role of technology in international finance

ROLE OF TECHNOLOGY IN INTERNATIONAL FINANCE

DEFINITION OF INTERNATIONAL FINANCE:-

International finance is the branch of economics that studies the dynamics of foreign exchange, foreign direct investment and how these affect international trade. Also studies the international projects, international investment and the international capital flow.

INTRODUCTION:-

The rest of this course will be devoted the study of international financial markets. In this lecture we will explore certain concepts that we will use in the subsequent lectures.Balance of Payments is the record of a country’s transactions with the rest of the world. Terms like trade surplus and deficit are used to describe if the country has more or exports than imports or imports than exports. More specifically, a country has trade surplus if value of exports exceed that of imports. A country has trade deficit if the value of its exports falls short of the value of its imports. US has been experiencing trade deficits since 1975. The exchange rate is the price of a currency in terms of another. Currencies are traded extensively in international markets. The highest volume of foreign exchange trading occurs in London. The reason possibly is the fact that London possesses the advantage of overlapping both Asian and American business hours. The other major trading centers are New York and Tokyo.

The development,installation, and implementation of computer systems and applications. International finance as a subject is not new in the area of financial management, it has been widely covered earlier in international economics and it is only the fast growth of international business in the post-world war II and the associated complexities in the international transactions that made the subject as an independent area of study. International Finance can be broadly defined, as the study of the financial decisions taken by a multinational corporation in the area of international business i.e. global corporate finance. International finance draws much of its background from the preliminary studies in the topics of corporate finance such as capital budgeting, portfolio theory and cost of capital but now viewed in the international dimension.

There are various institutions involved in international finance transactions, such as traditional financial institutions, government entities and central banks. Other organizations include microfinance and development institutions, such as the World Bank and the International Monetary Fund.

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HISTORY :-

In the 1960s, the New York Stock Exchange shortened its trading days because the volume of trades was too high to process manually. The development of information technologies such as computers and local networks in the 1970s brought fast and affordable information access to the finance industry. Increasingly affordable computers encouraged the development of numerous small financial firms that handled electronic data processing. At the same time, the speed and reliability of information technology supported the creation of nationwide financial services, including electronic check and credit card processing.

The Internet

The open, public nature of the Internet threatens the closed information networks developed by the financial industry in the late 20th century. As a result of this conflict, banks are at the forefront of both information sharing and information security technology. Online commercial transactions began in 1995, and by 1998 the Internet was processing more than $50 billion worth of transactions. In the 21st century, the annual worth of Internet transactions is higher and requires more networks, more computers and more security programs. Financial institutions cannot compete without a broad but secure information network, so information technology is essential to their success.

Global Financing

Information technology allows finance to function on a global level. "Financial markets can be thought of as the first organized, global information markets operating through networked computers," Winn says. Without information technology, financial markets couldn't react to global developments and finance companies couldn't consistently acquire information at the same time as their competitors. For example, the Internet allows continuous access to credit scores and credit ratings to all lenders, insurance companies and businesses that need financially responsible customers.

Social Media

The information technology that runs social media on the Internet provides financial institutions with valuable information on their customers. By encouraging online communities associated with their products, finance companies not only acquire information but also encourage brand loyalty. For example, websites such as TradeKing allow online stock traders to discuss their picks and advise newcomers. Socially driven information technology allows finance companies to contact the younger demographics that will be their future customers.

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OBJECTIVES OF INTERNATIONAL FINANCE:-

starting in the early 1980s with the first desktop computers, information technology has played an important part in the U.S. and global economies. Companies rely on IT for fast communications, data processing and market intelligence. IT plays an integral role in every industry, helping companies improve business processes, achieve cost efficiencies, drive revenue growth and maintain a competitive advantage in the marketplace.

1.Product Development:

Information technology can speed up the time it takes new products to reach the market. Companies can write product requirement documents by gathering market intelligence from proprietary databases, customers and sales representatives. Computer-assisted design and manufacturing software speed up decision making, while collaborative technologies allow global teams to work on different components of a product simultaneously. From innovations in microprocessors to efficient drug delivery systems, information technology helps businesses respond quickly to changing customer requirements.

2.Stakeholder Integration:

Stakeholder integration is another important objective of information technology. Using global 24/7 interconnectivity, a customer service call originating in Des Moines, Iowa, ends up in a call center in Manila, Philippines, where a service agent could look up the relevant information on severs based in corporate headquarters in Dallas, Texas, or in Frankfurt, Germany. Public companies use their investor relations websites to communicate with shareholders, research analysts and other market participants.

3.Process Improvement:

Process improvement is another key IT business objective. Enterprise resource planning (ERP) systems allow managers to review sales, costs and other operating metrics on one integrated software platform, usually in real time. An ERP system may replace dozens of legacy systems for finance, human resources and other functional areas, thus making internal processes more efficient and cost-effective.

4.Cost Efficiencies:

Although the initial IT implementation costs can be substantial, the resulting long-term cost savings are usually worth the investment. IT allows companies to reduce transaction and implementation costs. For example, the cost of a desktop computer today is a fraction of what it was in the early 1980s, and yet the computers are considerably more powerful. IT-based productivity solutions, from word processing to email, have allowed companies to save on the

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costs of duplication and postage, while maintaining and improving product quality and customer service.

5.Competitive Advantage:

Cost savings, rapid product development and process improvements help companies gain and maintain a competitive advantage in the marketplace. If a smartphone competitor announces a new device with innovative touch-screen features, the competitors must quickly follow suit with similar products or risk losing market share. Companies can use rapid prototyping, software simulations and other IT-based systems to bring a product to market cost effectively and quickly.

6. Globalization:

Companies that survive in a competitive environment usually have the operational and financial flexibility to grow locally and then internationally. IT is at the core of operating models essential for globalization, such as telecommuting and outsourcing. A company can outsource most of its noncore functions, such as human resources and finances, to offshore companies and use network technologies to stay in contact with its overseas employees, customers and suppliers.

