This document provides an overview of multinational financial management. It discusses several key topics:
1) Theories for why multinational corporations (MNCs) engage in international business, including comparative advantage, imperfect markets, and product cycle theories.
2) Methods MNCs use to conduct international business, such as international trade, licensing, franchising, joint ventures, acquisitions, and establishing foreign subsidiaries.
3) Challenges of managing an MNC, including agency problems that arise from conflicts between managers' and shareholders' goals, and how management structure (centralized vs decentralized) affects agency costs.
4) Models for valuing an MNC, which
- Eugene Fama introduced the efficient market hypothesis in the 1960s, which states that intense competition in capital markets leads to fair pricing of securities.
- Fama suggested three forms of market efficiency - weak, semi-strong, and strong. Weak-form says prices reflect all past price and volume data. Semi-strong says prices rapidly reflect all public information. Strong-form says prices reflect all public and private information.
- Empirical evidence generally supports weak-form but is mixed for semi-strong. Strong-form is not supported. Overall, while anomalies exist, the efficient market hypothesis remains the best description of how stock markets work.
Fundamental analysis involves analyzing macroeconomic conditions, industries, and individual companies. At the macroeconomic level, factors like GDP growth, inflation, interest rates, and fiscal/monetary policies are examined. Industry analysis evaluates the attractiveness of industries based on their growth stage, competitive environment, and sensitivity to economic cycles. Finally, company analysis assesses the financial statements, management quality, and competitive positioning of specific firms. Together, this three-tiered fundamental analysis helps investors evaluate investment opportunities.
Cash management- Need, Motives, Models of Cash Management, Boumol Model, Mill...Dr. Toran Lal Verma
Cash management involves determining the optimal level of cash a business should hold. Several factors influence cash levels, including the nature of the business, credit terms, and economic conditions. Two common models for determining optimal cash levels are the Boumol and Miller-Orr models, which aim to minimize holding and transaction costs. Effective cash forecasting and collection techniques, like cash budgets and lockbox systems, also help businesses manage cash flows and working capital requirements.
This chapter introduces students to the international monetary system and how it has evolved over time. It discusses key historical exchange rate regimes like bimetallism, the classical gold standard, and Bretton Woods system. It also examines recent currency crises in Mexico, Asia, and Argentina. Fixed regimes aim for stability but lack flexibility, while flexible rates create uncertainty for trade.
here we are explaining exchange rate movements, how the equilibrium exchange rate is determined, what kind of factor that affect the equilibrium exchange rate
here we are trying to explain how firms can benefit from forecasting exchange rate, to describe common technique that used to forecast, how to evaluate forecasting performance
The document discusses country risk analysis. It defines country risk as risks arising from changes in a country's business environment that may negatively impact profits or asset values. It identifies several political, economic, financial, and subjective factors that contribute to country risk, such as currency controls, civil unrest, economic growth rates, corruption, and consumer attitudes. The document also discusses methods for assessing country risk like checklists, the Delphi technique, and quantitative analysis. It provides examples of how country risk ratings can inform investment decisions and be incorporated into capital budgeting.
1. Common stock represents ownership in a corporation and a claim on its assets and earnings. There are different types including common, preferred, and classes A and B.
2. Owners of common stock are also known as shareholders or equity owners. They may receive dividends as determined by the board of directors and can benefit from capital gains.
3. Fundamental analysis and technical analysis are two main approaches used to evaluate common stocks and make investment decisions.
- Eugene Fama introduced the efficient market hypothesis in the 1960s, which states that intense competition in capital markets leads to fair pricing of securities.
- Fama suggested three forms of market efficiency - weak, semi-strong, and strong. Weak-form says prices reflect all past price and volume data. Semi-strong says prices rapidly reflect all public information. Strong-form says prices reflect all public and private information.
- Empirical evidence generally supports weak-form but is mixed for semi-strong. Strong-form is not supported. Overall, while anomalies exist, the efficient market hypothesis remains the best description of how stock markets work.
Fundamental analysis involves analyzing macroeconomic conditions, industries, and individual companies. At the macroeconomic level, factors like GDP growth, inflation, interest rates, and fiscal/monetary policies are examined. Industry analysis evaluates the attractiveness of industries based on their growth stage, competitive environment, and sensitivity to economic cycles. Finally, company analysis assesses the financial statements, management quality, and competitive positioning of specific firms. Together, this three-tiered fundamental analysis helps investors evaluate investment opportunities.
Cash management- Need, Motives, Models of Cash Management, Boumol Model, Mill...Dr. Toran Lal Verma
Cash management involves determining the optimal level of cash a business should hold. Several factors influence cash levels, including the nature of the business, credit terms, and economic conditions. Two common models for determining optimal cash levels are the Boumol and Miller-Orr models, which aim to minimize holding and transaction costs. Effective cash forecasting and collection techniques, like cash budgets and lockbox systems, also help businesses manage cash flows and working capital requirements.
This chapter introduces students to the international monetary system and how it has evolved over time. It discusses key historical exchange rate regimes like bimetallism, the classical gold standard, and Bretton Woods system. It also examines recent currency crises in Mexico, Asia, and Argentina. Fixed regimes aim for stability but lack flexibility, while flexible rates create uncertainty for trade.
here we are explaining exchange rate movements, how the equilibrium exchange rate is determined, what kind of factor that affect the equilibrium exchange rate
here we are trying to explain how firms can benefit from forecasting exchange rate, to describe common technique that used to forecast, how to evaluate forecasting performance
The document discusses country risk analysis. It defines country risk as risks arising from changes in a country's business environment that may negatively impact profits or asset values. It identifies several political, economic, financial, and subjective factors that contribute to country risk, such as currency controls, civil unrest, economic growth rates, corruption, and consumer attitudes. The document also discusses methods for assessing country risk like checklists, the Delphi technique, and quantitative analysis. It provides examples of how country risk ratings can inform investment decisions and be incorporated into capital budgeting.
1. Common stock represents ownership in a corporation and a claim on its assets and earnings. There are different types including common, preferred, and classes A and B.
2. Owners of common stock are also known as shareholders or equity owners. They may receive dividends as determined by the board of directors and can benefit from capital gains.
3. Fundamental analysis and technical analysis are two main approaches used to evaluate common stocks and make investment decisions.
The document discusses currency derivatives, including forward contracts, futures contracts, and options. It provides details on:
- How forward contracts allow corporations to lock in future exchange rates for currency exchanges.
- How futures contracts standardize currency amounts and settlement dates for exchange on an futures exchange.
- The types of currency options (calls and puts) and how their values are determined by the relationship between the strike price and spot rate.
This document discusses currency exchange risk and how international marketers manage it. It provides an overview of currency risk and exchange rates. Currency risk occurs when companies have assets or operations across borders or loans in foreign currencies. Exchange rates determine the value of one currency relative to another. The document then discusses sources of exchange rate risk, how the foreign exchange market works, factors that influence exchange rates, and strategies international marketers can use to manage currency risk such as hedging and adjusting prices.
This document discusses factors that affect foreign exchange rates, including relative inflation rates between countries, interest rates, international trade balances, foreign currency supply, and net international reserves of a country. Floating and managed exchange rate regimes are also covered. The author predicts that the Egyptian pound will face challenges maintaining its value against the US dollar in 2009 due to declining factors like international reserves and an increasing trade deficit, and may depreciate to reach 6 Egyptian pounds per US dollar by the end of the year.
