globalization ppt mb a
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INTERNATIONAL
FINANCIAL
MANAGEMENT
EUN / RESNICKSecond Edition
1Globalization & theMultinational Firm
Chapter Objectives:
Understand why it is important to study international finance.
Distinguish international finance from domestic finance.
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Chapter One Outline1-1
Whats Special about International Finance?
Goals for International Financial Management
Globalization of the World Economy Multinational Corporations
Organization of the Text
Summary
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Whats Special about
International Finance?1-2
Foreign Exchange Risk
Political Risk
Market Imperfections
Expanded Opportunity Set
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Whats Special about
International Finance?1-3
Foreign Exchange Risk
The risk that foreign currency profits mayevaporate in dollar terms due to unanticipated
unfavorable exchange rate movements. Political Risk
Sovereign governments have the right to regulatethe movement of goods, capital, and people
across their borders. These laws sometimeschange in unexpected ways.
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Whats Special about
International Finance?1-4
Market Imperfections
Legal restrictions on movement of goods,people, and money
Transactions costs
Shipping costs
Tax arbitrage
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Whats Special about
International Finance?1-5
Expanded Opportunity Set
It doesnt make sense to play in only one
corner of the sandbox.
True for corporations as well as individualinvestors.
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Goals for International FinancialManagement
1-6
The focus of the text is to equip the reader withthe intellectual toolbox of an effective global
managerbut what goal should this effective
global manager be working toward? Maximization of shareholder wealth?
or
Other Goals?
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Maximize Shareholder Wealth1-7
Long accepted as a goal in the Anglo-Saxoncountries, but complications arise.
Who are and where are the shareholders?In what currency should we maximize their
wealth?
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Other Goals1-8
In other countries shareholders are viewed as merelyone among many stakeholders of the firm including:
Employees
Suppliers
Customers
In Japan, managers have typically sought tomaximize the value of the keiretsua family of firms
to which the individual firms belongs.
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Other Goals1-9
No matter what the other goals, they cannot beachieved in the long term if the maximization ofshareholder wealth is not given due
consideration.
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Globalization of the World Economy:Recent Trends
1-10
Emergence of Globalized Financial Markets
Trade Liberalization and Economic Integration
Privatization
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Emergence of GlobalizedFinancial Markets
1-11
Deregulation of Financial Markets
coupled with
Advances in Technology
have greatly reduced information and
transactions costs, which has led to:
Financial Innovations, such as Currency futures and options
Multi-currency bonds
Cross-border stock listings
International mutual funds
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Economic Integration1-12
Over the past 50 years, international tradeincreased about twice as fast as world GDP.
There has been a sea change in the attitudes
of many of the worlds governments who haveabandoned mercantilist views and embracedfree trade as the surest route to prosperity fortheir citizenry.
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Liberalization ofProtectionist Legislation
1-13
The General Agreement on Tariffs and Trade(GATT) a multilateral agreement amongmember countries has reduced many barriers
to trade. The World Trade Organization has the power
to enforce the rules of international trade.
The North American Free Trade Agreement(NAFTA) calls for phasing out impediments totrade between Canada, Mexico and the UnitedStates over a 15-year period.
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Privatization
1-14
The selling off state-run enterprises toinvestors is also known as Denationalization.
Often seen in socialist economies in transition
to market economies. By most estimates this increases the efficiency
of the enterprise.
Often spurs a tremendous increase in cross-border investment.
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Multinational Corporations
1-15
A firm that has incorporated on one countryand has production and sales operations inother countries.
There are about 60,000 MNCs in the world. Many MNCs obtain raw materials from one
nation, financial capital from another, producegoods with labor and capital equipment in athird country and sell their output in variousother national markets.
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Top 10 MNCs
1 General Electric United States
2 Ford Motor Company United States
3 Royal Dutch/Shell GroupNetherlands/ UK
Netherlands/U.K.4 General Motors United States
5 Exxon Corporation United States
6 Toyota Japan
7 IBM United States
8 Volkswagen Group Germany
9 Nestl SA Switzerland
10 Daimler-Benz AG Germany
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The Organization of the Text1-17
Macroeconomic
Environment
The Financial
Environment
Management of
the MultinationalFirm
Part I
Chapters 1-5
Part II
Chapters 6-11
Parts III & IV
Chapters 12-20
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End Chapter One1-18
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