Business

Finance

Sir Mark Paul O. Altarejos

 Module 11
Trends in Finance
(Global Finance,
Behavioral Finance,
and Business
Analytics)
Learning Objectives:

At the end of the lesson, the students will be able to:

1. Show an understanding of the trends and issues in global finance.

2. Define behavioral finance and business analytics.
3. Explain the relationship between behavioral finance and the
dynamics in the investment market.
4. Identify and describe the different types of business analytics
(enrichment), and
5. Discuss the applicability of business analytes in finance.
Let’s get started
Let us see what you
already know!!!
Globalization

Globalization refers to the shift toward an

integrated and interdependent world economy
Simply, globalization means that economies of
different countries in the world. big or small, no
longer operate as a separate national economy.
Globalization has two facets: globalization of markets
and globalization of production.
❖ Globalization of markets - refers to the merging of
national markets into one huge global
marketplace.

❖ Globalization of production - refers to the sourcing

of goods and services from different countries to
take advantage of national differences in the cost
and quality of factors of production such as labor,
land, and capital.
 Reflect upon

Consider how you are personally affected

by globalization. Have you benefited from it
or not? Explain your answer briefly.
Global Corporation

A global corporation is a firm that operates in a number of

countries. Today, global corporate networks control a large
share of the world's technological, marketing, and productive
resources. Companies go global for the following reasons:

1. To seek production efficiency - When competition

becomes stiff in their home countries and markets get
saturated, companies find it imperative to transfer some
aspects, if not all, of their operations overseas.
2. To avoid legal and trade restrictions - Governments
of host countries impose tariffs, quotas, and other
restrictions on imported goods. They do this to either
raise revenues through taxes and/or political pressure
to protect local industries/businesses.

3. To expand markets - Operating in foreign countries

give firms access to foreign markets.
4. To seek raw materials and technology - There are
instances when firms have no choice. regardless of the
challenges that they have to overcome or the amount of
capital needed, but to operate overseas in order to get access
to raw materials and technology.

5. To protect processes and products - Instead of licensing

the use of a brand or a formula to a local company, firms
choose to operate overseas to protect their processes and
products.
6. To diversify-By operating in other countries, big companies
can smooth out the impact of certain adverse economic
conditions.

7. To retain customers - Some companies decide to operate

abroad in order to follow their customers and continue serving
them.
Companies strive to
expand globally to take
advantage of production
efficiency and to lower
operational costs, among
others.
 What Have I Learned So Far?
1. Provide at least five reasons why companies decide to go global.
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2. Name at least five global companies that have operations in the

Philippines.
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Firms need to consider the following factors should they decide to
go global:

1. Different currency denominations - Firms that operate in several

countries will face the challenge of streamlining the recording of
financial transactions as they will be in different currencies.

2. Political risk - Even domestic firms face risks. However, firms that
operate in more than one country will face risks in different forms
from one country to another different tax laws, appropriation of
resources, and other industry specific constraints, especially in
highly regulated industries such as oil, gas, mining, and
pharmaceuticals.
3. Economic and legal restrictions - Economic and legal
restrictions in different countries can have an impact on a firm's
policies and procedures.

4. Role of governments - Some governments are more involved

than others in the policy making of privately owned businesses.

5. Language and cultural differences - Firms operating in

different countries face the challenge of dealing with language
barriers and cultural differences.
 Inflation, Interest Rates, and Exchange Rates

Inflation is the extent to which prices of commodities increase

over time. Inflation rates vary across countries. It is imperative
for decision makers of global firms to understand that inflation
affects interest rates and exchange rates. All three factors affect
a global firm's revenue, cost structure, income, and cash flow.
Consider the following
1. Currencies of countries with higher inflation rates
depreciate in value. If the inflation rate in the Philippines is
higher compared to the inflation rate in the US, the value of
the Philippine peso will depreciate against the US dollar.

