consent of the sellers and the consumers. Therefore, the institutions of the nation also actively participate in the international monetary community where various proceedings as well as the negotiations take place regarding any international monetary decisions (Mubeen, Kulkarni and Al Hussaini, 2014).

In general, the government of the nation highly encourages the participation of the foreign players in various fields of development. The foreign expertises as well as the technologies are highly encouraged. The main reason for the same is that both of the economy of Oman as well as the foreign players will be mutually benefited. As per the point of view of the foreign companies, they are getting a new market and source of increasing their revenues and on the other hand the nation will get certain areas privatised and will reap benefits from the natural resources. The foreign as well as the local investments are also encouraged by providing tax exemptions for the same. This also includes the lowering of the charges of plots for the industrial purposes and even the government lands are also provided for the same. The loans for both the international as well as the local businesses are made with low interest rates and even free of interest-free. The Omani government also facilitates the power sources for the companies so as to increase their productivity where the charges of water, fuel, and electricity are also reduced. The government also facilitates the immigrant visas as well as permits for the foreign workers. The Oman Chamber of Commerce and Industry priorities and encourages the participation of private sectors in the economy. The tax system also encourages the participation as the income of a particular person in Oman is tax free but a little tax on the companies that are operating their business in Oman (Ashrafi et al., 2014).

The value of the currency of a certain nation is highly depended on the foreign investment in the country (Liu, Chen and Ralescu, 2015). The Omani economy is an economy which is driven by the oil prices in the international market. It is so because the nation is blessed with the natural resource that is crude oil and its prices are also high in the international market. Therefore, it can be said that the oil industry contributes maximum towards the growth and development of the economy and hence it also supports the high standard of living in the country. Other than the crude oil, the reserves of natural gas also play a significant role in the economic growth. Therefore, the companies that are mainly present in the states are the one which are related to oil and gas (Ashrafi et al., 2014).

As the nation is totally dependent on the oil and gas, the country developed a five year plan where they aimed to encourage the entry of private sector in the states. However, this plan has been successful for the nation and currently more than 50% of the country’s revenue is generated from outside the oil and gas (Ashrafi et al., 2014).

The economy of the nation continues to grow at a rapid pace. Therefore, the company witnessed an increasing growth of 3% as well as raised an investment of about RO 30 billion. The foreign investment increases the value of Rial and such an open invitation to such investment creates a stability of the currency in the international market. The foreign investment in the country is governed by The Foreign Capital Investment Law. There are a few restrictions to the foreign-currency holding of the commercial banks of Oman but at the same time it also does not impose much of exchange controls. The only rule which the investing parties need to follow is to get a license for their investment in the companies that are originated in Oman (Ashrafi et al., 2014).

Omani corporate as well as businesspeople generally values the US expertise and technologies. Therefore there is a free trade agreement among these two nations. Hence, the currency relations between the USD and Omani Rial always stay positive and any movement in the currency of one will affect the other.

2. a. Identify the functions of the international money markets.

The money is also known as a medium of exchange where it acts as a price of the product that is intended to purchase (Olivera, 2014). However, the money market is a financial market place where various financial instruments that hold high liquidity as well as very short maturity are traded. Such market is generally used by the particip0ants which needed to borrow or lend money for a very short period of time. Such market securities are often negotiable as the instruments are certificates, treasury bills, and commercial papers (Bech et al., 2015).

This also happens on a global level where the international currency transaction among the various central banks of different countries. The base which is generally chosen for the transaction is either gold or US dollar. The operations that are conducted in the international money market include the money which are either borrowed or lend by large financial institutes or even by the government (Cavusgil et al., 2014).

The international monetary market takes into consideration all the transactional policies which are followed in different countries. Therefore, the main function of the international monetary market is to maintain the currency trading among the various countries. This concept of trading among the various countries is also known as forex trading (Davidson, 2016).

Though the concept of international money market does not purely follow the concept of share market but some areas are quite similar. However, the biggest difference over here is that the players in this market are not some individuals but the large financial institutes and governments as the fund transfer are also very large. The risk which is associated with the international monetary market is quite low and so is the return from the same. The best type of investment in the international monetary market is either through treasury bills or through mutual funds (Claessens and Forbes, 2013).

There is various function of international money market where it encourages the currency cooperation among various countries which is promoted by various permanent financial institutes to avoid any monetary problems. It also enhances the expansion as well as growth of the international trade so as to increase the development among the member countries and increase the employment and the real earnings of the people. However, the main objective of the international money market is to promote the stability in the exchange policies. It also restricts or hampers the restrictions related to foreign exchange in order to enhance the growth of the world trade (Gandolfo, 2013).

