International Financial Management Essay Example | Topics and Well Written Essays - 2500 words - 2

International Financial Management - Essay ExampleCompanies engage in extraneous direct investment due to various reasons, but in the main to generate profit and secondly to hedge risk. Sometimes the companies would have huge cash surplus and fear that due to unfavourable movement in the commute rate the dollar assess of the cash surplus would decrease (Bajaj, 2001). The companies would park their extra cash in various foreign countries in the form of foreign direct investment. Generally the FDI are long term in nature but a company looking for quick gain can lapse to short term borrowing. The research endeavours to create an international financial management report on FDI for Infosys. Infosys, a software giant in India is contemplating to conduct a FDI in another international arena. The indicate firm chosen is Apple and the target market chosen is USA. The prime(a) of the target market and the choice of the target company bear special significance (Bonaccorsi and Daraio, 20 09). Apple has a myriad of products and service starting from electronic gadgets to the creation of operating systems. Apple has experienced genius of the highest rises in the price of appoints and apart from that the company is in an excellent growth trajectory. Infosys wants to cash in from the excellent growth opportunity of Apply by place directly in it its path breaking technologies. Apart from this USA has a strong track record of FDI. These are two motivating factors behind the choice of Apple and America for FDI. Infosys wishes to follow a joint venture Greenfield with Apple. The joint venture Greenfield will help to create new products in USA. 2. Literature polish up The factors affecting the global flow of foreign direct investment in USA or as a matter of fact any country is many and varied. Although in the present context, only 4 important factors are considered which are transportations woos, market imperfections, strategic behaviour, product life cycle and locatio n item advantage. 2.1 Transportations Costs The diagram given below is an indication of the transportation cost at present in USA. The cost of transportation is shown as cumulative of the fair(a) costs incurred by travelling both by air and road. The cost of transportation is major issues but only for those products which have a low value to weight ratio. In the present case the value to weight ratio is assumed to be very high (Clark and Mathur, 2013). This is because of the reason that the target products (electronic gadgets) are minimal in terms of weights. So the cost of transportation will not pose as a serious threat. Fig 1 Transportation cost over the last 10 years Source (Mintzberg and Waters, 2011) 2.2 Market imperfections Over the last 50 years almost 56% of the foreign companies that took part in the FDI considered market imperfections to be the single most important factor. Whenever there are impediments in both exporting and sale of know-how through licensing then FDI takes place. Barriers to export intromit quotas, complete bans, tariffs and other restrictions that hinder the free flow of product between two nations. Most of the foreign countries in the world do not share a mutual bilateral flip-flop between themselves that facilitates the flow of goods and services (Das, Quelch and Swartz, 2000). During 2000 to 2012 phases some of the emerging nations resorted to FDI with USA since international groups like NATO ordered restrictions on establishing trade relations with different countries. Thus these countries like China, Japan, Korea,