GLOBAL AND INTERNATIONAL FINANCE
MNC- MULTINATIONAL CORPORATION
GOAL- MAXIMIZATION OF WEALTH
BUSINESS DECISION
DISCONTINUE OPERATIONS of a particular country
PURSUE NEW BUSINESS a business in a particular
country
EXPAND a business in a particular country
How to FINANCE expansion in a particular country
MANAGEMENT STRUCTURE- HEAD QUEARTERS-
SUBSIDIARIES
CENTRALIZED- all the business decisions are made at the
head quarters office down to the subsidiaries. The advantage
of using this structure is it’s uniformity, it keeps everything in
order while the disadvantage there are possibilities of having
risk or problems
Decentralized- the decisions are made by the subsidiaries or
the managers. The advantage of having this structure is it is
more focus on it’s target market, what they really want and so
on. While the disadvantage pf decentralized is the poor
manager skills.
REASON WHY WE NEED TO PURSUE
INTERNATIONAL BUSINESS
 THEORY OF COMPARATIVE ADVANTAGE
-allows firm to penetrate foreign markets
-country that specializes some product may not
produce other products. So trade between in
countries are essential
 IMPERFECT MARKETS
-NOT EFFICIENT, NOT PERFECT
-there is no such things as perfect market
 PRODUCT CYCLE THEORY
-firms become established in the home market as a
result of some perceived advantage
International product life cycle
1. firms creates products to accommodate local demand
2. Firms exports products to accommodate foreign demand
3. Firms establish foreign subsidiary to establish presence in the
foreign country and possible to reduce cost.
4. Firms differentiates product from competitors and/or expands
product line in the foreign country
5. Firms foreign business declines as its competitive advantage
are eliminated
METHODS TO CONDUCT INTERNATIONAL
BUSINESS
1.INTERNATIONAL TRADE
-approach that can be used by firms to penetrate markets by
exporting or to obtain supplies at a low cost by importing
2.LICENSING
-an arrangement whereby one firm provides technology
( copyrights,patents trademarks, or trade names) in exchange
for fees and other considerations
3. FRANCHISING
-one provide a specialized sales or service strategy, support
assistance and possible an initial investment in the franchise in
exchange.
4. JOINT VENTURE
- venture that is jointly owned and operated by two or
more firms.
WHAT IS THE DIFFERENCE BETWEEN FRANSHING
AND JOINT VENTURE?
-A franchise is a license to operate a business using
frachisee”s name, operating method and standardized
processes while joint venture is an agreement where two
companies will provide recources to each other or assist each
for a certain period of time and payment
-Joint venture are not obliged to meet the member;s firm
guidelines and regulations on the other hand, a franchise mist
adhere to the franchisor’s strategy and regulations
5. Acquisitions of Existing Operations
-firms frequently acquire other firms in other countries as a
means of penetrating foreign markets
6. Establishments of New Foreign Subsidiaries
-firms can also penetrate foreign markets by establishing new
operations in foreign countries to produce or sell products.
WHAT IS THE DIFFERENCE BETWEEN Acquisitions of
Existing Operations AND Establishments of New Foreign
Subsidiaries?
-ACQUISITIONS REFERS TO THE STRATEGIC MOVE
OF ONE COMPANY BUYING ANOTHER COMPANY BY
ACQUIRING MAJOR STAKES OF THE FIRM while
existing operations and establishments of new foreign
subsidiaries method requires large direct foreign investment.
Establishing subsidiaries may be preferred to foreign
acquisitions because operations can be tailored exactly to the
appearance
 • Firms typically prefer to pursue DFI in countries where the
local currency is expected to strengthen against their own
EXCHANGE RATES

Limitations of a Weak Home Currency Solution

Competition: Foreign companies may lower their prices to
remain competitive Factors Affecting International Portfolio Investment
Impact of other currencies: A country that has a balance of
trade deficit with many countries is not likely to solve all
deficits simultaneously Tax Rates on Interest or Dividends

Prearranged international trade transactions: International
transactions cannot be adjusted immediately. The lag is
estimated to be 18 months or longer, leading to a J-curve
effect.
Intracompany Trade: Many firms purchase products that are
produced by their
Subsidiaries: These transactions are not necessarily affected
by currency fluctuations
• Investors normally prefer to invest in a country where taxes
are relatively low
Interest Rates
• Money tends to flow to countries with high-interest rates, as
long as the local currencies are not expected to weaken
Exchange Rates
Investors are attracted to a currency that is expected to
strengthen

Exchange Rates and International Friction Agencies that facilitate international flows
 All governments cannot weaken their home
currencies simultaneously  International Monetary Fund
 Actions by one government to weaken its currency  World Bank (International Bank for
causes another country ’currency to strengthen  Reconstruction and Development)
 Government attempts to influence exchange rates can
lead to international disputes
 World Trade Organization (WTO)
 International Financial Corporation (IFC)
 International Development Association
Factors Affecting Direct Foreign Investment (IDA)
 Bank for International Settlement (BIS)
 Organization for Economic Cooperation and
Changes in Restrictions  Development (OECD)
• New opportunities have arisen from the removal of  Regional Development Agencies
government barriers
Privatization
• DFI is stimulated by new business opportunities associated
with privatization • Managers of privately owned businesses
are motivated to ensure profitability, further stimulating DFI
Potential Economic Growth
• Countries with greater potential for economic growth are
more likely to attract DFI.
Tax Rates
• Countries that impose relatively low tax rates on corporate
earnings are more likely to attract DFI
Exchange Rates.