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BENEFITS OF TECHNOLOGY IN INTERNATIONAL FINANCE:-

Information technology, also known as IT, is a comprehensive term that includes all types of technology used to exchange, store, use or create information. Commonly used information technology equipment includes computers, servers, peripheral devices, Internet connectivity equipment and phone systems. From basic computer terminals to IP-based telephony systems, information technology is an integral part of most modern business operations.

1.Communication:

Rapid communications can help increase productivity, allow for better business decision-making and ease a company’s expansion into new territories or countries. Email servers, routers, internal company billboards and chat services can serve as the backbone of a company’s communications. These electronically based communication systems are used to disseminate routine and critical business information in a quick and efficient manner. IT equipment can be used to send business status reports to executives, to update employees on critical business projects and to connect with business partners and customers.

2.Efficiency:

Streamlined work flow systems, shared storage and collaborative work spaces can increase efficiency in a business and allow employees to process a greater level of work in a shorter period of time. Information technology systems can be used to automate routine tasks, to make data analysis easier and to store data in a manner that can easily be retrieved for future use. Technology can also be used to answer customer questions through email, in a real-time chat session or through a telephone routing system that connects a customer to an available customer service agent.

3.Competitive Advantage:

Adoption of information technology resources allows companies to maintain a competitive advantage over their rivals. Companies using a first-movers strategy can use information technology to create new products, distance their products from the existing market or enhance their customer services. Companies that follow a low-cost product strategy can look to information technology solutions to reduce their costs through increased productivity and reduced need for employee overhead. Businesses can also build-in information technology to their products that makes it difficult for customers to switch platforms or products.

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4.Economic Efficiencies:

Companies can harness information technology resources to lower their costs. Using IT infrastructure, redundant tasks can be centralized at one location. For example, a large company could centralize their payroll function at one location to lower employee costs. Economic efficiencies can also be realized by migrating high-cost functions into an online environment. Companies can offer email support for customers that may have a lower cost than a live customer support call. Cost savings could also be found through outsourcing opportunities, remote work options and lower-cost communication options.

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IMPORTANCE OF TECHNOLOGY IN INTERNATIONAL FINANCE:-

Information technology focuses on the development of electronic networks that exchange information. Because all financial transactions involve the exchange of information, the increasing popularity of online finance coincided with advances in information technology. According to Professor Jane K. Winn of the University of Washington School of Law, "Financial institutions were at the forefront in creating the global information economy as it exists today." Finance today relies on information technology.

International finance activities help organizations engage in cross-border transactions with foreign business partners, such as customers, suppliers and lenders. Government agencies and non-profit institutions also use international finance tools to meet operating needs. International finance covers all procedures, techniques and tools that financial institutions, such as banks and insurance companies, provide to clients.

These tools may include financing agreements and transaction strategies on securities exchanges, such as the Tokyo Stock Exchange. International finance plays a significant role in modern economies. Business transactions are not only interconnected more than ever before, but most companies engage in multinational activities through export and import.An international finance specialist helps a firm access global markets and use financing tools to operate in the short term and long term. He also evaluates the company's cash levels and recommends adequate funding options to management.

International level initiatives like General Agreement on Trade and Tariffs (GATT), The North American Free Trade Agreement (NAFTA), World Trade Organization (WHO) etc has give promoted international trade and given it a shape. All because of liberalization and those international agreements, we have a buzz word called “MNC” i.e. Multinational Corporations. MNCs enjoy an edge over other normal companies because of its international setting and best opportunities.

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FUNCTIONS INTERNATIONAL FINANCE:-

1.Debt Crisis Effect on Banks:

International Banks were the victims of debt default of many governments in the 80s. When loans are given to international finance corporates, they can be forced into liquidation but not so in the case of the Governments. The Banks have therefore spent time and money to reschedule and recover the money in installments and some debts are written off. The debt crisis weakened the banks but the banking system didn’t collapse. The banks have become more cautious and started lending only to countries with market oriented economies and undergoing structural reforms. The development in International Debt market gave rise to the new instruments and secondary market in many instruments such as scrutinized debt. Debt repaying capacity and foreign exchange earnings and production use of capital are all taken into account it is important functions of international finance.

2. Corporate Financing Decision:

Another important functions of international finance is foremost decision is the amount of debt for a given level of equity. The leverage and tax deductibility of Interest Payment and Debt would make the company prefer as much debt as possible. But debt increases the risk and hence there is a trade off between leverage and risk because of the debt risk. The questions that any Corporation Management asks itself are the proper mix of equity and debt,composition of debt, show medium and long term debt, nature of debt secured and unsecured. Fixed Vs Floating Debt and maturity and terms of debt, what currency or currencies in which debt should be taken etc. The firm should keep its debt should be taken etc. The firm should keep its debt at the optimum level. The debt should be self-liquidating through the returns that it generated. It should be in currencies in which it earns it exporting earnings. One should borrow in currencies, which are likely to be weakened and depreciated.

» Alternatives to Debt Financing:

a) Derivatives and Hybrids in financing

b) Quasi-Equity financing debt with equity conversion facility

c) Debt with warrants and sweeteners

The value of the company’s shareholders will increase with the leverage enjoyed by debt but the risk associated with the debt is to be hedged to improve the value of the firm.

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3. Capital Structure:

The Composition of Capital Structure influences the cost of Capital and returns and thus the shareholders value. The composition of debt, its currency, interest rate, maturity and other terms of debts, its currency, interest rate maturity and other terms of debt are relevant valuables to be considered Hedging of the debt risk reduces the risk of financial stress and even crisis. The firms have to match the composition debt to the payment and characteristics of the assets created so as to minimize the probability of financial distress. It pays a company to deviate from the maximum risk debt composition of only the firm can beat the market. This mean hedging of debt risk should be part of the strategy; swap, caps and other derivatives play a role in different ways.

a) To hedge an existing exposure of the Company.

b) Hybrid bonds when used in conjunction with options and other derivatives can be effective way of getting cheaper funds by exploiting the market imperfection.

c) To position the Company to gain from a favorable movement in some market valuables such as interest rates.

