International Financial Management

Name of Writer

Name of Institution

Table of Contents

Introduction3

Political Risk3

Foreign Exchange Risk4

Positive Factors4

Negative Factors4

Currency Risk Rating5

Foreign-exchange regime7

Advantages:7

Disadvantages:8

References12

International Financial Management

Introduction

For this paper I will be looking at the a US based MNC the retailing giant Wal-Mart and analyze the international financial management issues as it looks to enter India

Political Risk

The 2009 general election gave the incumbent UPA coalition government a bigger majority in parliament than before. But political stability continues to be undermined by a series of corruption scandals that have implicated individual policymakers as well as the Indian National Congress (the leading party in the UPA) more generally. In September 2012 a key coalition member withdrew from the UPA in protest against a series of contentious reform measures, leaving the coalition in a minority government. This is unlikely to lead to a collapse of the administration, but will have a negative impact on political effectiveness. Political efficacy in India is a growing concern: the bureaucracy remains large and unwieldy, and the overall effectiveness of government is low (in fact, it has worsened as the UPA administration has devoted increasing attention to the graft scandals, and as some of Congress's coalition partners have become more obstreperous). Relations with Pakistan, which have experienced a slight thaw in the past year, will remain broadly stable, with no outbreak of hostilities, but no significant breakthroughs either.

Foreign Exchange Risk

India's increasing business and fiscal deficits have put downwards stress on the rupee, which was Asia's worst-performing currency this year. In April-June 2012 these aspects, along with improved international risk aversion, conspired to get the rupee down to a sequence of history levels against the US dollar; the currency was dealing at around Rs 57: US$1 on July 25th. Since then the rupee has strengthened slightly, as a feared drop in inward capital flows failed to materialize. A series of modest economic reforms unveiled in mid- September—including the raising of limits on foreign ownership in a range of sectors—should boost these flows in the medium term, supporting the currency. We expect the rupee to strengthen slightly in 2013-14, from an estimated average of Rs 53.2: US$1 in 2012 to Rs50.7: US$1 in 2014. However, downside risks remain. A restored difficulty of the eurozone debt problems could stoke need for the US money (seen as a safe-haven currency), leading to a fall in international inflows, which Indian depends on to fund its chronic financial and current-account deficits.

Positive Factors

• India's foreign-exchange reserves stood at US$265.1bn at end-July 2012, providing the government with the ability to intervene in foreign-exchange markets if needed to contain excessive volatility.

Negative Factors

• Wholesale price inflation averaged 7.6% year on year in January-September 2012. Rapid inflation erodes the real value of local-currency-denominated assets.

• Since late September the ruling United Progressive Alliance (UPA) coalition has been in a minority in the Lok Sabha (the lower house of parliament). A sustained deadlock over policy measures designed to improve the business environment for foreign investors could dampen capital inflows in 2013-14.

Currency Risk Rating

India's foreign-exchange markets have become more unpredictable as ...