introduction to international finance international finance (mb 74)
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Introduction to International Finance
International Finance (MB 74)
Introduction to International Finance
Meaning of International FinanceMultinational FirmInternational Finance versus Domestic FinanceWhy Companies go Global?Modes of International BusinessCourse 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 barriersCultural barriersPolitical and Legal barriersEthical Issues
Financing Opportunities in Global Market
Exchange Rate Risk
Changing value of U.S. dollar versus other currencies since 1973Declining dollar good for U.S. exporters, but bad for importsRising dollar good for U.S. imports/outsourcing, but bad for exports
Economic Barriers
Tariffs, Import Duties, Quota RestrictionsRestrictions on remittance of profits and repatriation of capitalRestrictions on foreign equity participationTrading blocks
Cultural Barriers
LanguageExamples 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 GesturesReligion
HinduismIslamJudaismChristianityBuddhism
Significance of Religion and ValuesCustoms/Traditions
ULTRA CLEANLAUNDRY
USE SURFDIRTYLAUNDRY
N O AIRPORT
Political/Legal Barriers
Political IdeologyOpinions of Political LeadershipCivil disorderExternal relationsAttitude towards foreign capitalLegal System
Ethical Barriers
Definition of “Ethics” in your country versus definition of “Ethics” in a foreign countryEthics and the society
Firm’s role in educationFirm’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 bymaximizing the cash flows of the firm
Why companies go global?
To seek raw materialTo seek new marketsTo minimize cost
Overall Goal
Overall goal, shareholder wealth maximizationSeparation of ownership from management and Corporate Governance
Corporate Governance
MeaningGoal of Corporate GovernanceComparative Corporate GovernanceCorporate Governance and Emerging MarketsCorporate Governance and Multinational Financial Management
MeaningCorporate governance is about the exercise of power over corporate entities. Governance issues arise when a corporate entity acquires a life of its ownWhenever ownership of an enterprise is separated from its managementThe 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
Protect shareholders’ rightsEquitable treatment of all shareholders including minority and foreign shareholdersRecognize the rights of stakeholders as established by law and encourage active cooperation between corporations and stakeholders in creating wealth and jobs and the sustainability of financially sound enterprisesDisclosure and transparency including financial situation, performance, ownership, and governanceEffective monitoring of management by the board, and the board’s accountability to the company and to the shareholders
Comparative Corporation Governance
Origins of the need for corporate governance
Separation of ownership from managementVarying views by culture of who the stakeholders are
Corporate governance practices differ across culture
Market BasedEfficient equity markets; dispersed ownershipU.S., U.K., Canada, Australia
Family BasedManagement & Ownership is combinedFamily/majority and minority shareholdersHong Kong, Indonesia, Malaysia, Singapore, Taiwan, France
Bank BasedGovernment influence in bank lendingLack of transparency, family controlKorea, Germany
Government AffiliatedState ownership of enterpriseLack of transparency, no minority influenceChina and Russia
Modes of International Business
International TradeLicensingFranchisingJoint VenturesDirect Foreign Investment
Focus of this Course
Foreign Exchange Markets and Exchange Rate DeterminationTheories of Exchange Rate DeterminationExchange Rate RegimesForeign Exchange Rate Risk—Measurement and ManagementCapital Budgeting Analysis in a Global Environment