The principles for deciding the Capital Structure may be set out briefly as follows:

A. Debt should be used to reduce taxes and costs.

B. Liabilities created should match the assets to reduce the asset liability mismatch.

C. Kinds of debt should be such as to suit the company’s Inflows with Outflows.

D. Foreign Debt should be less costly after taking the hedging costs.

E. Once the forms of debts and types of financing are chosen the firm should employ financing and hedging techniques that achieve the goal at the lowest cost.

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THE ROLE OF TECHNOLOGY IN INTERNATIONAL FINANCE:-

Markets are the most efficient way of getting goods and services to the people who need them most. Financial markets allow money to flow from those who are looking to invest to those who need capital. Investing money internationally allows investors the freedom of diversity and the possibility of putting their money to work in a stronger economy than the one at home.

1.Efficiency in the Global Marketplace:

Efficiency is one of the driving forces of economics. It means that resources are being optimally allocated, and consumers do not have too much or too little of a given good or service. When it comes to financial markets, efficiency means that money is being distributed in the most optimal manner possible. Investing globally means that your money has a greater chance of being optimally distributed, as the global market offers more investment opportunities than those of a national market. In addition, investments abroad might fair better if the economy in which you invest is doing better than that of your home country.

2.Diversification:

Diversification is an important investment principle. Investors who have diversified portfolios have more than one type of investment, such as stocks, bonds and real estate. Investing in international markets allows a greater chance for diversified stocks because the more markets you expose yourself to as an investor, the more opportunities there are. Again, diversification is important because if one market fails, a market in another country might not.

3.International Markets and Economic Growth:

Joseph Schumpeter, a German economist, wrote in 1912 that financial markets promote economic growth by channeling capital into projects with a high potential for returns. Years after Schumpeter published this idea, social scientists conducted research that shows there is a relationship between financial development and economic growth. A study published in 1993 by Ross Levine and Robert King called "Finance and Growth: Schumpeter Might Be Right" shows that gross domestic product (GDP) was higher in countries with high economic growth. Everyone benefits from economic development. Economic development creates greater spending power, which in turn benefits providers of goods and services, no matter where they are.

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CHARACTERISTICS OF INTERNATIONAL FINANCE:-

New technologies are characterized by the fact that now body ever knows exactly where they will lead. In the middle of the 19th century, one could perhaps foresee that the railways would change the geography of countries, "but no one anticipated the simple device of the commuter ticket which would allow suburbs to spread and finally turn cities inside out" (Hall, 1998, p. 943). However, the world of finance appears different in that, as the preceding chapters have shown, the history of information technology in the financial services industry is a far more evolutionary and less transforming process. In the literature, there is a tendency to overstate the importance of the phenomenon. But, as one author puts it associations of technologies with modernity are contingent not only historically but also geographically; for much, indeed most of the world, the telephone is still thoroughly new and modern (Crang et al., 1999, p. 3). In this sense, cities remain exceptional places, and the financial industry requires the infrastructure and environment provided by these places to prosper.

1.Technology with a Purpose:

The Next Generation Today Technology has long been an essential behind-the-scenes partner in the financial services industry, providing the innovative incremental advances necessary for the industry to upgrade and expand its services. Improvements in storage capacity and processing speed, for example, have had a profound impact on data management and transactional capabilities, with accompanying reductions in cost. Yet despite these and other advances, the industry has struggled to fully leverage the power and promise of technology, with market participants eager for solutions that are not only faster and cheaper, but that also offer greater security and efficiency.

2.Vision for the Future:

Fortunately, the story of technology innovation within financial services does not end with these challenges. Several rapidly accelerating trends are laying the groundwork for the emergence of a new business and IT paradigm that promises to upend conventional thinking about the roles and capabilities of IT systems. First, information technology is increasingly viewed as an integral business function for financial services firms that must be oriented to achieve business results across the organization.

Although the origins of these trends pre-date the financial crisis, the market downturn has heightened the sense of urgency underlying them. Tough challenges invite bold solutions, and in response to that call, a visionary solution is taking shape.While opinions differ as to the details and timing, the next generation of technology will draw on both clients’ needs and the trends cited above to emphasize technology with a business purpose. At its core, an innovative new approach to technology would integrate and correlate information from a range of sources like never before, producing results that far exceed the sum of their parts.



3.The True Value of Data:

As a key element of this vision, information technology no longer occupies its traditional place in the organization as a support function. Instead, it becomes a business function true to its essential mission: managing data as a genuine asset. Going forward, data will not simply represent inventory to passively store or warehouse, but rather dynamically interconnected information to correlate, integrate and use holistically. Indeed, the warehouse becomes the nerve center that adds value to stored legacy information, turning it into an actionable commodity.

In fact, at every step, information will acquire value just like any asset in a portfolio. A primary purpose of technology will become implementing strategies for enriching data to achieve larger business objectives across all functions. Such strategies will allow for enhanced reporting and analytical capabilities, including, for example, the use of data to test risk and investment assumptions, and to explore predictive scenarios built around various decision paths. Indeed, data management in the future will comprise only one element in an integrated series of operations that begins with transactional processing and includes work flow technology (to enable business automation), exceptions monitoring, data management and end-use data-rich dashboards (see page 9 for a discussion of dashboard capabilities).

4.Platforms for Performance:

Supporting these highly integrated operations will be “near turn-key” platforms that will only require human intervention for added-value tasks, such as the review of errors and exceptions. The vast bulk of processing functions will occur via high-speed automation, radically cutting work flow cycle times (particularly for hard-to-process asset classes such as over-the-counter derivatives). This approach not only reduces costs, but also makes data available far sooner — thereby further increasing its value.

At the same time, despite their versatility and powerful capabilities, reusability is key to making these platforms the centerpiece of technology strategies in financial services. Rather than be the cumbersome one-off end products of long development processes, they must result from short, modular development cycles that allow for ease of installation and ease of use. In addition, platforms cannot just be flexible; they need to be scalable, too. Economies of scale, alongside automation and innovative reusability, allow companies to shrink costs in ways that have long eluded IT organizations and the firms they support.