This document provides an overview of international financial markets, including:
- The foreign exchange, Eurocurrency, Eurocredit, Eurobond, and international stock markets. It describes the background and corporate use of each.
- The motives for companies and investors to use international financial markets, such as taking advantage of interest rate differences or currency fluctuations between countries.
- Key concepts related to each market, including how foreign exchange rates are established, the roles of major banks, types of bonds and loans offered, and considerations for companies issuing stock internationally.
- A chart illustrating the typical foreign cash flows of a multinational corporation and how the various international financial markets facilitate trade, investment, and financing activities.
This document provides an overview of security analysis, which involves analyzing tradeable financial instruments like stocks, bonds, and derivatives. It discusses the main approaches to security analysis: fundamental analysis and technical analysis. Fundamental analysis examines underlying business and economic factors, while technical analysis focuses on price trends and momentum. The document then goes into more detail about fundamental analysis and the three steps involved: economic analysis, industry analysis, and company analysis. It provides examples of key variables to consider in each type of analysis.
This document provides an overview of security analysis and capital markets. It discusses key concepts like stock exchanges, new issue markets, equity, debentures, and the roles of SEBI and different types of investors. The document outlines the aims of security analysis as providing regular income, capital appreciation, safety of capital, liquidity, and a hedge against inflation. It also mentions the main approaches to security analysis are fundamental analysis, technical analysis, and the fair game model.
Introduction to Exchange Rate Mechanism: Spot- Forward Rate, Exchange Arithmetic. -- Deriving the Actual Exchange Rate: Forwards, Swaps, Futures and Options. Guarantees in Trade: Performance, Bid Bond etc.
Receivables Management-Definition,Objectives Of Receivable Management,Factors influencing the size of receivables,Dimensions of Receivables Management,Collection Methods Used
Working capital management refers to managing current assets and current liabilities to balance liquidity and profitability. It involves inventory management, cash management, and receivables management. Inventory management techniques include determining optimum inventory levels and economic order quantities. Cash management strategies include cash planning, managing cash flows, determining the optimum cash balance, and investing idle cash. Receivables management includes establishing credit policies, executing collection policies, and using tools like credit ratings and aging schedules.
This document provides an overview of short-term financing. It begins by defining short-term financing as financing obtained for a period of one year or less, usually to finance current assets like inventory. The document then lists and briefly describes the key topics that will be covered regarding short-term financing, including the meaning and nature, characteristics, sources, advantages, disadvantages, purposes, and types. Finally, it provides more detailed descriptions of specific sources of short-term financing like trade credit, customer advances, commercial banks, and the advantages of short-term financing including easier availability and flexibility.
Foreign Exchange market & international Parity Relationspalakurthiharika
The document discusses several key concepts related to foreign exchange markets and exchange rate determination. It describes the foreign exchange market as where individuals, firms, banks, and brokers buy and sell foreign currencies. Exchange rates are determined by the demand and supply of currencies based on factors like interest rates, inflation rates, purchasing power parity, and investor psychology. Theories like interest rate parity and purchasing power parity aim to explain exchange rate movements, though other short-term factors also influence rates.
Fundamental analysis is a method of evaluating securities by examining related economic, financial, and political factors to measure a security's intrinsic value. Key factors analyzed include the company's earnings growth rate, risk exposure, and the economic environment and industry it operates in. Fundamental analysis involves analyzing the macroeconomic environment, industry characteristics, and individual company metrics like financial performance, management, and competitive position. The goal is to understand these factors' impact on investment returns and stock prices.
The document discusses key components of the international financial system including money, banking institutions, financial instruments, financial markets, and central banks. It defines the international financial system as comprising all global financial institutions, borrowers, lenders, and regulators that facilitate the transfer of funds internationally. Key differences between the international monetary system and international financial system are also outlined.
Investment management chapter 3 the basic of investment decisionsHeng Leangpheng
This document discusses investment management and the investment decision process. It covers why people invest, the risks and returns of different asset classes, and the steps involved in making investment decisions. The key points are:
1) People invest to increase future consumption and earn returns on their savings. Different assets have different risk-return tradeoffs, with more risk generally requiring more potential return.
2) Making investment decisions involves analyzing individual securities, building a portfolio, and managing it over time either passively or actively.
3) Common errors include misunderstanding risk and return, not having a clear investment policy, and making emotional or irrational decisions rather than thoughtful assessments.
This chapter discusses factors that cause interest rates to change over time. It examines the forces that move interest rates using a supply and demand framework for bonds. The demand for bonds depends on wealth, expected returns, risk, and liquidity. The supply depends on expected profitability, expected inflation, and government activities. Changes in these factors can shift the supply and demand curves for bonds and change the equilibrium interest rate. The chapter analyzes examples like the Fisher effect and business cycle expansions to demonstrate how interest rates are determined.
Relationships between Inflation, Interest Rates, and Exchange Rates ICAB
The document discusses purchasing power parity (PPP) theory and the international Fisher effect (IFE) theory. PPP theory states that inflation rate differentials between countries will lead to changes in exchange rates as the high inflation country's currency depreciates. IFE theory similarly argues that interest rate differentials, which often correlate with expected inflation differentials, will cause the high interest rate currency to depreciate. Both theories predict that the currency experiencing higher inflation or interest rates will lose value against other currencies. The document also provides derivations of the PPP and IFE formulas to calculate expected exchange rate changes based on inflation or interest rate differentials.
Interest rate risk management for banks under Basel II, presentation by Christine Brown, Department of Finance , The University of Melbourne, Shanghai, December 8-12, 2008
Corporate finance deals with how corporations raise and manage financial resources. It involves making investment, financing, and dividend decisions to maximize shareholder wealth while balancing risks and rewards. The discipline draws on economics, accounting, and mathematics to analyze financial statements and allocate capital. It also addresses agency problems that arise from conflicts of interest between shareholders and managers or creditors. Corporate finance has evolved with industrialization and technological changes, developing quantitative tools and theories to improve capital market efficiency and firm value.
The document provides an overview of multinational financial management. It discusses the goal of maximizing shareholder wealth for multinational corporations (MNCs) and the conflicts against this goal, such as agency problems between managers and shareholders. It also describes theories justifying international business, such as comparative advantage, and common methods for conducting international business, such as exporting, licensing, and foreign direct investment. Finally, it addresses how management structure and technology impact agency costs and the flows of cash for MNCs.
The document discusses currency derivatives, including forward contracts, futures contracts, and options. It provides details on:
- How forward contracts allow corporations to lock in future exchange rates for currency exchanges.
- How futures contracts standardize currency amounts and settlement dates for exchange on an futures exchange.
- The types of currency options (calls and puts) and how their values are determined by the relationship between the strike price and spot rate.
This document discusses currency exchange risk and how international marketers manage it. It provides an overview of currency risk and exchange rates. Currency risk occurs when companies have assets or operations across borders or loans in foreign currencies. Exchange rates determine the value of one currency relative to another. The document then discusses sources of exchange rate risk, how the foreign exchange market works, factors that influence exchange rates, and strategies international marketers can use to manage currency risk such as hedging and adjusting prices.
