Introduction to

International Finance
Chapter One
Introduction to International
Finance
Meaning of International Finance
Multinational Firm
International Finance versus Domestic
Finance
Why Companies go Global?
Modes of International Business
Course Sequence
Meaning of International Finance?
What is International Finance?
A study of the institutions, policies, and
practices that govern
• global financial management and/or
• financial aspects of global business
Multinational Financial Management?
Multinational/Transnational Corporation
Why Study International
Finance?
Exchange Rate
Cross-border Barriers that include
Economic barriers
Cultural barriers
Political and Legal barriers
Ethical Issues
Financing Opportunities in Global
Market
Exchange Rate Risk
Changing value of U.S. dollar versus
other currencies since 1973
Declining dollar good for U.S. exporters,
but bad for imports
Rising dollar good for U.S.
imports/outsourcing, but bad for
exports
Economic Barriers
Tariffs, Import Duties, Quota
Restrictions
Restrictions on remittance of profits and
repatriation of capital
Restrictions on foreign equity
participation
Trading blocks
Cultural Barriers
Language
Examples of Language Barriers
“Please leave your values at the desk” (France)
“The manager has personally passed all the water served here”
(Mexico; to assure safety of drinking water at the hotel)
“You are invited to take advantage of the chambermaid” (Japan)
“Ladies are requested not to have children in the bar” (Norway)
“Because of the impropriety of entertaining guests of the opposite
sex in the bedroom, it is suggested that the lobby be used for
this purpose” (Switzerland)
“We will execute customers in strict rotation.” (Greece)
Cultural Barriers Contd…
Hand Gestures
Religion
Hinduism
Islam
Judaism
Christianity
Buddhism
Significance of Religion and Values
Customs/Traditions
Political/Legal Barriers
Political Ideology
Opinions of Political Leadership
Civil disorder
External relations
Attitude towards foreign capital
Legal System
Ethical Barriers
Definition of “Ethics” in your country
versus definition of “Ethics” in a foreign
country
Ethics and the society
Firm’s role in education
Firm’s role in health care
Ethics and the environment
Who should study international
finance?
A company that engages in global
business

A pure domestic company

Why Firms go Global?
To maximize shareholder wealth
through
maximization of market value by
maximizing the cash flows of the firm
Why companies go global?
To seek raw material
To seek new markets
To minimize cost
Overall Goal
Overall goal, shareholder wealth
maximization
Separation of ownership from
management and Corporate
Governance
Corporate Governance
Meaning
Goal of Corporate Governance
Comparative Corporate Governance
Corporate Governance and Emerging
Markets
Corporate Governance and Multinational
Financial Management
Meaning
Corporate governance is about the exercise of
power over corporate entities.
Governance issues arise when a corporate
entity acquires a life of its own
Whenever ownership of an enterprise is
separated from its management
The relationship among stakeholders used to
determine and control the strategic direction
and performance of an organization is termed
corporate governance
Goal
Corporate governance is, in essence,
the method by which an organization
establishes order among the various
stakeholders to ensure that decisions
are made and interests are represented
in line with the firm’s stated objectives
Comparative Corporation
Governance
Origins of the need for corporate
governance
Separation of ownership from management
Varying views by culture of who the
stakeholders are
Corporate governance practices differ
across culture
Modes of International Business
International Trade
Licensing
Franchising
Joint Ventures
Direct Foreign Investment
Focus of this Course
Foreign Exchange Markets and Exchange
Rate Determination
Theories of Exchange Rate Determination
Exchange Rate Regimes
Foreign Exchange Rate Risk—
Measurement and Management
Capital Budgeting Analysis in a Global
Environment