5.Architecture:

The solution that is emerging across the industry is not a technological abstraction, but rather consists of several key elements that already lie within, or close to, the realm of current capabilities. These include:

• The ability to store, process, use and re-use information of all types and from all sources quickly and to make it accessible anywhere from multiple devices

• Automated low-maintenance platforms that allow for easy replication

• The ability to dramatically drive down processing costs

• New approaches to developing tightly integrated systems based on best-of-class components

• Increased performance and risk analytics

• Proactive “what if” capabilities

Technology solutions have always represented a work in progress, as learning curves are mastered, new assumptions are tested and old ones discarded. Current trends in the industry are rapidly shifting views about what is feasible. At the same time, they are the product of insights gleaned from lessons learned.



STEPS OF TECHNOLOGY IN INTERNATIONAL FINANCE:-

The value of any information technology is wholly dependent on the quality of the data it processes. Data collection and integration in information technology projects are far more complex topics than most businesses understand. Break your data management process into discrete steps to ensure best results and the highest possible return on investment for your technology dollar.

STEP 1:

Monitor your business processes closely. You cannot act upon business information you cannot measure, and you cannot measure business information you have not sufficiently quantified.

STEP 2:

Collect your data, completely and unobtrusively. Complete means that you have audited your information collection techniques, and the information you are measuring does not allow some to fall between the cracks in the collection process; if there is a correlation between the data that is lost and a business operations issue, then the remaining data you rely upon will be skewed. Unobtrusively means that you do not require your employees to spend large amounts of time documenting their processes--which reduces efficiency and leads to large data errors. Collect information passively whenever possible. For example: The boss ask an employee to track newly written contracts on a manual timesheet. Have a business policy that places new contracts in the same computer directory, and use a computer script to tally these on a regular basis.

STEP 3:

Normalize your data. Normalized data is an information technology term that means,sample out write everything the same way sample out. You can review a client list and know that William Batson and Bill Batson are the same person, but if both names are entered into the same database, Mr. Batson may be surprised to receive two invoices for the same purchase. Sample out July 1, 2010" and "7/1/2010" are the same date to Americans, but the latter can mean Jan. 7, 2010 if it is transferred to a database in Germany. Automate your data collection whenever possible, because computer output is naturally normalized. For human-compiled and entered data, ensure that your employees understand the normalization standards, and why they are important.



STEP 4:

Analyze your data. There is little purpose to compiling business process data which is then not acted upon, and these actions should stem from a real understanding of both the raw data, and the business logic used by your analysis models.

STEP 5:

Review this entire process on a regular basis. Business analysis should lead to new ideas for processes you wish to monitor, which require new collection procedures and new normalization standards. Each of these steps can be improved over time to ensure that your information technology investment is maximized.



TECHNOLOGY IN THE WORLD OF INTERNATIONAL FINANCE - A SHORT CHRONOLOGY:-

The use of information technology to collect, generate and record financial data is nearly as old as the technology itself, spanning thousands of years from the earliest forms of pictorial representation and writing to the latest advances of electronic storage and transmission. From the early beginnings, financial activities were not restricted to particular locations but extended over regions and continents, and great efforts were made to overcome the limits of time and space in long-distance communication in order to transmit news about latest political and economic developments, natural catastrophes and other unforeseen events affecting markets and prices and signalling business opportunities.

Prior to the invention of telegraphy in the 19th century, information was bound to move at the same speed, and over the same distance, as the prevailing transport system would allow Financial activities were largely determined by personal knowledge of people and circumstances.Success in money and banking operating in a number of countries ... required having a large number of brothers or cousins, with a single combined interest and thinking more or less alike, to solve the agency problem.

The most common method to communicate over long distances was to hire a person to deliver a message as fast as possible, either a human runner or a rider on horseback. Safety considerations made early rulers place guards at regular distances along the roads. They became the forerunners of the relay systems. References to messenger systems were found dating back almost 4000 years to ancient Egypt and Babylon. Mail was delivered by stage coach, caravans and merchant vessels. Travellers were routinely ask to take messages with them. When young Pierpont Morgan left England to go to school in Vevey, Switzerland, travelling over Calais and Paris in 1854, he was asked by the American minister in London, James Buchanan, to deliver a packet of government papers to Paris which was not unusual.

Telegraph and Ticker Tape:

The arrival of the telegraph made all the difference allowing messages to be sent with great speed over very large distances. The first optical telegraph line started operating in France between Paris and Lille in May 1794. Soon other European countries followed and in 1830 "lines of telegraph towers stretched across much of western Europe, forming a sort of mechanical Internet of whirling arms and blinking shutters" (Standage, 2000, p. 18). But the system had also its drawbacks. It was expensive to run requiring shifts of skilled operators at each station and involving to build towers all over the place. Beside, optical telegraphs would not work in the dark or in fog and mist.



For example, prior to its introduction between New York and Philadelphia, the transmission of price data from the distant market to the local one had taken one day. The telegraph enabled investors to obtain the price information before their own market closed. Before telegraph lines were established between New York and New Orleans, dealers in foreign exchange in one city received quotes from the other with a delay from four days to a week. This was reduced by the telegraph to a day or less (Garbade and Silber, 1994). The telegraph fundamentally changed America's financial landscape. In 1850, there were 250 stock exchanges. 50 years later, New York had become the dominant exchange standing out as the only financial centre of national importance (Edwards 1998).

However, one big problem was security. Banks had their own sophisticated private codes for money transmission but, up to the implementation of a scheme developed by the Western Union (the then dominant US telegraph company) in 1872, transferring money was considered as highly unsecure demanding a high level of trust between both parties and telegraph operators.