This document discusses factors that affect foreign exchange rates, including relative inflation rates between countries, interest rates, international trade balances, foreign currency supply, and net international reserves of a country. Floating and managed exchange rate regimes are also covered. The author predicts that the Egyptian pound will face challenges maintaining its value against the US dollar in 2009 due to declining factors like international reserves and an increasing trade deficit, and may depreciate to reach 6 Egyptian pounds per US dollar by the end of the year.
This document provides an overview of international financial markets, including:
- The foreign exchange, Eurocurrency, Eurocredit, Eurobond, and international stock markets. It describes the background and corporate use of each.
- The motives for companies and investors to use international financial markets, such as taking advantage of interest rate differences or currency fluctuations between countries.
- Key concepts related to each market, including how foreign exchange rates are established, the roles of major banks, types of bonds and loans offered, and considerations for companies issuing stock internationally.
- A chart illustrating the typical foreign cash flows of a multinational corporation and how the various international financial markets facilitate trade, investment, and financing activities.
This document provides an overview of security analysis, which involves analyzing tradeable financial instruments like stocks, bonds, and derivatives. It discusses the main approaches to security analysis: fundamental analysis and technical analysis. Fundamental analysis examines underlying business and economic factors, while technical analysis focuses on price trends and momentum. The document then goes into more detail about fundamental analysis and the three steps involved: economic analysis, industry analysis, and company analysis. It provides examples of key variables to consider in each type of analysis.
This document provides an overview of security analysis and capital markets. It discusses key concepts like stock exchanges, new issue markets, equity, debentures, and the roles of SEBI and different types of investors. The document outlines the aims of security analysis as providing regular income, capital appreciation, safety of capital, liquidity, and a hedge against inflation. It also mentions the main approaches to security analysis are fundamental analysis, technical analysis, and the fair game model.
Introduction to Exchange Rate Mechanism: Spot- Forward Rate, Exchange Arithmetic. -- Deriving the Actual Exchange Rate: Forwards, Swaps, Futures and Options. Guarantees in Trade: Performance, Bid Bond etc.
Receivables Management-Definition,Objectives Of Receivable Management,Factors influencing the size of receivables,Dimensions of Receivables Management,Collection Methods Used
Working capital management refers to managing current assets and current liabilities to balance liquidity and profitability. It involves inventory management, cash management, and receivables management. Inventory management techniques include determining optimum inventory levels and economic order quantities. Cash management strategies include cash planning, managing cash flows, determining the optimum cash balance, and investing idle cash. Receivables management includes establishing credit policies, executing collection policies, and using tools like credit ratings and aging schedules.
This document provides an overview of short-term financing. It begins by defining short-term financing as financing obtained for a period of one year or less, usually to finance current assets like inventory. The document then lists and briefly describes the key topics that will be covered regarding short-term financing, including the meaning and nature, characteristics, sources, advantages, disadvantages, purposes, and types. Finally, it provides more detailed descriptions of specific sources of short-term financing like trade credit, customer advances, commercial banks, and the advantages of short-term financing including easier availability and flexibility.
Foreign Exchange market & international Parity Relationspalakurthiharika
The document discusses several key concepts related to foreign exchange markets and exchange rate determination. It describes the foreign exchange market as where individuals, firms, banks, and brokers buy and sell foreign currencies. Exchange rates are determined by the demand and supply of currencies based on factors like interest rates, inflation rates, purchasing power parity, and investor psychology. Theories like interest rate parity and purchasing power parity aim to explain exchange rate movements, though other short-term factors also influence rates.
Fundamental analysis is a method of evaluating securities by examining related economic, financial, and political factors to measure a security's intrinsic value. Key factors analyzed include the company's earnings growth rate, risk exposure, and the economic environment and industry it operates in. Fundamental analysis involves analyzing the macroeconomic environment, industry characteristics, and individual company metrics like financial performance, management, and competitive position. The goal is to understand these factors' impact on investment returns and stock prices.
The document discusses key components of the international financial system including money, banking institutions, financial instruments, financial markets, and central banks. It defines the international financial system as comprising all global financial institutions, borrowers, lenders, and regulators that facilitate the transfer of funds internationally. Key differences between the international monetary system and international financial system are also outlined.
Investment management chapter 3 the basic of investment decisionsHeng Leangpheng
This document discusses investment management and the investment decision process. It covers why people invest, the risks and returns of different asset classes, and the steps involved in making investment decisions. The key points are:
1) People invest to increase future consumption and earn returns on their savings. Different assets have different risk-return tradeoffs, with more risk generally requiring more potential return.
2) Making investment decisions involves analyzing individual securities, building a portfolio, and managing it over time either passively or actively.
3) Common errors include misunderstanding risk and return, not having a clear investment policy, and making emotional or irrational decisions rather than thoughtful assessments.
This chapter discusses factors that cause interest rates to change over time. It examines the forces that move interest rates using a supply and demand framework for bonds. The demand for bonds depends on wealth, expected returns, risk, and liquidity. The supply depends on expected profitability, expected inflation, and government activities. Changes in these factors can shift the supply and demand curves for bonds and change the equilibrium interest rate. The chapter analyzes examples like the Fisher effect and business cycle expansions to demonstrate how interest rates are determined.
Relationships between Inflation, Interest Rates, and Exchange Rates ICAB
The document discusses purchasing power parity (PPP) theory and the international Fisher effect (IFE) theory. PPP theory states that inflation rate differentials between countries will lead to changes in exchange rates as the high inflation country's currency depreciates. IFE theory similarly argues that interest rate differentials, which often correlate with expected inflation differentials, will cause the high interest rate currency to depreciate. Both theories predict that the currency experiencing higher inflation or interest rates will lose value against other currencies. The document also provides derivations of the PPP and IFE formulas to calculate expected exchange rate changes based on inflation or interest rate differentials.
Interest rate risk management for banks under Basel II, presentation by Christine Brown, Department of Finance , The University of Melbourne, Shanghai, December 8-12, 2008
Corporate finance deals with how corporations raise and manage financial resources. It involves making investment, financing, and dividend decisions to maximize shareholder wealth while balancing risks and rewards. The discipline draws on economics, accounting, and mathematics to analyze financial statements and allocate capital. It also addresses agency problems that arise from conflicts of interest between shareholders and managers or creditors. Corporate finance has evolved with industrialization and technological changes, developing quantitative tools and theories to improve capital market efficiency and firm value.
The document provides an overview of multinational financial management. It discusses the goal of maximizing shareholder wealth for multinational corporations (MNCs) and the conflicts against this goal, such as agency problems between managers and shareholders. It also describes theories justifying international business, such as comparative advantage, and common methods for conducting international business, such as exporting, licensing, and foreign direct investment. Finally, it addresses how management structure and technology impact agency costs and the flows of cash for MNCs.
The document provides an overview of strategic management concepts from several reference books. It discusses key topics in strategic management including environmental scanning, strategy formulation, objectives, strategies, implementation, and evaluation. Examples are provided of mission statements from companies like ONGC and Nirma. The importance of strategic flexibility and organizational learning are covered. The strategic management model involving environmental scanning, strategy formulation, implementation, and evaluation is depicted.
Fundamentals of Corporate Finance, 2e ROBERT PARRINODustiBuckner14
Fundamentals of Corporate
Finance, 2/e
ROBERT PARRINO, PH.D.
DAVID S. KIDWELL, PH.D.
THOMAS W. BATES, PH.D.
Chapter 1: The Financial Manager and
the Firm
Learning Objectives
1. IDENTIFY THE KEY FINANCIAL DECISIONS
FACING THE FINANCIAL MANAGER OF ANY
BUSINESS FIRM.
