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International Financial Management

Course Code:B242 Term-IV

Introduction
Unit-I

IFM Vs FM

Foreign Exchange Political risk and Expanded Opportunity set

MNC

An enterprise that owns and controls production or service facilities outside the country in which it is based.
Ethnocentric

MNC Groups

Polycentric Geocentric
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MNC s

Ethnocentric: Home-market oriented Distinction between Domestic and global operations Polycentric : Host-market oriented Caters to the demand of the host country Geocentric : Balance between home market and host market
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MNC Vs TNC
Multi National Company
Decision Making : Normally decentralized Activities of the Firm: Not strongly co-ordinated

Transnational Company
Centralized

Perfectly controlled and co-ordinated to achieve global competitiveness.

No. of MNCs in the world

889,416 multinational companies (MNCs) around the world 82,053 parent corporations and 807,363 affiliates. (WIR-2009)

Overview
Why Firms Pursue International Business
How Firms Engage in International Business

Managing the MNC


Management and Agency Problems a. Parent Control b. Corporate Control How Sarbanes-Oxley (SOX-2002)Improved MNCs Corporate Governance

Why Firms Pursue International Business


1. Theory of Comparative Advantage 2. Imperfect Markets Theory
3. Product Cycle Theory

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Comparative Advantage

Technological advantage-US and Japan-large Producers of computer components Ex: Oracle , IBM , Intel Cost of basic labour- advantage Jamaica ,Mexico and South KoreaAgricultural and Handmade goods Comparative Advantage allows firms to penetrate foreign markets

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Imperfect Markets Theory

Perfect Markets-no international trade Imperfect trade-allows International trade Ex:Nike

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International Product Life Cycles

Insert chart page 7 Exhibit 1.2

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How Firms Engage in International Business


1.

2. 3. 4. 5. 6.

International Trade(Exporting) Licensing Franchising Joint Ventures Acquisition of Existing Operations Establishing New Foreign Subsidiaries

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How Firms Engage in International Business


Summary of Methods by Risk
Franchising and Joint Ventures New Foreign Subsidiaries FDI

Foreign Acquisitions

LEAST RISK Degrees of Risk to MNC

MOST RISK

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Web links
www.unctad.org/wir/ UNCTAD: United Nations Conference on Trade and Development Provides a broad coverage of cross border investment activities by MNCs. World Investment Report-2011 (WIR-2011)(WIR-2012)
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Worlds Biggest 10 Companies2012,2011,2010,2009 Total no. of MNCs in the world Top 10 most profitable companies in the world Top 10 fastest growers Top 10 biggest employers Top 20 of the largest MNCs ranked by the size of foreign assets Best countries to invest

Assignment-I

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Internet Exercise

Visit the corporate website of Nokia, one of the most popular MNC in the world. From the annual report study the geographical diversification of its sales and revenues, no. of subsidiaries, no. of countries exporting to, imports of that company, Head quarters etc.
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Case Study

Decision to expand internationally: Blades ,Inc

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Research

Destination Bangladesh: Arvind Mills

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Assignment-II

Select a country and analyze that countrys balance of payments for 8 to 12 years, subject to the availability of data. The analysis must include BOP Summary (Statistical data on Current account balance, Capital account balance , Official Reserve account balance and Overall Balance of Payments in US Dollars).

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The report should also focus on the following issues : Identify the relationship between Current account balance and the exchange rate of the selected country(same period-8-12 yrs) Financial position of the selected country in the IMF Currency composition of the Worlds foreign exchange reserves and countrys per cent of total for the current year.

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