In those years, English investors held a substantial volume of US Treasury debt which traded in London as well as New York. Before the establishment of the submarine link, information travelled with a time delay equal to the duration of an ocean crossing, or about three weeks. And, since purchase and sale orders directed to the foreign market had to cross the Atlantic, too, execution took the same time once again. After the opening of the transatlantic cable those delays were reduced to one day. By the 1890s, telegrams between the London and the New York Stock Exchanges took three minutes from sender to receiver.

Britain became the leader in the world submarine cable business. British firms laid most British and non-British cables in the world and owned 24 of the world's 30 cable ships which earned the country an overwhelming military and economic advantage. London became not only the centre for financing most of the international submarine cable business but also the major communications node reinforcing Britain's position as the foremost naval, commercial and financial power in the world. For example, French journalists must learn that "news of commercial importance - commodity prices, contracts, ships' arrivals and departures, etc. - passed through London before reaching Paris. British newspapers and the Reuters news agency received reports of world conditions sooner and in more detail than their French counterparts

Telephone and Telex:

With the invention of the telephone in the late 1870s, the telegraph increasingly lost out to the new technology although it remained the main form of long-distance international communication until well into the 20th century.Initially, the telephone was widely seen as another, improved kind of telegraph - a "speaking" telegraph -not a wholly distinct technology.



The telephone facilitated all kinds of financial and foreign exchange transactions making it much easier for the financial community to take advantage of discrepancies in rates prevailing at the same time in different locations. As a consequence, those differences tended to narrow down considerably. But, the process was handicapped by the inadequacy of long-distance telephone communications. Even after the second World War, long delays for lines for trunk calls to correspondents abroad were frequent.

"It was not until the 'fifties that the improvement of long-distance telephone service and the adoption of the 'telex' system made it virtually impossible for such discrepancies to continue for any length of time between markets with identical business hours. By the 'fifties it could be said with very little exaggeration that it was almost as easy to transact business with a bank in a foreign centre as with one just across the road."

The Beginnings of Electronic Dealing:

In the 1970s, there was another information technology revolutionizing financial trading which was videotext. The technique allowed recording data on magnetic tape for to be displayed on a television making possible video conferencing - the meeting of people in various places around the world by seeing and hearing each other on a screen. But, for the world of international finance, what became even more important was screen trading. A series of companies emerged providing equipment that placed the information directly on the desks of dealers thereby threatening the traditional role of the trading floor as the centre of activity.

Another electronic system which started in 1969 was Instinet. This system, backed by Merrill Lynch and other groups, aimed at providing a low-cost trading network along the lines of foreign exchange trading for institutions buying and selling shares in bulk which later quoted not only US stocks but also foreign stocks and options on stocks and currencies from the CBOE (Chicago Board Options Exchange). The latter was a first step towards automation of derivatives trading - a market which traditionally had been considered most resistant to being removed from the exchange floors because of the large sums involved and the volume brought by "locals" or independent floor traders. The same tendency became visible when in Europe the London International Financial Futures Exchange (LIFFE) was founded in 1982. Although keeping the open-outcry system of floor trading, from the beginning LIFFE had a high degree of automation in quotation and settlement. Later, many traditional exchanges followed this trend and invested in modern technology such that everything but the final order execution became automated (OECD, 2001).



FUNDAMENTALS OF INTERNATIONAL FINANCE:-

Fundamentals of international finance deal with the study of foreign investments, the changes in the foreign exchange rates, and how international trade is influenced by them. Financing is a method by the help of which funds or resources are allocated for maximizing returns for a particular organization.Financing is a means of raising and allocating capital and management of funds over a time period taking into consideration the risks related to investments. Financing is termed as a tool for efficient administration of asset and wealth.

Business finance or corporate finance deals with stocks, bonds, and other types of investments. These investments are done in order to increase the earnings of the corporate enterprise. Capital budgeting uses the formula of the Internal Rate of Return (IRR) on the capital invested.The decisions of financing are dependent on the choices of financing that are available for an organization for raising capital.

In case of the Net Present Value (NPV) or the IRR, if the IRR or NPV is greater than the cost of invested capital, it is assumed that the capital invested is giving a positive yield or return.Financing involves investments in equities (common stock and preferred stock), debt securities (bonds, debentures, or loans from financial services providers). The dividend policy distributes the profits among the company's stockholders through dividends.

International finance also follows the similar techniques for allocation of funds and resources in international trade. However, it faces certain hindrances regarding mobility of capital and foreign currencies, as well as the foreign exchange rates prevalent in different countries.

In case of international financing, the capital budgeting methods implemented in comparison to conventional financing are associated with local tax rates and international cash flows, the expected return on investment or the cost of capital for which adjustments have been made taking into consideration the degree of risk in that particular country or the susceptibility of the project.International financial markets function as a principal source of equity and debts for the majority of the foreign and domestic subsidiary operations.

The international financial markets influence the international trade to a considerable degree because of the unpredictability that is present in the international capital markets. Another factor working behind this is the minimum effort taken by a large number of countries for complete capital account convertibility.The foreign exchange rates function as an overriding element in influencing international finance because if there are fluctuations in foreign exchange rates, international imports or exports can face heavy losses. Forward currency contracts sometimes prove to be helpful in this regard.



Currently, international finance has become more comprehensive or broader in scope and is dealing with matters related to globalization, fair trade, multinational banking, and multinational corporations.As globalization is the buzz word of the present age, the factors contributing to the broadening of the domain of international finance include the consumption markets, rapid integration of global production, and the far-flung dispersion of modern technology. These issues should be efficiently addressed by international finance also tries to solve the problem of human resource exploitation carried out by MNCs in the poor and developing countries by applying its own principles.

EMERGENCE OF INTERNATIONAL FINANCE:-



The emergence of new information technologies is often said to reduce the importance of cities as financial centres. In this paper, several arguments against this view are developed. First, in the financial services industry electronic information transmission, data processing and trading is not an entirely new phenomenon.Second, with the electronic grids of financial institutions spanning the globe being inherently nodal even in the age of virtual finance location still matters. Third, the myth of the "dissolution" of cities is based on the assumption of a perfect separation of virtual and real activities that, at a closer look, does not hold. Financial decisions are made in an "experiential continuum" between the materiality of geographic space and the virtuality of cyberspace.

