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Globalization & The MNC PDF
Globalization & The MNC PDF
Management
Dr. Nelson Michael J.
Course Overview
• Course Objective
• To provide a framework for making corporate
financial decisions in an international context.
Course Overview
Foreign Sourcing
Exchange Capital in
Markets Global Markets
International
Financial Synthesis
Management
Managing Foreign
FOREX Investment
Exposure Decisions
3
Course Overview
Introduction to international finance
Introduction and course overview
The foreign exchange market
Corporate governance
Parity conditions in international finance
Foreign exchange derivative contracts
4
Course Overview
International investment analysis
Cost of capital
International bond markets
International equity markets
Capital structure
6
Globalization & the
Multinational Firm
Objectives
• Understand why it is important to study
international finance.
1-9
What’s Special about
“International” Finance?
• Foreign Exchange Risk
• Political Risk
• Market Imperfections
• Expanded Opportunity Set
1-10
What’s Special about
“International” Finance?
• Foreign Exchange Risk
– The risk that foreign currency profits may evaporate in
dollar terms due to unanticipated unfavorable exchange
rate movements.
– E.g., an unexpected devaluation adversely affects your
export market…
• Political Risk
– Sovereign governments have the right to regulate the
movement of goods, capital, and people across their
borders. These laws sometimes change in unexpected
ways.
– E.g., an unexpected overturn of the government that
jeopardizes existing negotiated contracts…
1-11
What’s Special about
“International” Finance?
• Market Imperfections
– Legal restrictions on movement of goods,
people, and money
– Transactions costs
– Shipping costs
– Tax arbitrage
E.g., trade barriers and tax incentives may
affect location of production…
1-12
What’s Special about
“International” Finance?
• Expanded Opportunity Set
– It doesn’t make sense to play in only one
corner of the sandbox.
– True for corporations as well as individual
investors.
E.g., raise funds in global markets, gains from
economies of scale…
1-13
Goals for International Financial
Management
• The focus of the IFM course is to equip
jayantians with the “intellectual toolbox” of
an effective global manager—but what goal
should this effective global manager be
working toward?
• Maximization of shareholder wealth?
or
• Other Goals?
1-14
Maximize Shareholder Wealth
1-15
Other Goals
1-16
Other Goals
1-17
Globalization of the World Economy: Recent
Trends
• Emergence of Globalized Financial Markets
• Trade Liberalization and Economic Integration
• Privatization
1-18
Emergence of Globalized
Financial Markets
1-19
Economic Integration
• Over the past 50 years, international trade
increased about twice as fast as world GDP.
• There has been a sea change in the attitudes
of many of the world’s governments who have
abandoned mercantilist views and embraced
free trade as the surest route to prosperity for
their citizenry.
1-20
Liberalization of
Protectionist Legislation
• The General Agreement on Tariffs and Trade
(GATT) a multilateral agreement among member
countries has reduced many barriers to trade.
• The World Trade Organization has the power to
enforce the rules of international trade.
• ASIA-PACIFIC TRADE AGREEMENT
• ASEAN, SAARC
• The North American Free Trade Agreement
(NAFTA) calls for phasing out impediments to
trade between Canada, Mexico and the United
States over a 15-year period.
1-21
Privatization
1-22
Multinational Corporations
1-23
Top 10 MNCs
1 General Electric United States
2 Ford Motor Company United States
Netherlands/ UK
3 Royal Dutch/Shell Group
Netherlands/U.K.
4 General Motors United States
5 Exxon Corporation United States
6 Toyota Japan
7 IBM United States
8 Volkswagen Group Germany
9 Nestlé SA Switzerland
10 Daimler-Benz AG Germany
1-24
Reference
• Eun & Resnick (2008). International Financial
Management. Tata McGraw Hill.
Reference