Global Currency Systems and Corporate Financial Strategy

The International Monetary System (IMS)

Need for the IMS

• The IMS is derived from international transactions (trade, transfers, investments, etc.).
• Transactions are made with different national currencies, linked by the economic reality of each country and the confidence this creates internationally.
• The exchange of currencies used as consideration for such real or financial transactions is performed in the foreign exchange market.

History of the International Monetary System

• Since 1870, various organizational schemes for the IMS have been utilized.
• The resulting types of IMS have been basically three.
• A key example is the Bretton Woods system, institutionally articulated around the IMF and operational from 1946 to 1973, although its major institutions and some of its rules survive today.
• The main distinguishing features of each model lie in the degree of flexibility of exchange rates.
• To date, the IMF includes more than 180 participating countries.

Corporate Finance and Capital Structure

Capitalization of Profits

• One of the basic forms of financing for companies is the retention of all or part of the positive profits (retained earnings).
• The decision to transfer profits or retained earnings to the capital accounts must be approved by a majority decision of the owners (shareholders).

Issuing Shares

Increased capital is achieved through the issuance of new shares.

Share Issuance Procedure

1. Approval of the Shareholders.
2. Registration with the State Superintendent of Corporations (SA).
3. Issue of a prospectus for the new share offering.
4. At the time of registration, a price per share is set, and the formal placement process begins.

Debt Structure and Financial Metrics

Analysis of Debt Structure

• This involves the analysis of Leverage and the overall Financial Structure of the company.

Key Financial Metrics: EBIT and EPS

• EBIT: Earnings Before Interest and Taxes, also known as the Operating Margin.
• EPS: Earnings per Share.

Impact of Financial Leverage on Profits

The use of financial leverage has two primary effects on the profits distributed to the owners of the company:

1. An increased risk in earnings per share (EPS) caused by the use of fixed financial obligations (debts with interest).
2. A change in the level of GPA (Gross Profitability/Performance) relative to the Operating Income (UAIIs/EBIT) associated with a specific equity structure.