2. IDENTIFY THE BASIC FORMS OF BUSINESS
ORGANIZATION IN THE UNITED STATES AND
THEIR RESPECTIVE STRENGTHS AND
WEAKNESSES.
Learning Objectives
3. DESCRIBE THE TYPICAL ORGANIZATION OF
THE FINANCIAL FUNCTION IN A LARGE
CORPORATION.
4. EXPLAIN WHY MAXIMIZING THE CURRENT
VALUE OF THE FIRM’S STOCK IS THE
APPROPRIATE GOAL FOR MANAGEMENT.
5. DISCUSS HOW AGENCY CONFLICTS AFFECT
THE GOAL OF MAXIMIZING SHAREHOLDER
VALUE.
Learning Objectives
6. EXPLAIN WHY ETHICS IS AN APPROPRIATE
TOPIC IN THE STUDY OF CORPORATE
FINANCE.
The Role of the Financial Manager
o THREE KEY FINANCIAL DECISIONS
• Capital Budgeting: decide which long-term
assets to acquire
• Financing: decide how to pay for short-term and
long-term assets
• Working Capital: decide how to manage short-
term resources and obligations
The Role of the Financial Manager
o THREE KEY FINANCIAL DECISIONS
• Capital Budgeting
Choose the long-term assets that will yield the greatest
net benefits for the firm.
The Role of the Financial Manager
o THREE KEY FINANCIAL DECISIONS
• Financing
Finance assets with the optimal combination of short-
term debt, long-term debt, and equity.
The Role of the Financial Manager
o THREE KEY FINANCIAL DECISIONS
• Working Capital Management
Adjust current assets and current liabilities as needed
to promote growth in cash flow.
Cash Flows Between the Firm and Its
Stakeholders and Owners
How the Financial Manager’s Decisions
Affect the Balance Sheet
The Role of the Financial Manager
o THREE KEY FINANCIAL DECISIONS
• Poor decisions about capital budgeting,
financing, or working capital may lead to
bankruptcy or business failure
Basic Forms of Business Organization
o BUSINESS STRUCTURE
• Sole Proprietorship
• Partnership
• Corporation
Basic Forms of Business Organization
o SOLE PROPRIETORSHIP
• Owned by a single person who is financially
responsible for the actions and obligations of
the business
Basic Forms of Business Organization
o SOLE PROPRIETORSHIP
• Advantages
easiest to create
easiest to control
easiest to dissolve
right to all profit
Basic Forms of Business Organization
o SOLE PROPRIETORSHIP
• Disadvantages
owner’s personal assets at risk
owner’s unlimited liability for firm obligations
equity only from owner or business profit
business income taxed as personal income
difficult to transfer ownership
Basic Forms of Business Organization
o PARTNERSHIP
• A business owned by more than one person; one
or more of them financially responsible for the
actions and obligations of the business
Basic Forms of Business Org ...
FINANCIAL MANAGEMENT, ROLE OF FINANCIAL MANAGEMENT, IMPORTANCE OF FINANCIAL MANAGEMENT, FEATURES OF FINANCIAL MANAGEMENT, SCOPE OF FINANCIAL MANAGEMENT, FUTURE OF FINANCIAL MANAGEMENT, etc.
The Marketing Plan, The Organizational Plan & The Financial Plan from Entrepr...Muhammad Putra
The document discusses key aspects of developing a marketing plan for a new venture. It begins by differentiating between a business plan and a marketing plan, noting that a marketing plan focuses specifically on marketing activities over one year while a business plan covers broader organizational decisions. It then covers conducting an industry and competitor analysis to inform marketing strategy. The outline provided includes sections on situation analysis, marketing objectives and goals, marketing strategy and action programs, budgets, and controls. The document emphasizes that the marketing plan should provide a strategy for accomplishing the company's mission and goals.
This chapter introduces managerial finance and its role in business. It defines finance and describes the legal forms of business organization and the goal of maximizing shareholder wealth. It discusses career opportunities in finance and identifies the primary activities of financial managers. It also describes the principal-agent relationship between owners and managers and how corporate governance addresses agency problems.
Financial management involves planning, directing, monitoring, and controlling the monetary resources of an organization. The key objectives are to create wealth, generate cash flows, and provide an adequate return on investment while considering risks. Financial managers obtain funds internally and externally, make investment and financing decisions, and connect the organization to financial markets. The overall goal is to maximize shareholder value over the long-term by setting objectives around liquidity, profitability, efficiency, growth, and return on capital. Ten core principles like risk-return tradeoffs and time value of money form the foundation of effective financial decision making.
This document provides an overview of managerial finance. It defines finance and describes the goals of the firm and maximizing shareholder wealth. It outlines various career opportunities in finance and legal forms of business organization. It discusses corporate governance and the principal-agent problem between owners and managers. It also describes the managerial finance function and its relationships to economics and accounting. The overall document serves as an introductory chapter on the role and scope of managerial finance.
Chapter 1 Introduction to Financial ManagementSafeer Raza
Chapter 1 of Financial Management by Van horn
Introduction to Financial management
Topics
Introduction
What is Financial Management
Investment Decision
Financing decision
Asset management Decision
Goal of the firm
Value creation or profit maximization
wealth maximization
Agency problems
Corporate Social Responsibility
Corporate governance
Organization of the financial management function
This document provides an overview of financial management. It discusses key topics such as the role of financial management in businesses, the scope and elements of financial management including investment, financial, and dividend decisions. It also covers related topics such as finance vs financing, careers in finance, financial institutions and capital markets, and financial management issues in the new millennium.
The document discusses various concepts related to corporate governance and banking in India. It begins by defining corporate governance in banks and explaining that banks are regulated by the Reserve Bank of India. It then discusses the importance of governance in the banking sector and lists the five principles of corporate governance. The document also covers topics like consolidation in banks through mergers and acquisitions, universal banking, green banking, and shadow banking. It provides definitions and explanations for each concept and discusses their relevance and implications for the Indian banking system.
This document provides an overview of key concepts from Chapter 1 of the textbook "Principles of Corporate Finance". It introduces finance and its major areas, forms of business organization, and the roles of financial managers. The chapter discusses the goal of wealth maximization for firms and how economic value added and stakeholder focus relate to this goal. It also explains agency issues that can arise between managers and owners.
- Markets with asymmetric information involve situations where buyers and sellers have unequal access to information, such as with used cars or insurance.
- In the market for used cars, sellers know more about quality than buyers. With more low-quality cars for sale, high-quality cars are driven from the market, creating a "lemons problem."
- Similar problems occur in insurance and employment markets due to information asymmetries. Principals and agents also have misaligned incentives in these contexts due to unequal access to information.
ORGANIZATIONAL STRUCTURE AND CONTROL SYSTEMryan gementiza
This document discusses organizational structure and control systems. It begins by defining organizational structure and the reasons organizations are formed. It then describes the design process of organizational structures and basic types of structures like functional, divisional, team-based, and network structures. The document also discusses centralized vs decentralized structures and their tradeoffs. It covers functional and divisional structures in more detail. The last sections discuss control systems, incentives, and differences between domestic and international planning, organizing, and control.
