IFM vs Domestic Financial Management – Key Differences

The core principles of finance (Profit Maximization, Risk-Return Trade-off) remain the same. However, the environment changes drastically.

1. Comparison Table (Exam Favourite)

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2. Key Differences Explained

A. Currency Exposure

• Domestic: If you sell in MP and buy in UP, it's all in Rupees. No risk.
• International: If you sell in USA and buy in India, you are exposed to USD-INR rate changes.

B. Political/Legal Environment

• Domestic: One Prime Minister, One Supreme Court.
• International: An MNC operates under multiple sovereigns. A rule change in China can destroy Apple's supply chain.

C. Financing Opportunities

• Domestic: Limited to Indian Banks/Stock Market.
• International: Can borrow from London (LIBOR), Tokyo, or NY. Access to cheaper funds.

3. Exam Notes: Writing the Answer

Question: "Distinguish between Domestic and International Financial Management." (10 Marks)

Answering Strategy:

1. Format: Always use a Tabular format (T-shape).
2. Points to Cover:
   • Currency (One vs Many).
   • Political Risk (Low vs High).
   • Market Efficiency (High vs Low due to barriers).
   • Opportunities (Limited vs Expanded).
3. Conclusion: "IFM is more complex but offers higher returns."

Summary

• Complexity: IFM is Domestic FM multiplied by complexity.
• Objective: Both aim for Shareholder Wealth Maximization, but IFM has more hurdles to clear.

Quiz Time! 🎯

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