International Financial Management

In the PGDA class this week we looked at International Financial Management.  This is an area that covers a broad array of issues – basically everything that has to do with doing business on a global scale.  What about the future performance of the Rand?  The anticipated impact of Brexit?  How long will interest rates stay low in the USA?  These are all great questions that CFO’s in SA are asking themselves at the moment.

When this topic crops up in exams it is usually with an emphasis on risk management.  You need to be able to identify the risks associated with conducting operations internationally.  Secondly you could be asked to recommend steps to mitigate these risks.  Sometimes you will need to do a bit of number crunching in order to decided which suggestion is better.

Generally the discipline of Financial Management requires you to step into the shoes of management.  That is clearly a challenge while you are still a student.  You lack direct experience but the good news is that you can get better by reading and practicing.

How do I get into the shoes of management?

I did a 7 min video on this topic for the Learn Accounting website (register for free and watch it here).  There are no shortcuts here – but there are practical steps you can take!

  1. Choose a company that interests you.  Download the latest Integrated Report from its website.  Read the CFO’s report.  Research anything of interest further.
  2. Whenever you hear a interest rate decision announced in SA, go to the SARB website and read the announcement.  It contains the best summary of the SA economy you will find – read the July 2016 announcement here to see what I mean.
  3. Read people that have the ability to simplify the complex.  I have found the following sources of information very helpful:
    1. Howard Marks is an investment hero of mine – read everything he writes and read + subscribe to his Memo’s here.
    2. Ray Dalio is a fascinating character, he runs one of the biggest hedge funds in the world.  If you want to understand Economics better, watch the best 30 min video explanation you will find here.  He was heavily featured in Tony Robbins book on Money and appears to be more and more public with his opinions on global matters.
    3. Jeremy Grantham is a grumpy Englishman based in the USA.  His writing simplifies complex topics and is usually very stimulating.  He has a great investment track record and you can read his views on Brexit here.  You also subscribe to get his latest articles.
    4. Warren Buffett and Charlie Munger.  Read these guys on pretty much any topic.  Dividends, cost of capital – just Google the topic with their names and you will learn a lot.  Munger on mental models is something that will equip you for life – read this great intro here.
    5. Read local asset management publications.  Find asset managers you respect and subscribe to their newsletters (usually easy to find on their website).  Big advantage here is that they are making application to the SA context, whereas all the others are based in the USA.  Examples include Coronation, Allan Gray, Foord, Investec, ReCM and there are loads more.
    6. Visit the CFO website from time to time.  Great articles on issues SA execs are facing and you can subscribe to receive weekly email summaries.  Find it here.

 What are the big International Financial Management issues at the moment?

Currency movements  – the Rand is one of the top traded currencies in the world and it likes to “move it, move it”.  Globally there are also a lot of countries that would prefer a weaker currency (so as to help boost exports) and that has led to “Currency Wars”.  I sometimes show this video to my classes – it highlights the USA-China relationship, which includes heated discussions about currencies, in an amusing and memorable way.  My opinion is that there is little chance of predicting movements accurately in the short-term so don’t try and make a career out of it!

Low (and even negative) interest rates – in order to boost weak economies, interest rates have been cut.  In some countries they have even turned negative – you have to pay to lend the government your money.  This is partly why some companies are going on a massive buying spree – banks are making a lot of cheap finance available for deals.  Steinhoff are the prime SA example of this at the moment.

Country risk.  As Nigeria gets pummeled by the low oil price, the government has cracked down on companies that contravene any rules in order to raise finance.  MTN got a huge fine and you can bet that any company doing business there is spending a lot of time ensuring that they comply with regulations.

Political risk.  Brexit.  Trump maybe getting elected.  Local government elections.  All of these change the environment in which business is conducted.  What will the economic impact of these events be?

Reading more about these issues and thinking about the implications for SA companies is a great way to practice for exams but more importantly, for the business world.  I hope that these tips help you go to the next level!

Please let me know if you would recommend other sources of info or would like more info on this topic in the comments below.

Paul Maughan

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