The document provides an overview of managerial finance. It defines finance and describes the managerial finance function. It outlines various career opportunities in finance, including financial services and managerial finance roles. It also discusses the goal of maximizing shareholder wealth for firms and examines how managerial finance relates to economics and accounting. Key activities of financial managers are financial planning, analysis, investment decisions, and financing decisions.
Corporate finance deals with how corporations raise funding, structure their capital, increase shareholder value, and allocate financial resources. The primary goals of corporate finance are to maximize shareholder value and effectively invest capital budgeting funds while maintaining adequate working capital. A corporate financial manager's roles include making decisions around raising capital, investing funds, and distributing dividends to optimize allocation of scarce resources and increase shareholder value.
This document provides an overview of financial management. It discusses the different forms of business organizations including sole proprietorships, partnerships, private limited companies, and public limited companies. It also outlines some of the key financial decisions firms make, including capital budgeting, capital structure, and working capital management. Additionally, it discusses goals of financial management, principles of finance like time value of money and risk-return tradeoff, and emerging topics such as agency theory, business ethics, and the relationship between finance, economics, and accounting.
This document outlines an introductory session on applied business finance. It discusses key topics such as the goals of financial management, the role of financial managers, and agency problems. Financial management aims to maximize shareholder value and profit through strategic planning and allocation of funds. Financial managers are responsible for analysis, investment decisions, financing, and risk management. They aim to balance risk and return to maximize long-term shareholder wealth rather than just short-term profit. Agency problems can arise between shareholders and managers or creditors and shareholders if their interests are not aligned. Financial decisions always involve considering the trade-off between risk and expected return.
Chap. 3 corp. gov. in global operations.ppt.Magiel Amora
This chapter discusses how global operations influence corporate governance structures and practices. As multinational corporations expand globally, they face increasing complexity in managing their geographically dispersed activities. This requires enhanced information processing and accountability mechanisms. The chapter also examines how factors like foreign responsiveness, global competition, and international experience shape corporate governance needs for multinationals operating across borders.
Similar to Ch 01 Multinational Financial Management - An Over view (MTM).ppt (20)
This document provides an introduction to business ethics. It defines ethics as principles of conduct governing individuals or groups, and the study of morality. It discusses the sources and characteristics of moral standards, distinguishing them from non-moral standards like laws. While morality and religion are related, morality is not determined by religion alone. Morality and law also differ, as something can be legal but immoral, or illegal but morally justified. Overall, the document lays out foundational concepts around ethics, morality, and their relationship to law and religion.
The document provides guidelines for designing effective PowerPoint presentations, including making text and visuals big and simple to see from a distance, using a limited number of fonts and colors, keeping content focused and progressive, and maintaining consistency in design elements. Key recommendations are to use large text, simple bullet points instead of long paragraphs, high contrast colors, and focal points to guide attention. Presentations should also progress from general to specific information and use consistent formatting to avoid distraction.
The document provides details on recording business transactions for Pioneer Advertising Agency using journal entries. It lists 11 transactions in chronological order from January 10 to October 31, including C.R. Byrd investing cash to start the business, purchasing office equipment, receiving cash from a client in advance, paying rent and insurance, purchasing supplies on credit, hiring employees, Byrd withdrawing cash, paying employee salaries, and receiving cash from a client for services. For each transaction, the general journal is updated with debits and credits to the appropriate accounts.
1. Accounting involves identifying, recording, and communicating the economic events of an organization to interested users. It has three main activities - identifying transactions, recording transactions, and preparing financial statements.
2. There are two main types of accounting users - internal users like management and external users like investors and creditors. Internal users use accounting information to make decisions while external users use it to assess performance and make lending/investment decisions.
3. Accounting principles like GAAP provide standards for financial reporting to ensure consistency and comparability. GAAP includes standards set by bodies like FASB and IASB and principles like historical cost and fair value for measuring assets and liabilities.
Chapter 01 Introduction to Financial Accounting Theory and Accounting Researc...shomudrokotha
This document provides an overview of accounting theory and research. It defines what a theory is, noting that a theory is based on logical reasoning, evidence, and provides a framework for understanding an area of inquiry. The document discusses the development of accounting theories from inductive theories in the 1920s-1960s based on common practices, to normative theories in the 1960s-1970s that sought to prescribe best practices, to predictive theories starting in the 1970s. It emphasizes that studying accounting theory is important for understanding accounting practices and their implications. However, there is no single universally accepted accounting theory due to differing perspectives.
Ch 01 Multinational Financial Management - An Over view.pptshomudrokotha
This chapter introduces international financial management and multinational corporations (MNCs). It discusses that the goal of an MNC is typically to maximize shareholder wealth. It also describes some common constraints that can interfere with this goal, such as environmental, regulatory, and ethical constraints. Additionally, it explains several theories for why firms engage in international business, such as comparative advantage, imperfect markets, and product cycle theory. Finally, it provides an overview of various methods that MNCs can use to conduct international business operations, including trade, licensing, joint ventures, acquisitions, and foreign subsidiaries.
Ch 2 Accounting Theory and Research.pptxshomudrokotha
This document provides an overview of accounting theory and research approaches. It discusses the scientific method and how accounting research uses both deductive and inductive reasoning. Positive accounting research focuses on understanding why alternative accounting methods are chosen rather than making prescriptions. The document also outlines several major directions in accounting research, including the decision-model approach, capital market research, behavioral research, agency theory, information economics, and critical accounting.
Chapter 01 Types of Accounting Theories.pptxshomudrokotha
The document summarizes the development of different types of accounting theories from the 1920s to the 1970s. It discusses inductive theories from the 1920s to 1960s that reflected existing accounting practices. From the 1960s to 1970s, prescriptive or normative theories sought to prescribe what accountants should do rather than just describe practices. Then in the mid to late 1970s, positive or predictive theories aimed to explain and predict accounting practices based on hypotheses testing against real-world observations.
Psychological Issues in Investment (2020-12-07).pptxshomudrokotha
This document discusses psychological issues in investment and how to become a rational investor. It covers several topics:
1. Where humans evolved from and how our hunter-gatherer past shapes our emotional responses today, such as stronger fear of loss than anticipation of gain.
2. How the brain responds to money, releasing dopamine in anticipation of potential gains similarly to addictive drugs. Losing money activates the same brain regions as experiencing mortal danger.
3. Common psychological biases that affect financial decisions, including overconfidence, loss aversion, considering past outcomes too heavily, following perceived experts, scarcity mentality, mental accounting, and herding behaviors.
4. Evidence that greater wealth does not necessarily correlate with
Corporate reporting in the usa and canada (2018)shomudrokotha
The document discusses corporate reporting of environmental, social, and governance (ESG) issues in the United States and Canada. It finds that the reporting landscape is complex, with many different regulations, frameworks, and tools influencing the process. In the US and Canada combined, there are 249 reporting provisions, but only 27% of provisions in the US are mandatory. The document examines key aspects of reporting in each country, such as the types of provisions, focus areas, and alignment with sustainable development goals. It concludes that while reporting is advancing, there is still room for increased harmonization and consistency in ESG reporting practices.
How are Lilac French Bulldogs Beauty Charming the World and Capturing Hearts....Lacey Max
“After being the most listed dog breed in the United States for 31
years in a row, the Labrador Retriever has dropped to second place
in the American Kennel Club's annual survey of the country's most
popular canines. The French Bulldog is the new top dog in the
United States as of 2022. The stylish puppy has ascended the
rankings in rapid time despite having health concerns and limited
color choices.”