Information transmission in international finance certainly did not start with Nathan Rothschild, but when he was the first in London to hear the news of Napoleon's defeat at Waterloo, allegedly making a fortune of it, the episode soon became one of the industry's favorite legends grounded in information technology. In the early 19th century, in the financial industry information technology was working basically according to the same principles we know today such as digital codes, data compression, error recovery and encryption. The talking is not about computers and the internet, but of "the mother of all networks" as one author puts it, the optical telegraph. The optical telegraph was followed by the electric telegraph, the telephone, the fax machine and, eventually, the computer. As the following chapter shows, each time, financial institutions all around the world eagerly jumped at the opportunity to use the new medium for speeding up communication and trade. The recent mania about electronic exchanges and e-commerce firms offering financial information and the opportunity to buy and sell stocks, bonds, derivatives and other financial instruments online to a broad public sometimes makes forget that this has been the usual way of doing business for large parts of the financial industry for many years.

The emergence of new information technologies and "virtualisation" of activities is often said to reduce the importance of location for the financial industry and diminish the role of world cities such as London, Paris and Frankfurt as financial centres. This would have severe consequences for economic growth. At the beginning of the 21st century cities are generally struggling to cope with the effects of two phenomena, the transition from an industrial and manufacturing-based economy to one in which services and information and communication technologies play a dominant role and the competitive pressures of increasing globalization. In this situation, financial services are one of those few sectors promising continuing growth, employment and tax incomes to their communities. A shrinking importance of location would threaten to reduce these benefits.

SUCCESS OF TECHNOLOGY IN INTERNATIONAL FINANCE:-



Information technology is a modern phenomenon that has dramatically changed the daily lives of individuals and businesses throughout the world. Information technology is driven by the microchip, which owes its existence to the semi-conductor. IT solutions run the gamut from personal computers and computer software to production robotics to communications technology. Leveraging information technology for business success is key to survival in the modern business world.

Significance:

Information technology has grown to permeate the business world, affecting how companies make and market their products, as well as how people communicate and accomplish their jobs in modern organizations. Specialized software shapes best-practices and industry standards, continually changing the face of business in almost every way.

Production Technology:

Production technology has allowed modern companies to make great strides in operational efficiency and the effectiveness of human resources. Automation technology, such as assembly lines and computer-controlled machinery, can allow companies to produce unprecedented volumes of goods, and advances in transportation technology allow businesses to ship their products anywhere in the world.Information technology has also changed the way that companies operate internally. Personal computers have become a necessity for a large majority of corporate jobs, and many manual labor jobs require the use of a handheld computer or other electronic device as well.

Communications Technology:

Leveraging advances in communications technology is imperative to surviving in the modern business world. Advances in cellular phone technology have revolutionized the way businesspeople communicate with clients, employees, suppliers and strategic partners. The Internet has revolutionized the marketing function in addition to opening up a wide range of communication options.Modern smart phones are changing the game yet again with the introduction of new and innovative applications. A small business owner can now access a web-based customer relationship management service on a smart phone from anywhere in the world, for example, allowing him to obtain vital data about contacts before making calls.

Considerations:

While information technology solutions can contribute to the success of your organization, there are a number of unique costs to consider. In addition to the cost of implementing an IT solution,



you must employ highly educated and specialized workers to maintain, monitor, expand and repair your IT infrastructure.

The Future:

Modern information technology has gained popularity rapidly since the mid-twentieth century, and the trend is likely to continue into the future. As IT solutions continue to increase the efficiency and effectiveness of business operations and communications, businesses will continue to rely on IT for success.

THE EFFECT OF TECHNOLOGY ON INTERNATIONAL PAYMENT SYSTEMS:-



As technology, particularly mobile phones, enables increasing access to financial services in developing countries, it is important to understand the intersection of technology and youth access, usage, and development. We at the Global Assets Project, a member of the Youth Save Consortium, in partnership with Making Cents International, have released a survey to better understand the role of technology in accelerating youth financial access among low-income youth in developing countries.

As evidence slowly emerges on the opportunities and challenges to technology-led youth financial inclusion, we aim to better understand the perspectives and experiences of the youth financial inclusion field on the emerging role of technology as an accelerator, and of course to share those results with all of you.

Participating in this brief survey is an opportunity to find out what your peers think about:

1.How low-income youth use mobile phones

2.Which tools currently offer the greatest opportunity for success, both now and in the future

3.Whether youth and adults have differing needs regarding mobile technology

4.What the greatest obstacles are to using technology to achieve financial inclusion and capabilities

DIFFERENT DECISION IN INTERNATIONAL FINANCE:-

All decisions mostly involve finance. When a decision involves finance, it is a financial decision in a business firm. In all the following financial areas of decision-making, the role of finance


https://www.surveymonkey.com/s/NAFpulsetakingsurvey


manager is vital. We can classify the finance functions or financial decisions into four major groups:

1.Investment Decision:

Investment decisions relate to selection of assets in which funds are to be invested by the firm.Investment alternatives are numerous. Resources are scarce and limited. They have to be rationed and discretely used. Investment decisions allocate and ration the resources among the competing investment alternatives or opportunities. The effort is to find out the projects, which are acceptable.

Investment decisions relate to the total amount of assets to be held and their composition in the form of fixed and current assets. Both the factors influence the risk the organisation is exposed to. The more important aspect is how the investors perceive the risk.

The investment decisions result in purchase of assets. Assets can be classified, under two broad categories:

(i) Long-term investment decisions – Long-term assets

(ii) Short-term investment decisions – Short-term assets.

