MODULE TEMPLATE

1. Title of module: International Financial Management: An Overview

2. Overview/Introduction
This unit provides an overview of the multinational corporation (MNC) and the
environment in which it operates.

3. Learning Outcome/Objective
At the end of the unit, the students are expected to be able to:
• define international financial management;
• define MNCs;
• identify the management goal and organizational structure of the MNC;
and
• identify the goals for International Financial Management.

4. Learning Content/Topic
Unit 1: International Financial Management: An Overview
• International Financial International Management
• Multinational Corporations (MNCs)
• Management goal and organizational structure of MNC
• Goals for International Financial Management

International Financial Management

The following are definitions of international financial management.
The art of managing money on a global scale.
The common term that means financial management in an international
business setting implies trade and money-making through foreign currency exchange.
The financial activities allow the company to communicate with overseas
business partners-clients, suppliers, lenders.
www.slideshare,net aug 7, 2016

https://poseidon01.ssrn.com/delivery.php Mohd Arif Business Educational World (MABEW)

international financial management
Multinational Corporations (MNCs)
Definition. J. Madura (2018) in his ebook entitled International Financial Management
defines Multinational Corporations or simply MNCs as firms that engage in some form
of international business. Their managers conduct international financial
management, which involves international investing and financing decisions that are
intended to maximize the value of the firm, which is similar to the goal of managers
employed by domestic companies.
These MNCs are most likely to bring the practices - methods, culture and values
of their home country to different countries where they have subsidiaries. In simple
words, MNCs are business enterprises that operates in several countries they are
under the management of one home country or the base company.

Management goal and organizational structure

The costs of ensuring that managers maximize shareholder wealth called
agency costs are normally larger than that for purely domestic firms for several
reasons:
1. MNCs with subsidiaries scattered around the world may experience larger
agency problems because monitoring managers of distant subsidiaries in
foreign countries is more difficult.
Due to distance constraints, round the clock monitoring of the
activities of the managers around the world is most unlikely. Some activities
of the managers may in one way or another affect the operations and image
as well. Because of the distance, some expenses unnecessarily expensed
may be incurred without the verification process as to the validity,
authenticity of the expenditures. One thing more, the parent manager in
may requires some time to visit subsidiaries thus, entails costs.

2. Foreign subsidiary managers raised in different cultures may not follow

uniform goals.
Different cultures, different values of the managers in each subsidiary
may affect the systems or methods in place. It is but normal that manager
has its own cultures, norms, and values to protect, believe and adhere and
these may somehow be carried along as he/she man the operations. In
 observance of these cultures, norms and values there might be some
expenses that need to be incurred.

3. The sheer size of the larger MNC’s can also create large agency problems.
When a company maintains numerous number of large subsidiaries
monitoring is likewise an issue. The larger the company, the more costs it
entails.

4. Some managers tend to downplay the short-term effects of decisions that

are inconsistent with maximizing shareholder wealth.
A conflict of interest may arise because manager have also their own
agenda in running the operations other than maximizing the shareholders’
wealth.

The magnitude of agency costs can vary with the management style of the MNC.
1. Centralized style can reduce agency costs because it allows managers of
the parent to control foreign subsidiaries and therefore reduces the power
of subsidiary managers. However, the parent’s manager may make poor
decisions for the subsidiary if they are not as informed as subsidiary
managers about financial characteristics of the subsidiary.

Centralized management style in MNCs means that parent manager

concentrate and reserve the decision-making power especially for the
important and key decisions, execution/implementation of directives is
decided upon, the jobs of the subsidiary manager is under the direct control
of the parent manager.

2. Decentralized style is more likely to result in higher agency costs because

subsidiary managers may make decisions that do not focus on maximizing
the value of the entire MNC. This style gives more control to those
managers who are closer to the subsidiary’s operations and environment.
To the extent that subsidiary managers recognize the goal of maximizing
the value of the overall MNC and are compensated in accordance with that
goal. This management style can be more effective.
 In an article entitled Centralized and Decentralized Management
Explained, Matt Barrett explained decentralized management as opposite
of centralized management where most of the decision-making are being
transferred to lower levels and even to the extent that employees are given
the authority to do the decision-making processes. For MNCs,
decentralized management means that most of the decision-making
processes is delegated to the subsidiary manager. Thus, allowing the
manager to make instant decisions that impact the subsidiary work
environment. However, the overall authority is still maintained by the parent
manager.

Despite the apparent trade-off between centralized and decentralized

forms of management, some MNCs are attempting to gain the advantages
of both forms. In other words, they allow subsidiary managers to make key
decisions about their respective operations, but the parent management
monitors decisions to ensure that they are in the best interests of the entire
MNC.

Goals for International Financial Management

There are two goals of international financial management namely, (1)
acquisition of funds and (2) investment decisions.
Acquisition of Funds. This objective entails generation of funds at the
lowest possible cost from both internal and external sources.