Call8328958814 satta matka Kalyan result satta guessing➑➌➋➑➒➎➑➑➊➍
Satta Matka Kalyan Main Mumbai Fastest Results
Satta Matka ❋ Sattamatka ❋ New Mumbai Ratan Satta Matka ❋ Fast Matka ❋ Milan Market ❋ Kalyan Matka Results ❋ Satta Game ❋ Matka Game ❋ Satta Matka ❋ Kalyan Satta Matka ❋ Mumbai Main ❋ Online Matka Results ❋ Satta Matka Tips ❋ Milan Chart ❋ Satta Matka Boss❋ New Star Day ❋ Satta King ❋ Live Satta Matka Results ❋ Satta Matka Company ❋ Indian Matka ❋ Satta Matka 143❋ Kalyan Night Matka..
NIMA2024 | De toegevoegde waarde van DEI en ESG in campagnes | Nathalie Lam |...BBPMedia1
Nathalie zal delen hoe DEI en ESG een fundamentele rol kunnen spelen in je merkstrategie en je de juiste aansluiting kan creëren met je doelgroep. Door middel van voorbeelden en simpele handvatten toont ze hoe dit in jouw organisatie toegepast kan worden.
Ellen Burstyn: From Detroit Dreamer to Hollywood Legend | CIO Women MagazineCIOWomenMagazine
In this article, we will dive into the extraordinary life of Ellen Burstyn, where the curtains rise on a story that's far more attractive than any script.
Starting a business is like embarking on an unpredictable adventure. It’s a journey filled with highs and lows, victories and defeats. But what if I told you that those setbacks and failures could be the very stepping stones that lead you to fortune? Let’s explore how resilience, adaptability, and strategic thinking can transform adversity into opportunity.
❼❷⓿❺❻❷❽❷❼❽ Dpboss Matka Result Satta Matka Guessing Satta Fix jodi Kalyan Final ank Satta Matka Dpbos Final ank Satta Matta Matka 143 Kalyan Matka Guessing Final Matka Final ank Today Matka 420 Satta Batta Satta 143 Kalyan Chart Main Bazar Chart vip Matka Guessing Dpboss 143 Guessing Kalyan night
AI Transformation Playbook: Thinking AI-First for Your BusinessArijit Dutta
I dive into how businesses can stay competitive by integrating AI into their core processes. From identifying the right approach to building collaborative teams and recognizing common pitfalls, this guide has got you covered. AI transformation is a journey, and this playbook is here to help you navigate it successfully.
Discover the Beauty and Functionality of The Expert Remodeling Serviceobriengroupinc04
Unlock your kitchen's true potential with expert remodeling services from O'Brien Group Inc. Transform your space into a functional, modern, and luxurious haven with their experienced professionals. From layout reconfiguration to high-end upgrades, they deliver stunning results tailored to your style and needs. Visit obriengroupinc.com to elevate your kitchen's beauty and functionality today.
[To download this presentation, visit:
https://www.oeconsulting.com.sg/training-presentations]
This presentation is a curated compilation of PowerPoint diagrams and templates designed to illustrate 20 different digital transformation frameworks and models. These frameworks are based on recent industry trends and best practices, ensuring that the content remains relevant and up-to-date.
Key highlights include Microsoft's Digital Transformation Framework, which focuses on driving innovation and efficiency, and McKinsey's Ten Guiding Principles, which provide strategic insights for successful digital transformation. Additionally, Forrester's framework emphasizes enhancing customer experiences and modernizing IT infrastructure, while IDC's MaturityScape helps assess and develop organizational digital maturity. MIT's framework explores cutting-edge strategies for achieving digital success.
These materials are perfect for enhancing your business or classroom presentations, offering visual aids to supplement your insights. Please note that while comprehensive, these slides are intended as supplementary resources and may not be complete for standalone instructional purposes.
Frameworks/Models included:
Microsoft’s Digital Transformation Framework
McKinsey’s Ten Guiding Principles of Digital Transformation
Forrester’s Digital Transformation Framework
IDC’s Digital Transformation MaturityScape
MIT’s Digital Transformation Framework
Gartner’s Digital Transformation Framework
Accenture’s Digital Strategy & Enterprise Frameworks
Deloitte’s Digital Industrial Transformation Framework
Capgemini’s Digital Transformation Framework
PwC’s Digital Transformation Framework
Cisco’s Digital Transformation Framework
Cognizant’s Digital Transformation Framework
DXC Technology’s Digital Transformation Framework
The BCG Strategy Palette
McKinsey’s Digital Transformation Framework
Digital Transformation Compass
Four Levels of Digital Maturity
Design Thinking Framework
Business Model Canvas
Customer Journey Map
SATTA MATKA SATTA FAST RESULT KALYAN TOP MATKA RESULT KALYAN SATTA MATKA FAST RESULT MILAN RATAN RAJDHANI MAIN BAZAR MATKA FAST TIPS RESULT MATKA CHART JODI CHART PANEL CHART FREE FIX GAME SATTAMATKA ! MATKA MOBI SATTA 143 spboss.in TOP NO1 RESULT FULL RATE MATKA ONLINE GAME PLAY BY APP SPBOSS
During the budget session of 2024-25, the finance minister, Nirmala Sitharaman, introduced the “solar Rooftop scheme,” also known as “PM Surya Ghar Muft Bijli Yojana.” It is a subsidy offered to those who wish to put up solar panels in their homes using domestic power systems. Additionally, adopting photovoltaic technology at home allows you to lower your monthly electricity expenses. Today in this blog we will talk all about what is the PM Surya Ghar Muft Bijli Yojana. How does it work? Who is eligible for this yojana and all the other things related to this scheme?
Best Competitive Marble Pricing in Dubai - ☎ 9928909666Stone Art Hub
Stone Art Hub offers the best competitive Marble Pricing in Dubai, ensuring affordability without compromising quality. With a wide range of exquisite marble options to choose from, you can enhance your spaces with elegance and sophistication. For inquiries or orders, contact us at ☎ 9928909666. Experience luxury at unbeatable prices.
Best Competitive Marble Pricing in Dubai - ☎ 9928909666
Ch 01 Multinational Financial Management - An Over view (MTM).ppt
1. Dr. Md Tapan Mahmud
FBS, BUP
CHAPTER 01
MULTINATIONAL FINANCIAL MANAGEMENT:
AN OVERVIEW
2. CHAPTER LEARNING OBJECTIVES
• To identify the management goal and organizational structure of the MNC.
• To describe the key theories about why MNCs engage in international
business
• To explain the common methods used to conduct international business.