2. Finance Decision:

Once investment decision is made, the next step is how to raise finance for the concerned investment. Finance decision is concerned with the mix or composition of the sources of raising the funds required by the firm. In other words, it is related to the pattern of financing. In finance decision, the finance manager is required to determine the proportion of equity and debt, which is known as capital structure. There are two main sources of funds, shareholders’ funds (variable in the form of dividend) and borrowed funds(fixed interest bearing). These sources have their own peculiar characteristics. The key distinction lies in the fixed commitment. Borrowed funds are to be paid interest, irrespective of the profitability of the firm. Interest has to be paid, even if the firm incurs loss and this permanent obligation is not there with the funds raised from the shareholders. The borrowed funds are relatively cheaper compared to shareholders’ funds, however they carry risk. This risk is known as financial risk i.e. Risk of insolvency due to non-payment of interest or non-repayment of borrowed capital.

On the other hand, the shareholders’ funds are permanent source to the firm. The shareholders’ funds could be from equity shareholders or preference shareholders. Equity share capital is not repayable and does not have fixed commitment in the form of dividend. However, preference share capital has a fixed commitment, in the form of dividend and is redeemable, if they are redeemable preference shares.



3.Liquidity Decision:

Liquidity decision is concerned with the management of current assets. Basically, this is Working Capital Management. Working Capital Management is concerned with the management of current assets. It is concerned with short-term survival. Short term-survival is a prerequisite for long-term survival. When more funds are tied up in current assets, the firm would enjoy greater liquidity. In consequence, the firm would not experience any difficulty in making payment of debts, as and when they fall due. With excess liquidity, there would be no default in payments. So, there would be no threat of insolvency for failure of payments. However, funds have economic cost. Idle current assets do not earn anything. Higher liquidity is at the cost of profitability. Profitability would suffer with more idle funds. Investment in current assets affects the profitability, liquidity and risk. A proper balance must be maintained between liquidity and profitability of the firm. This is the key area where finance manager has to play significant role. The strategy is in ensuring a trade-off between liquidity and profitability. T This is, indeed, a balancing act and continuous process. It is a continuous process as the conditions and requirements of business change, time to time. In accordance with the requirements of the firm, the liquidity has to vary and in consequence, the profitability changes.

4.Dividend Decision:

Dividend decision is concerned with the amount of profits to be distributed and retained in the firm dividend.The term ‘dividend’ relates to the portion of profit, which is distributed to shareholders of the company. It is a reward or compensation to them for their investment made in the firm. The dividend can be declared from the current profits or accumulated profits. Which course should be followed – dividend or retention? Normally, companies distribute certain amount in the form of dividend, in a stable manner, to meet the expectations of shareholders and balance is retained within the organisation for expansion. If dividend is not distributed, there would be great dissatisfaction to the shareholders. Non-declaration of dividend affects the market price of equity shares, severely. One significant element in the dividend decision is, therefore, the dividend payout ratio i.e. what proportion of dividend is to be paid to the shareholders. The dividend decision depends on the preference of the equity shareholders and investment opportunities, available within the firm. A higher rate of dividend, beyond the market expectations, increases the market price of shares. However, it leaves a small amount in the form of retained earnings for expansion. The business that reinvests less will tend to grow slower. The other alternative is to raise funds in the market for expansion. It is not a desirable decision to retain all the profits for expansion, without distributing any amount in the form of dividend.



There is no ready-made answer, how much is to be distributed and what portion is to be retained. Retention of profit is related to-

• Reinvestment opportunities available to the firm.

• Alternative rate of return available to equity shareholders, if they invest themselves.

ROLE OF FINANCE MANAGER IN INTERNATIONAL FINANCE:-



The finance manager handles finance. The role of finance manager is pivotal. He can change the fortunes of the organisation with proper planning, monitoring and timely guidance. Equally, if the manager is not competent, even a profitable organisation may dwindle or even sink. The finance manger is, now, responsible in shaping the fortunes of the enterprise. The role of finance manager, in a modern business, is pervasive in all the activities of business firm, including production and marketing.It has been rightly said, money begets money. Business needs money to make more money.However, business can make money, when it is properly managed. The financial history is replete with stories how even the profitable organisations were wound up, when the management of finance had turned bad due to mismanagement of financial affairs.It is misunderstood, in some corners, that the role of finance manager is important only in private organisations.

It is not so his role is important, both in private and public sector. He has a positive role to play in every type of organisation. Even in non-profit making organisations, his role exists as long as there is involvement of funds. Influences Fortunes of Firm: The history of failures of organisations is interesting.Many firms have failed, not because of inefficiency of production, inability in marketing. In many public sector undertakings, in particular, state government undertakings, importance is given to the appointment of peons, more than adequately, but not to the appointment of competent professional manager in finance, even after lapse of several years.

Exists Everywhere:

The role of finance manager, in modern times, can be well said,universal and pervasive. Hardly, we find any activity, which does not involve finance. Even entertainment in a firm requires financial management due to financial implications. In modernnbusiness, no decision is taken without the consultation of finance. Even in recruitment, the presence of finance representative has been a normal feature manager. Only the level of finance representative changes, dependant upon the status of position for which recruitment is held. At times, people working in other departments feel that the finance manager has been interfering in all matters, unconnected to him. It is due to inadequate understanding of the role and expectations expected of him in modern business. The finance manager can, definitely, contribute to the overall development of the organisation provided he is competent and allowed to perform his functions, independently. In his new role, the finance manager must find answers for the following three questions, again in the words of Solomon-

• How large should an enterprise be, and how fast should it grow?

• How should the funds be raised?

• In what form, should the firm hold its assets?

To sum up, finance functions or decisions include the following important areas, where thefinance manager has to contribute:



• Investment decision or long term asset-mix decision

• Finance decision or capital-mix decision

• Liquidity decision or short-term asset mix decision

• Dividend decision or profit allocation decision

The main objective of all the above decisions is to increase the value of the shares, held by the equity shareholders. The finance manager has to strive for shareholders’ wealth maximisation. While discharging the functions, the finance manager has to focus his attention on the following aspects to maximise the shareholders’ wealth-

1. Procuring the funds as and when necessary, at the lowest cost,

2. Investing the funds in those assets, which are more profitable, and

3. Distributing the dividends to the shareholders to meet their expectations and facilitate expansion to achieve the long-term goals of organisation.