2. Higher inflation rates may be the result of increased

borrowing when interest rates are low. A low interest rate
encourages firms and consumers to borrow.
Purchasing Power

Purchasing power parity (PPP) the relationship in which the same

products roughly the same amount in countries after exchange rate
taken into The PPP also often referred to as the law.

To illustrate, if smart phone costs HK$3.000 (Hong Kong dollars)

and 15 000 Philippines, PPP implies that exchange rate will be
HK$1.00 = 5.00

The PPP assumes that there are transportation and transaction

costs. also does consider some traders can goods from country and
resell them another for a profit.
Behavioral Finance

Behavioral finance is new field which combines psychological

and behavioral with economics finance. Those who study
behavioral finance aims to understand people’s "irrational"
decisions.

3 bias that often affect how people behave or think.

1. Overconfidence bias - This stems from individual's

overestimation of his or her abilities.
2. Self attribution bias - There are individuals who
attribute their successes in abilities but will blame for
their failures.

3. Hindsight bias - This result from people believing that

they actually predicted an outcome even before it
happened.
Business analytics is the use of data, statistical
analysis, and explanatory and predictive models to
gain insights and then act on complex issues. It has
gained popularity not only for its value, but also
because of its applicability to different fields and
disciplines-engineering medicine research and
development.
Business analytics relates
to the manipulation and
use of data to gain and
provide insights to
decision makers.
3 Types of Business Analytics

1. Descriptive analytics gives a picture of what has happened

or what is happening. It answers questions such as the
following: What is happening? How often does it happen?
Where and when are these events and occurrences
relevant? Descriptive analysis makes use of standard
reporting.
 Mahal Dito Trading Corporation
Sales Performance Report (in units)
Quarter 1, 2019

Sales Territory : Product A (Profit Product B (Profit Product C (Profit Product D (Profit Product E
North Batangas Margin: 45%) Margin: 45%) Margin: 50%) Margin: 50%) (Profit Margin:
48%)

Lipa City 1 (inner City) 350 365 225 175 425

Lipa City 2 (Ayala 355 375 245 220 420

Highway)

Lipa City 3 (Tambo) 305 365 220 155 385

Tanauan City 300 320 200 140 350

Sto. Tomas 275 300 190 120 330

From the sample report the marketing manager may choose to do the following:

1. Visit the Sto. Tomas store to better understand why sales are low. The marketing manager
may also study the profile and buying behavior of customers in the area and then come up
with a plan in order to boost sales
2. Despite the good sales performance of the Lipa City 2 store, the
marketing manager may visit the store anyway and see why product D
is not selling too well relative to its other products. It is possible that
product D may not be a good match with the needs of the customers in
that area. It is also possible that the store may have just run out of
supply of this particular product which would explain why sales are low.

3. Take note of the best practices of the store in Lipa City 2 and see if
these practices may be applied to the other stores

4. Analyze further the characteristics of the most salable product and

the least salable product to see how they match (or do not match, in the
case of the least salable product) the needs of customers.
2. Predictive analytics - helps firms foresee what could happen.
Predictive analytics focuses on simulation and forecasting.

3. Prescriptive analytics - zeroes in on answering what and why

questions. Given what decision makers know about what has
happened (descriptive) and what could possibly happen
(predictive), prescriptive analytics will help decision makers think
of what should be done.
 Gartner's Business Analytics
The graphical presentation of Gartner's business analytics framework is shown in figure
11.1. Gartner's framework shows the basic relationships between value and difficulty. It
shows how both value and difficulty increase as a firm evolves from the use of
descriptive, to predictive, then prescriptive analytics.

Prescriptive
Analysis
Predictive
Analysis
Diagnosis
Analysis
Value

Descriptive
Analysis

Difficulty
 What Have I Learned So Far?
1. Differentiate descriptive, predictive and prescriptive analytics using
Gartner’s framework.
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2. What is the significance of having diagnostics analysis in Gartner’s

framework?
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THANK Any questions?

YOU!
Do you have any questions?