• To provide a model/conceptual framework for valuing the MNC
3. INTERNATIONAL FINANCIAL
MANAGEMENT
• MNCs engage in international businesses; initially they:
• Export products
• Import supplies
• When they sniff additional opportunities, they may go for:
• Licensing/Franchising
• Acquisition
• Establishing subsidiaries
• Their managers conduct international financial management:
• International investing and financing
• This is influenced by:
• Exchange rate movements, foreign interest rates, labor costs, inflation, demand/supply and other
economic factors
4. 1-1 MANAGING THE MNC
A. How Business Disciplines Are Used to Manage the MNC?
B. Agency Problems
C. Management Structure of an MNC
5. 1-1 MANAGING THE MNC
• Goal of an MNC is to maximize shareholders’ wealth/stock price
• Some publicly traded MNCs outside US may have additional goals:
• Satisfying the respective government, creditors or employees
• Managers of firms must serve shareholders’ interests if they hope to obtain
funding from the investors
• Financial managers throughout the firm (US & foreign countries) has a
common goal of maximizing the entire MNC’s value, rather than the value of a
particular subsidiary
6. • Various business disciplines are integrated to manage the MNC
• Management – develop strategies, organize resources
• Marketing – seeks to increase consumer awareness, note changes in consumer
preferences
• Accounting – record & report financial/non-financial information
• Finance – investment and financing decisions
• Common finance decision include:
• Whether to pursue new business in a particular country
• Whether to expand business in a particular country
• How to finance expansion in a particular country
1-1 MANAGING THE MNC
A. HOW BUSINESS DISCIPLINES ARE USED TO MANAGE THE MNC
7. • This issue of agency problem can be explained by the Agency Theory
• This theory can be used to explain various issues of all the business disciplines
mentioned earlier
• Without having an essence of this theory, it becomes utterly difficult for a
business student to grasp the dynamism of cross-connected activities:
• Structure of the agency relationship
• Why agency relationship appears?
• Sources of conflict
• Application in business context
• How to minimize this conflict?
1-1 MANAGING THE MNC
B. AGENCY PROBLEMS
8. Structurer of Agency Relationship
Shareholders (Principal) Management (Agent)
Though Agency Relationship is typically referred to in a business
context, it may prevail in any capacity…
9. Structure of Agency Relationship
Shareholder (Principal)
Management (Agent)
Information Asymmetry
> The agent knows more than the principals
(Rotten Lemon Theory)
Corporate Reporting
10. Why Agency Relationship Appears?
Self-dependent Primitive Society
Little Communities
Surplus – Barter Trade
Sole Proprietorship
Partnership
Corporation
13. Application in Business Context
• Whenever a manager owns less than 100% of the
firm’s equity, a potential agency problem exists.
• Where there is dependency, there is Agency problem.
• We can see agency relationships everywhere in our
society. (say, between us and the hairdresser).
14. Application in Business Context
• In theory, managers would agree with shareholders’
wealth maximization.
• However, managers are also concerned with their
personal wealth, job security, fringe benefits, and
lifestyle.
• This would cause managers to act in ways that do not
always benefit the firm shareholders.
15. How to Minimize this Conflict?
Two ways:
a)Stick
>Monitoring (Agency Cost)
>Market Forces
b)Carrot(Incentives)
> Stock Options
> Golden Handcuffs
> Performance Plans
16. • Managers of an MNC may make decisions that conflict with the firm’s goal of
maximizing shareholder wealth.
• For example, a decision to establish a subsidiary in one location versus another
may be based on the location’s appeal to a particular manager rather than on
its potential benefits to shareholders.
• A decision to expand a subsidiary may be motivated by a manager’s desire to
receive more compensation (self-interest) rather than to enhance the value of
the MNC.
• This conflict of goals between a firm’s managers and shareholders is often
referred to as the agency problem.
1-1 MANAGING THE MNC
B. AGENCY PROBLEMS – MNC CONTEXT
17. • Agency cost (monitoring) of MNCs are larger than purely domestic firms:
• Geography – monitoring the managers of distant subsidiaries is more difficult
• Culture – subsidiary mangers are brought up in varied cultures and prioritize
different aspects of business and may have different values compared to the MNC’s
value
• Size – sheer size of large MNCs can create complexities in the monitoring process
1-1 MANAGING THE MNC
B. AGENCY PROBLEMS – MNC CONTEXT
• Complexities/lack of monitoring might lead to substantial losses for MNCs:
• A trader of JP Morgan Chase & Co. made extremely risky trades
• Financial loss: it lost at least $6.2 billion and paid more than $1 billion in fines and penalties
• Source: the bank’s poor internal control failed to provide adequate employee monitoring
18. • Parent Control:
• Communicating the common goals clearly – maximizing MNC’s value
• Overseeing subsidiaries decision for (MNC’s) goal conformity
• Compensation (incentives) plans for conforming managers – ex: stock options
1-1 MANAGING THE MNC
B. AGENCY PROBLEMS – HOW THIS CAN BE SOLVED?
• Corporate Control:
• Market force – poor decisions reduce firm value leading to takeover/acquisition and
removal of the weak managers
• Institutional investors – they can influence management, complain to the BOD, force
changes, i.e., removing top management/board members
19. • The degree of agency cost differs according to the MNC’s management style.
• Centralized management :
• It reduces agency cost
• More control on the subsidiary managers, reducing the power of these managers
• Parent’s managers may decide poorly for they are less informed regarding the operational
context
• Decentralized management:
• It incurs higher agency cost
• Subsidiary managers may fail in optimizing the MNC’s overall value
• However, they have more control, since they are close to the context of the operation
• This style could be more effective subject to a proper compensation (incentive) plan tied to
the MNC’s central goal
1-1 MANAGING THE MNC
C. MANAGEMENT STRUCTURE OF AN MNC
20. CENTRALIZED MULTINATIONAL FINANCIAL
MANAGEMENT
for an MNC with two subsidiaries, A and B
Financial
Managers
of Parent
Capital Expenditures
at A
Inventory and
Accounts
Receivable
Management at A
Cash
Management
at A
Financing at A
Capital Expenditures
at B
Inventory and
Accounts
Receivable
Management at B
Cash
Management
at B
Financing at B
21. DECENTRALIZED MULTINATIONAL FINANCIAL
MANAGEMENT
for an MNC with two subsidiaries, A and B
Financial
Managers
of A
Capital Expenditures
at A
Inventory and
Accounts
Receivable
Management at A
Cash
Management
at A
Financing at A
Capital Expenditures
at B
Inventory and
Accounts
Receivable
Management at B
Cash
Management
at B
Financing at B
Financial
Managers
of B
22. 1-2 WHY MNCS PURSUE INTERNATIONAL BUSINESS?
Three common theories to explain the motivation for MNCs expansion are:
A. Theory of Comparative Advantage
B. Imperfect Markets Theory
C. Product Cycle Theory
These theories overlap to some extent and can complement one another while
understanding the evolution of international business practices.
23. • Specialization by countries can increase production efficiency and constitute
comparative advantage(s) – Advantage can’t easily be transported
• Japan, USA – technological advantage: Oracle, Intel, IBM, Microsoft, Sony, NEC,
Canon, etc.
• China, Malaysia, Bangladesh, India, Vietnam – cost of basic labor: Garments
• Jamaica, Mexico, Brazil – agricultural, handmade goods
• Virgin Island, Sri Lanka - tourism
• Comparative advantage allows firms to penetrate foreign markets
• Overall, it is efficient for a country to capitalize on a specialized arena and to cover
other arenas from the outcome of the specialization
1-2 WHY DO MNCS PURSUE INTERNATIONAL BUSINESS?
A. THEORY OF COMPARATIVE ADVANTAGE
24. • In a perfect market, factors of production are supposed to be easily
transferrable and can be made available wherever there is a demand
• However, in a real world, market is imperfect, and factors of productions are
somewhat immobile
• Cost and fund restrictions often hampers the mobility of resources – this gap
motivates the MNCs to capitalize on a foreign country’s particular resources:
• North Fest capitalizes on the cheap labor of Bangladesh and make garments here
1-2 WHY DO MNCS PURSUE INTERNATIONAL BUSINESS?
