INTERNATIONAL FINANCIAL MANAGEMENT EUN / RESNICK Second Edition 1 Chapter One Globalization & the  Multinational Firm <ul>...
<ul><li>What’s Special about “International” Finance? </li></ul><ul><li>Goals for International Financial Management </li>...
What’s Special about  “International” Finance? <ul><li>Foreign Exchange Risk </li></ul><ul><li>Political Risk </li></ul><u...
What’s Special about  “International” Finance? <ul><li>Foreign Exchange Risk </li></ul><ul><ul><li>The risk that foreign c...
<ul><li>Market Imperfections </li></ul><ul><ul><li>Legal restrictions on movement of goods, people, and money </li></ul></...
<ul><li>Expanded Opportunity Set </li></ul><ul><ul><li>It doesn’t make sense to play in only one corner of the sandbox. </...
<ul><li>The focus of the text is to equip the reader with the “intellectual toolbox” of an effective global manager—but wh...
Maximize Shareholder Wealth <ul><li>Long accepted as a goal in the Anglo-Saxon countries, but complications arise. </li></...
Other Goals <ul><li>In other countries shareholders are viewed as merely one among many “stakeholders” of the firm includi...
Other Goals <ul><li>No matter what the other goals, they cannot be achieved in the long term if the maximization of shareh...
Globalization of the World Economy: Recent Trends <ul><li>Emergence of Globalized Financial Markets </li></ul><ul><li>Trad...
<ul><li>Deregulation of Financial Markets  </li></ul><ul><li>coupled with </li></ul><ul><li>Advances in Technology  </li><...
Economic Integration <ul><li>Over the past 50 years, international trade increased about twice as fast as world GDP. </li>...
Liberalization of  Protectionist Legislation <ul><li>The General Agreement on Tariffs and Trade (GATT) a multilateral agre...
Privatization <ul><li>The selling off state-run enterprises to investors is also known as “Denationalization”. </li></ul><...
Multinational Corporations  <ul><li>A firm that has incorporated on one country and has production and sales operations in...
Top 10 MNCs Germany Daimler-Benz AG 10 Switzerland Nestlé SA 9 Germany Volkswagen Group 8 United States IBM 7 Japan Toyota...
The Organization of the Text Macroeconomic Environment The Financial Environment Management of the Multinational Firm Part...
End Chapter One
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Chap01

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Chap01

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

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