INTERNATIONAL FINANCIAL MANAGEMENT

International Financial Management



International Financial Management

Introduction

International Financial Management is concern with the economic decisions that arise regarding the implementation of financial management in the internationalization of economic activities of the firm. In other words it is a system of financial management, which takes place under the action of transnational corporations in international markets. The firm should be based on the assumption that the business activities in the markets directly or indirectly bring more profit than the national market. This is a mandatory condition for feasibility of private enterprise in the international arena. The aim of this paper is to deal with the foreign activities of the company with rests of the state that control over its assets in foreign currency and management of all types of currency risk.

Discussion

Sale of the Wheat-Strain Patent

A tool that is used for pricing equity option is known as Black Scholes Models. Previously there were no such standards to price the option. In 1973, this model cane into existence which was a substitute for mathematical model which used to explain the market price behaviour of financial instruments. This is a model was first developed by Fischer Black and Myron Scholes in 1973. It is the origin of most models of pricing options that are used today (Buckley A, 2005, pp. 157).

The Black-Scholes model is based on a number of conditions:

The price of the underlying asset S t follows a Brownian motion with a geometric volatility  and a drift constant  constant

 , Where  is a Wiener process .

There is no arbitrage opportunities,

Time is a continuous function ,

It is possible to make short sales ,

There is no transaction costs,

There is a risk-free interest rate , known in advance and constant

All the underlying assets are perfectly divisible (e.g. it can buy 1/100 th of Action)

In the case of an action, it does not pay dividends from the time of the evaluation of the option and the maturity thereof.

GoodPharma Black Scholes-Merton Model

 

 

Patent Granted

20 yrs

Cost of Development

1.5 £

Present Value

1 £

Expected Variance

0.03

Riskless bond 20 years

10%

Present Value Project Cash flow £1,000,000,000

Projected Standard Divagation: 17.32% [Square Root (0.03)]

Development Cost £1,500,000,000

Time to Maturity 20 years

Riskless rate on bond 10%

Valuation for Long-Term Option

Price of Stock1000000000

Price of Strike 1500000000

Expiration (in years) 20

Bond interest rate10.00%

Variance 0.030

Annual dividend yield5.00%

d1 =1.15484

N (d1) =0.87592

d2 =0.38024

N (d2) =0.64812

Value of the product patent/project right £190,663,942

Results

The result from the above calculation figure of patent is £190,663,942 which is favorable from option perspective whereas, the current value is negative. Valuating a patent for GoodPharma may respond to the need of internal and external activities:

Internal factors:

Optimization and optimization costs of patent portfolio

Align the strategy with the strategy patents co- metrical company's overall

Compensation of inventors

External factors:

Financial needs

System of licensing

Shopping, mergers and divestitures

Accounting, seat in the balance sheet (IAS 38)

Evaluation legally imposed (for insolvency damages.

Participating Forward-Contract

Forward-Contract

As a forward contract: An contract in which the parties agree on a future delivery of a specific quantity of goods at a fixed price. It all content a forward contract is an individually negotiated contract. Thus, the forward is fundamentally different from a future which standardizes the exchange in many contractual ...