Investment Decisions. Obviously, funds generated are to be put into

investment. The international financial management therefore is concerned
with maximizing the wealth of both the shareholders and stakeholders’ wealth
through investment.

Likewise, A. Tamang, in his article entitled International Financial

Management states that the goal of international financial management is to
increase the wealth of both the shareholders and its stakeholders like its
suppliers, customers and employees as well.
5. Teaching and Learning Activities
Teaching and learning activities shall be made by the subject instructor
by lecture method or assigned readings thru the use of this module with the aid
of learning materials from youtube, articles and published researches lifted from
google and google scholar related to the subject for discussion. Messenger,
video calls shall be utilized from time to time to raise questions or clarifications
about the topics whenever necessary. When circumstances permit, learners
may have individual or group activities to allow them to collaborate with other
peer learners.
6. Recommended learning materials and resources for supplementary
reading.
For further readings:
International Financial Management. 13th edition
www.slideshare,net
7. Flexible Teaching Learning Modality (FTLM) adapted
For students who will have the chance to participate online:

Online (synchronous)

➢ google classroom

➢ messenger ( thru group chat)

➢ facebook video call

➢ text messages ( for additional announcements)

➢ electronic mail

For those who do not have internet connections:

Remote (asynchronous)

➢ module, case study, exercises, problems sets, etc

➢ text messages

➢ submission thru identified drop boxes located at the school

guard house or barangay halls

 8. Assessment Task
Recitation

Quiz

Essay (individual):

As an overall review of this unit, identify possible reasons for growth in

international business. Then, list the various disadvantages that may
discourage international business.

Case Study (with online presentation) and to be accomplished by group of 10

members:

Last month, Jim Logan completed his undergraduate degree in finance

and decided to pursue his dream of managing his own sporting goods business.
Jim had worked in a sporting goods shop while going to college, and he had
noticed that many customers wanted to purchase a low-priced football.
However, the sporting goods store where he worked, like many others, sold
only top-of-the-line footballs. From his experience, Jim was aware that top-of-
the-line footballs had a high markup and that a low-cost football could possibly
penetrate the U.S. market. He also knew how to produce footballs. His goal was
to create a firm that would produce low-priced footballs and sell them on a
wholesale basis to various sporting goods stores in the United States.
Unfortunately, many sporting goods stores began to sell low-priced footballs
just before Jim was about to start his business. The firm that began to produce
the low-cost footballs already provided many other products to sporting goods
stores in the United States and therefore had already established a business
relationship with these stores. Jim did not believe that he could compete with
this firm in the U.S. market. Rather than pursue a different business, Jim
decided to implement his idea on a global basis. While football (as it is played
in the United States) has not been a traditional sport in foreign countries, it has
become more popular in some foreign countries in recent years. Furthermore,
the expansion of cable networks in foreign countries would allow for much more
exposure to U.S. football games in those countries in the future. To the extent
that this would increase the popularity of football (U.S. style) as a hobby in the
foreign countries, it would result in a demand for footballs in foreign countries.
Jim asked many of his foreign friends from college days if they recalled seeing
footballs sold in their home countries. Most of them said they rarely noticed
footballs being sold in sporting goods stores but that they expected the demand
for footballs to increase in their home countries. Consequently, Jim decided to
start a business of producing low-priced footballs and exporting them to sporting
goods distributors in foreign countries. Those distributors would then sell the
footballs at the retail level. Jim planned to expand his product line over time
once he identified other sports products that he might sell to foreign sporting
goods stores. He decided to call his business “Sports Exports Company.” To
avoid any rent and labor expenses, Jim planned to produce the footballs in his
garage and to perform the work himself. Thus, his main business expenses
were the cost of the materials used to produce footballs and expenses
associated with finding distributors in foreign countries who would attempt to
sell the footballs to sporting goods stores.

1. Is Sports Exports Company a multinational corporation?

2. Why are the agency costs lower for Sports Exports Company than for most
MNCs?

3. Does Sports Exports Company have any comparative advantage over

potential competitors in foreign countries that could produce and sell footballs
there?

4. How would Jim Logan decide which foreign markets he would attempt to
enter? Should he initially focus on one or many foreign markets?

5. The Sports Exports Company has no immediate plans to conduct direct

foreign investment. However, it might consider other less costly methods of
establishing its business in foreign markets. What methods might the Sports
Exports Company use to increase its presence in foreign markets by working
with one or more foreign companies?

I. Executive Summary

II. Introduction

III. Methodology
IV. Analysis

V. Recommendation and Conclusion

VI. References

9. References
Online references:
https://content.personalfinancelab.com
https://www.academia.edu
https://poseidon01.ssrn.com
https://talentedge.com

ebook:
Jeff Madura. (2018) International Financial Management. Cengage
Learning, ISBN 978-1-337-26996-4 (13th edition).
http://www.cengagebrain.co.nz/shop/isbn/978-1-337-26996-4