Detroit Motors Case Study Sample

• Subject Name : Financial Management

International Financial Management

Table of Contents

Introduction

Discussion

Conclusion

References

Introduction to International Financial Management

International Financial Management is a notable term in this day and age. It is also known as international finance. It implies monetary administration in a universal business condition. It is distinctive as different nations have diverse currency systems, different taxation systems, political environment, different markets and diversified sets of opportunity. This specific study is about Detroit Motors'. The case study subjects that it is about September 1990 when the Detroit Motors of Detroit from Michigan had been thinking about setting up a get-together plant in the location of Latin America for another utility service that they had planned a little before. The CFO is found not that happy with the possibilities regarding of political hazard in the countries of Argentina and Brazil, thus, it intended to eliminate these hazards. After continuing with some starter conversations with the national banking industries of Mexico, Venezuela, and Chile, the CFO discovered that each of these three nations is subjected on hearing a point by point introduction in relation to the kind of facilities the Detroit Motors was subjected to build along with the considerations to what extent it would take followed by the assumptions for the absorption of local people employment, and the unit numbers that are supposed to be generated every year. This report will subject the issues and findings in this case (Eun & Resnick, 2018).

Discussion on International Financial Management

The meaning and objectives of financial management do not change in international finance management but the dimensions and dynamics vary greatly. It is a practice and theory of international business management (Dean & Fischer, 2019). It is associated with activities such as the movement of resources internationally (raw materials, products and services around the world).

In any case, wherever the LDC Detroit Motors sets up the new facility, it is subjected to require an amount of $65,000,000 from a nearby source within the nation to fabricate the plant. The examination is also supposed to include a correlation of the cost of dollar that is enough LDC debt from a bank of loan creditor to determine $65,000,000 in local money upon recovery with the LDC national bank.

During the phase when the Detroit Motors works in Mexico, it should buy $81,250,000 (= $65,000,000/.80) as per the sovereign debt of Mexico so as to have the amount of $65,000,000 in pesos after determining the recovery with the National Bank of Mexico. In that case, the expense in terms of dollars will be $35,035,000 (= $81,250,000 x .4312).

For ensuring success in the markets of Venezuela, the Detroit Motors needs to buy $86,666,667 (= $65,000,000/.75) in Venezuelan sovereign obligation so as to determine the amount of $65,000,000 in bolivars after assuring the recovery with the Venezuelan national bank. The expense, in this case, in dollars will be $40,083,333 (= $86,666,667 x .4625).

In a situation when the Detroit Motors works in Chile, it should buy $65,000,000 (= $65,000,000/1.00) in Chilean sovereign obligation so as to ensure $65,000,000 in pesos after the recovery with the Chilean national bank. The expense in terms of dollars will be $45,662,500 (= $65,000,000 x .7025).

As per the above investigation is concerned, the Detroit Motors is supposed to consider moving towards the markets of Mexico to utilize an obligation for-value trade for manufacturing a get-together office. Obviously, there are numerous different variables, for example, tax rates, transporting expenses, and labor costs that additionally ought to be thought of. Expecting all else is equivalent, in any case, Mexico is by all accounts the most alluring competitor. Tax estimates are a significant instrument of examination in present-day macroeconomics. Thus, during the most recent years, a few endeavors have been made to assess burdens on key macroeconomic factors that are completely reliable with the delegate specialist structure (Robinson, 2020). Aside from that, there are a few different properties in worldwide monetary administration that can be found concerning the case study.

Detroit Motors also looked in for certain attributes that were less hazardous in Mexico than the other nations. These are:

Foreign Exchange

It's an extra hazard for which a finance manager is required to take into account under an International Financial Management setting. Foreign exchange risk alludes to the danger of fluctuating costs of cash which can possibly change over a productive arrangement into a misfortune making one. This attribute was found less in Mexico than in other nations (Madura, 2020).

Political Risks

The political risk may subject changes in context to the financial condition of the nation. For instance, Tax assessment Rules, Contract Act and so forth. It is relating to the legislature of a nation which can whenever change the principles of the game in an unforeseen way. The risk in political terms was found less in Mexico than other nations (Biersteker, 2019).

