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Published by: Tran Trong Phong on Sep 21, 2012
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International Business Finance

 Course structure:

   

Examiner: Associate Professor Sarath Delpachitra Assessments: see the Topic Guide Examination: See the Topic Guide Study materials: Text

Differences between domestic and international financial management  Who needs international financial management?  Why IFM different from DFM?  Why IFM decisions differs from FM?  Why MNE are operating?  Is multinational investment safe?  What are the risks?

Who needs international financial management?
    Multinational corporations Joint ventures Acquisition of existing operations Firms engaging licences and management  Exporters and Importers  Domestic firms with off-shore investment capital and equity markets


Why IFM different from DFM?
    Operate within & across different political, legal, legislative and cultural systems Use different currencies so active in FE market Have access a range of domestic & international capital markets Operate with and across a range of product and factor market each with different level of productivity, efficiency and competition.

Why IFM decisions differs from FM?

The degree of difference depends on the following factors  The degree of involvement in the international monetary system  The degree of involvement in the international economic environment  The degree of difference between domestic and international economy

Why MNE are operating?
MNE are operating in a risky global environment. But the continue to thrive because:  Market imperfections are common between countries so opportunities are there for exploitation.  MNE could exploit their advantages in –
    Economies of scale and scope Managerial & technical expertise Ability to differentiate products Strong financial backing and ability to raise capital


Reasons for firms to become MNE
      Market seekers- increase global market share Raw material seekers – extract raw material cheaply Production efficiency – Product Cycle Theorem Knowledge seekers – fill the gaps Political safety – Taiwan, HK Tax heaven

Is multinational investment safe?
As in any other business there are risks attached to multinational investment. However further risk premiums should be added because:  FE risk – FE risk premium  Political risk - further increase in the premiums

What are the political risks?
 Micro risks
 Corruption – most LDCs  Goal conflicts

 Macro risks
 Expropriation  Ethnic stripe


Historical overview of the International monetary system
 The gold standards  Bretton Wood System and SDR  Adjustments to SDR/devaluation/revaluation  Floating exchange rate system

Corporate Wealth Maximisation
 Accumulation of corporate wealth  Shareholders wealth maximisation

Corporate Governance


BOP account

Current currency regimes
 National currencies: Aus$, Jap ¥, US $.  Artificial currencies: SDRs  Composite currencies: Euro € (With Euro replacing all national currencies of EU)  For details of other currency arrangement see the text.

Fixed vs Floating X
 Most countries now use floating X rates or its variations but few others still use fixed X rate.  Fixed X rate systems:
 Stabilise international prices so less risks for all businesses  Thus anti-inflationary because prices will note change due to exchange rate fluctuations (less volatile)  Need reserve banks to maintain enough int. reserves (foreign currency) to settle the balance of payment.


Variations to floating X rate systems
 Free float (floating X): The X rate is decided in response to daily demand and supply for foreign currency.  Manage or dirty float (Managed X). X rate is allowed to move within a specified range.  If the X rate is fixed RB or central bank must ensure BOP near zero [ie. Transactions (payments and receipts) between the country and the rest of the worlds sum to zero]. This is not required for Floating ER.

Essential Readings
Chapters one and two of the text


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