AIMS OF FINANCE FUNCTION:-

1.Acquiring Sufficient and Suitable Funds:

The primary aim of finance function is to assess the needs of the enterprise, properly, and procure funds, in time. Time is also an important element in meeting the needs of the organisation. If the funds are not available as and when required, the firm may become sick or, at



least, the profitability of the firm would be, definitely, affected. It is necessary that the funds should be, reasonably, adequate to the demands of the firm. The funds should be raised from different sources, commensurate to the nature of business and risk profile of the organisation. When the nature of business is such that the production does not commence, immediately, and requires long gestation period, it is necessary to have the long-term sources like share capital, debentures and long term loan etc. A concern with longer gestation period does not have profits for some years. So, the firm should rely more on the permanent capital like share capital to avoid interest burden on the borrowing component.

2.Proper Utilisation of Funds:

Raising funds is important, more than that is its proper utilisation. If proper utilisation of funds were not made, there would be no revenue generation. Benefits should always exceed cost of funds so that the organisation can be profitable. Beneficial projects only are to be undertaken. So, it is all the more necessary that careful planning and cost-benefit analysis should be made before the actual commencement of projects.

3.Increasing Profitability:

Profitability is necessary for every organisation. The planning and control functions of finance aim at increasing profitability of the firm. To achieve profitability, the cost of funds should be low. Idle funds do not yield any return, but incur cost. So, the organisation should avoid idle funds. Finance function also requires matching of cost and returns of funds. If funds are used efficiently, profitability gets a boost.

4.Maximising Firms Value:

The ultimate aim of finance function is maximising the value of the firm, which is reflected in wealth maximisation of shareholders. The market value of the equity shares is an indicator of the wealth maximisation.

MARKETS STRUCTURES OF INTERNATIONAL FINANCE:-

International Financial Management is a well known term in today’s world and it is also known as international finance. It means financial management in an international business environment. It is different because of different currency of different countries, dissimilar political situations, imperfect markets, diversified opportunity sets.



International Financial Management came into being when the countries of the world started opening their doors for each other. This phenomenon is well known with the name of “liberalization”. Due to the open environment and freedom to conduct business in any corner of the world, entrepreneurs started looking for opportunities even outside their country-boundaries.

The spark of liberalization was further aired by swift progression in telecommunications and transportation technologies that too with increased accessibility and daily dropping prices. Apart from everything else, we cannot forget the contribution of financial innovations such as currency derivatives; cross border stock listings, multi-currency bonds and international mutual funds.The resultant of liberalization and technology advancement is today’s dynamic international business environment.

Financial management for a domestic business and an international business is as dramatically different as the opportunities in the two. The meaning and objective of financial management does not change in international financial management but the dimensions and dynamics changes drastically.

Difference between International and Domestic Financial Management:

Four major facets which differentiate international financial management from domestic financial management are introduction of foreign currency, political risk and market imperfections and enhanced opportunity set.

1.Foreign Exchange:



It’s an additional risk which a finance manager is required to cater to under an International Financial Management setting. Foreign exchange risk refers to the risk of fluctuating prices of currency which has the potential to convert a profitable deal into a loss making one.

2.Political Risks:

Political risk may include any change in the economic environment of the country viz. Taxation Rules, Contract Act etc. It is pertaining to the government of a country which can anytime change the rules of the game in an unexpected manner.

3.Market Imperfection:

Having done a lot of integration in the world economy, it has got a lot of differences across the countries in terms of transportation cost, different tax rates, etc. Imperfect markets force a finance manager to strive for best opportunities across the countries.

4.Enhanced Opportunity Set:

By doing business in other than native countries, a business expands its chances of reaping fruits of different taste. Not only does it enhances the opportunity for the business but also diversifies the overall risk of a business.

Just like domestic financial management, the goal of International Finance is also to maximize the shareholder’s wealth. The goal is not only is limited to the ‘Shareholders’ but extends to all ‘Stakeholders’ viz. employees, suppliers, customers etc. No goal can be achieved without achieving welfare of shareholders. In other words, maximizing shareholder’s wealth would mean maximizing the price of the share. Here again comes a question, whether in which currency should the value of the share be maximized? This is an important decision to be taken by the management of the organization.

International Finance has become an important wing for all big MNCs. Without the expertise in International Financial Management, it can be difficult to sustain in the market because international financial markets have a total different shape and analytics compared to the domestic financial markets. A sound management of international finances can help an organization achieve same efficiency and effectiveness in all markets.

CONCLUSION:-

From the role of IT in the history of finance, its very nature and its relation to world city growth, several conclusions can be drawn. First, unlike in many other sectors, in international financial relations electronic information transmission, data processing and trading is not a new phenomenon. The "internet revolution" here brought rather a gradual change. Financial services as the forerunners of globalization have a long tradition of using advanced information and communication technologies for overcoming the limits of time and space. Their formation of



"clusters" and location in centres largely contributed to rise and economic prosperity of cities. Second, even in the age of electronic connectedness and virtual finance location still matters and there are no signs that the bulk of financial services will shift away from the world's metropoles. The electronic grids of financial institutions spanning the globe are inherently nodal, and the cities so far managed to redefine their role as nodes in the networks and geography of the new technologies. Third, the myth of the "dissolution" of cities is based on the assumption of a perfect separation of virtual and real activities that, at a closer look, does not hold. Financial decisions are made in an "experiential continuum" between the materiality of geographic space and the virtuality of cyberspace. Neither the loss of authenticity nor the acceleration of transformations as a result of virtual reality are complete. Virtual markets and processes complement rather than replace existing real ones. Fourth, the biggest impact of the new technologies so far is on the shape and spatial organisation within cities. Technological progress allowed financial institutions to shift parts of activities to suburbia in face of rising costs, and the lack of space meeting the requirements of an extended workforce and "intelligent buildings" have led to a spread beyond old city centres. As a consequence, cities' financial districts appear less compact than in former times, but there are limits to the diffusion process since many activities continue to require proximity.

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