Market Imperfection

Having done a great deal of incorporation on the global economy, it has a ton of contrasts over the nations as far as transportation cost, diverse duty rates, and so on. Imperfect markets subjects a finance manager o take a stab at best open doors over the nations. Mexico was thought the best for the incorporation in context to the global economy in this regard (Madura, 2020).

Enhanced Opportunity Set

By working together in other than local nations, a business grows its odds of procuring products of various tastes. Not exclusively does it improve the open door for the business yet additionally enhances the general danger of a business. Mexico was thought the best in this regard.

There were several other decisions in this setting that was thought important:

Investment Decisions: - Investments refer to the use and allocation of the funds to assets or other projects or whatever maybe for production, but it should be beneficial and should be kept as an asset. The investment decisions made by the investor are supported by his decision making power. The important thing is to decide which one to invest and how much to invest. These decisions should be made by gut feelings and appropriate thinking as it can lead to a belief in anxiety (Dean & Fischer, 2019).

Financial decision making: - One of the most important areas of financing manager is involved in financial decision making. The finance manager will have to decide where to raise funds. He can either raise funds from the company's own funds such as equity, earnings or debentures, bank loans, bonds, etc. The main goal of money decision making is to have the best capital structure. The finance manager needs to be more careful when deciding on a financial revolt. Excessive use of equity can reduce ownership and increase debts or pay more interest on borrowed funds

Dividend Decision: - The Finance Manager has to decide on the profit of the company, he has to share the profit among the shareholders or retain it with the company for future use. The finance manager has to decide according to the position of concern and the position of interest of the shareholder as both of them are more important (Chen, 2020).

In this case, it was found that finance management, in general, is a very long-term process of decision-making, it subjects a lot of planning. Ma The foremost nature of financial management is to focus on the valuation of the organization. And for this reason, all financial decisions are directly related to optimizing the quality of the organization. Activities such as investment, profit distribution, capital optimization etc are part of financial management activities. The finance manager plays an important role in managing finance and making the right decisions. So the concern is to make more profit both now and in the long run. Finance management is very important for the smooth running of a business. Decision making is the nature of finance management. The finance manager has to make various decisions such as investment decisions, allocation decisions, financial decisions and dividend decisions. This requires a lot of skill and accurate knowledge. The company may face certain consequences and losses if any wrong decision is taken by mistake. Financial management has a multidimensional branch nature which is largely dependent and focuses on issues like the economy, accounting, and banking. Management in financial terms is not only inadequate to business activities but also refers to the backbone of the trade, economy and industry (Dean & Fischer, 2019).

Other findings on subjecting the case study included that: Through international financing, a country can enter the world capital market and take a good time and take a hard time. It leads to healthy competition and encourages a country's investment and growth thus this economy determines an effective banking system. Through international finance management, new strategies and methods of managing other strategies can be learned and applied. International financial management is usually done or managed by expert financial managers. They know their skills and have a deep knowledge to manage money effectively and efficiently (Chen, 2020).

Conclusion on International Financial Management

International financial management plays an important role in the financial management of different countries. It encourages the integration of the international financial economy, providing an easy flow of finance. It is the equity outcome of countries that are part of the global financial system. International finance is a practice and theory of conducting international business. It is associated with activities related to the movement of resources. It is not easy for the financial director to manage and coordinate all international financial activities and record them. However, in this study, it was found that the final considerations were the most fruitful in Mexico than any other nation proposed.

References for International Financial Management

Biersteker, T. J. (Ed.). (2019). Dealing with Debt: International Financial Negotiations and Adjustment Bargaining. Routledge.

Chen, J. H. (2020). The Relations between Exchange Rates and Stock Indexes for Brazil. The International Journal of Business and Finance Research, 14(1), 57-69.

Dean, J. J., & Fischer, N. L. (2019). Routledge International Handbook of Heterosexualities Studies. Routledge.

Eun, C.S. & Resnick, B.G. (2018), International financial management (8th ed.). New York: McGraw-Hill, New York

Madura, J. (2020). International financial management. Cengage Learning.

Robinson, T. R. (2020). International financial statement analysis. John Wiley & Sons.

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