2. b. critically evaluate its impact on the development and growth of money markets in the global context

The global financial market is huge and also made through the combination of many large financial institutes as well as many market instruments. Therefore, it enhances the economic growth of many member countries by creating money as well as employment. The global corporate world is highly connected to each-other making it easy for them to maintain stability through mutual understanding in the international trade system. The large institutes also belong to some countries and also need to raise capital and the global market helps them to attain the same (Cavusgil et al., 2014).

In general, the thinking pattern is that the money which is being currently used is issued by the government of that particular country. However, that is nothing but a paper note which is a component of the money that is being used in the economy. However, there are four institutes engaged in this process as per the modern financial system. Such institutes are the central bank, depository bank, dealer’s bank and the money market funds (Brigham and Ehrhardt, 2013).

The international corporate finance keeps the forex trading at a stable position and also evaluates the value of each currency against one-another. However, there are also some of the failing grounds for the institute where the market paid the IMF, some short-term finance in order to tackle the disequilibrium of balance of payment. The development in the international monetary system started due to the Capital movements in the various significant countries such as US, UK and France. Such countries have generated a BOP deficit which encouraged the speculation that the gold prices will increase. Therefore, as the base in the international trade is gold or the US dollar, the international money market was also encouraged due to high gold prices. This has led them to perform better and also enhanced its growth and development (Davidson, 2016).

3. Choose an international business organization and critically evaluate it overall international business strategies and managing its finance

The business strategy is the most important element for any business operations. The business strategy includes the planning as well as implementing the same so that the organization earns the maximum market popularity. This will gain the brand its goodwill in the market and so the company will earn handsome amount of revenues. However, when the international business is the topic of concern then it actually refers to the strategy made in order to act as a cynosure for the commercial transactions that takes place on a global level. Such level of strategy is generally made by the private companies rather than the government bodies (Verbeke, 2013).

Whenever a company gets globalised, they generally maintain a relation with other entity which would rather help in manufacturing for this particular company or maintains its supply chain. It is so because of cultural and demographic diversity and it is the best way to survive in a highly competitive market. The theory of international business strategy is evaluated to overcome the various barriers that the company faces in the international markets such as linguistic barrier, cultural differences and a huge problem is created by the political as well as legal structure of the foreign country (Pedersen et al., 2013).

As per the recent studies as well as survey it has been clearly visible that the developing countries are the main attraction for any companies to launch their product as the market is brand new for their product and the sales will go up. For instance, Apple Inc. can be considered for an international brand which is being an American multinational is popular worldwide. The strategy adopted by the organisation can also be taken as a perfect example for such study. The company is engaged into electronics and technology and also operates into wide sections of products such as computers, phones, laptops, tablets as well as software (Heracleous, 2013).

As the world was moving towards higher technological advancement, Apple Inc also expanded its wings into the international markets in order to generate goodwill and revenue and earn profit. The main challenge here was to earn customer’s confidence and on the other hand also to know about their preferences and the change that the world was going through. The company needed to stay ahead in respect of technology in order to survive the competition and it did the same by applying multiple strategies at a same time in order to flourish in the new market (Heracleous, 2013).

Apple has been maintaining both its marketing as well as financial strategies well enough to thrive in the market. The company has always focused on innovation and surprised the customers with the new gadgets it produced. The company also maintains its supply chain in efficient manners where the cost is also kept into concern. Being an American multinational, the company also operates into other countries where their manufacturing unit as well as supply chain is maintained by others. In this process if the company itself maintained such operations then it would have been expensive for the company but outsourcing the same proved to be profitable for the organization (Haslam et al., 2013).

The company no doubt generates huge revenue but at the same time also maintains its balances. The company generally invests in research and development program to come up with various innovative products but at the same time also manages to keep the shareholders wealth intact. The company does the same to provide its shareholders an opportunity to earn from their investment in the company. The earnings per share of the company also yield a handsome amount and the investors earn through capital gains. The company also maintains a good current ratio as well as uses its resources efficiently. It also follows the policy to fund its operations through the shareholder’s fund rather than through borrowed money. This clearly reflects the financial strategy of the multinational giant Apple Inc and which is efficient enough to make it a huge success around the globe (Haslam et al., 2013).

Conclusion

The concept of international corporate finance has been focused upon in this study where a few subject matters related to the topic have been discussed about. The forex trading policies of Oman have been illustrated in the study where it is inviting the foreign companies as well as investments in order to increase the value of its currency in the international market. In second case, the functions as well as the impact of the international money market have been discussed and according to which the aim of the institute is to promote stable monetary values among the countries. Finally, the international strategy of Apple Inc has been focused upon starting from its marketing policies to the financial strategies.