B. IMPERFECT MARKETS THEORY
25. • Product Cycle:
1. A firm first becomes established in its home country – information of market and
competition is more readily available
2. When product/service is perceived as superior than the home-products of foreign
consumers, then it starts to export
3. When the product becomes very popular it may start producing the product in
foreign country to reduce its transportation cost
• Differentiating the product from already available ones is the key to prolong foreign
market presence
• Facebook started in USA, expanded in all over the world
• More than 85% of Facebook users are outside USA, allowing it to collect revenue
from the foreign countries
1-2 WHY DO MNCS PURSUE INTERNATIONAL BUSINESS?
C. PRODUCT CYCLE THEORY
26. 1-2 WHY DO MNCS PURSUE INTERNATIONAL BUSINESS?
C. PRODUCT CYCLE THEORY
Firm exports
product to
accommodate
foreign demand.
Firm creates
product to
accommodate
local demand.
Firm
establishes
foreign
subsidiary to
establish
presence in
foreign
country and
possibly to
reduce costs.
a. Firm
differentiates
product from
competitors and/or
expands product
line in foreign
country.
b. Firm’s
foreign business
declines as its
competitive
advantages are
eliminated.
or
27. 1-3 METHODS TO CONDUCT INTERNATIONAL BUSINESS
A. International Trade
B. Licensing
C. Franchising
D. Joint Ventures
E. Acquisition of Existing Operations
F. Establishment of New Foreign Subsidiaries
28. INTERNATIONAL OPPORTUNITIES – MOTIVATIONS FOR
INTERNATIONAL BUSINESSES
• Investment opportunities - The marginal return on projects for an MNC is above
that of a purely domestic firm because of the expanded opportunity set of
possible projects from which to select.
• Financing opportunities - An MNC is also able to obtain capital funding at a
lower cost due to its larger opportunity set of funding sources around the
world.
29. 1-3 METHODS TO CONDUCT INTERNATIONAL BUSINESS
A. INTERNATIONAL TRADE
• It’s a conservative approach
• Export (to penetrate markets) and Import (obtaining supplies at low cost)
• Minimal risk: no capital at risk and can discontinue at low cost
• Boeing, DowDupont, General Electric, IBM: $4 Billion+ annual export sales
30. 1-3 METHODS TO CONDUCT INTERNATIONAL BUSINESS
B. LICENSING
• One firm provides technology in exchange for fees or other
considerations:
• copyright
• patents
• trademarks
• tradenames
• Software firm allow foreign companies to use their software for a fee:
• They can generate revenue without establishing any production plant
• Without transporting goods to foreign countries
31. 1-3 METHODS TO CONDUCT INTERNATIONAL BUSINESS
C. FRANCHISING
• Franchisor firm provides- sales/service strategy, support assistance, initial
investment
• It allows local residents to own and manage
• Franchisee must follow standards set by the franchisor while operating
• Franchisor (MNC) often invests directly – Direct Foreign Investment (DFI)
• Mcdonald’s purchases land and establish building and allow the franchisee to
operate for a specified number of years
32. 1-3 METHODS TO CONDUCT INTERNATIONAL BUSINESS
D. JOINT VENTURES
• Jointly owned and operated by two firms; firms Join to:
• Capitalize the already established markets
• To utilize the comparative advantage of one another
• It requires DFI – both parties contribute to the investment process
• Xerox Corp. and Fuji Co. joined together:
• Xerox wanted to penetrate the Japanese market
• Fuji wanted to enter the photocopying business
33. 1-3 METHODS TO CONDUCT INTERNATIONAL BUSINESS
E. ACQUISITION OF EXISTING OPERATION
• Motivation to acquire:
• To penetrate foreign markets and to have full control over the foreign business
• MNCs directly invests (DFI) in a foreign country by purchasing the operation
• Acquisition is risky:
• Requires large investment, prone to large losses, difficult to sell a poor firm
• Some firms engage in partial international acquisition just to have a stake:
• It requires smaller investment limiting the potential loss
• Firm will not have complete control over foreign operations
34. 1-3 METHODS TO CONDUCT INTERNATIONAL BUSINESS
F. ESTABLISHMENT OF NEW FOREIGN SUBSIDIARIES
• Establishing new operation from scratch in foreign countries
• It requires a large DFI like foreign acquisition
• Operations can be tailored according to the firm’s requirement
• Needs long time to reap the benefits:
• Firm will not reap any rewards until a solid customer base is established
35. 1-3 METHODS TO CONDUCT INTERNATIONAL BUSINESS
CASH FLOW DIAGRAM
36. 1-4 VALUATION MODEL FOR AN MNC
• Background
• Maximizing firm’s value translates into maximizing shareholders’ wealth
• IFM should also be connected to the goal of increasing the MNC’s value
A. Domestic Valuation Model
B. Multinational Valuation Model
C. Uncertainty Surrounding an MNC’s Cash Flows
D. How Uncertainty Affects the MNC’s Cost of Capital
37. • Before modelling an MNC’s value, lets understand the valuation of a purely
DOMESTIC firm; it doesn’t engage in any foreign transaction
• Dollar Cash Flows
• (Funds received by the firm) – (funds to pay expenses/taxes or to reinvest)
• Expected cash flows are estimated from current knowledge of the existing project
and other potential projects
• Investment decisions impact future cash flow and in turn firm’s value
• Increase in expected cash flows should increase the value of a firm
1-4 VALUATION MODEL FOR AN MNC
A. DOMESTIC VALUATION MODEL
38. • Cost of Capital:
• (RRR) Required Rate of Return = Cost of capital (Cost of Debt + Cost of Equity)
• Cost of Capital = (WACC) Weighted Average Cost of Capital of all the firm’s projects
• Credit rating has a negative correlation with the Cost of Capital/RRR
• RRR has a negative correlation with the firm’s value
• More RRR means the expected future cash flows will be discounted at a higher
interest rate and vice versa
1-4 VALUATION MODEL FOR AN MNC
A. DOMESTIC VALUATION MODEL
39. 1-4 VALUATION MODEL FOR AN MNC
A. DOMESTIC VALUATION MODEL
n
t
t
t
k
CF
E
V
1
$,
1
Where:
V represents present value of expected cash flows
E(CF$,t) represents expected cash flows to be
received at the end of period t,
n represents the number of periods into the future
in which cash flows are received, and
k represents the required rate of return by
investors.
40. • Background
• Equation idea is the same as a purely domestic firm
• Expected cash flows here might come from various countries and are exposed to
various foreign currencies
• Each expected cash flow stream of foreign currency are converted into dollars (home
currency)
• All the converted cash flows are the added together to have the expected cash flows
1-4 VALUATION MODEL FOR AN MNC
B. MULTINATIONAL VALUATION MODEL
m
j
t
j
t
j
t S
E
CF
E
CF
E
1
,
,
$,
Where:
CFj,t represents the amount of cash flow denominated in a particular foreign currency j at the
end of period t,
Sj,t represents the exchange rate at which the foreign currency (measured in dollars per unit
of the foreign currency) can be converted to dollars at the end of period t.
41. • Dollar Cash Flows of an MNC that uses two (2) currencies
1-4 VALUATION MODEL FOR AN MNC
B. MULTINATIONAL VALUATION MODEL
m
j
t
j
t
j
t S
E
CF
E
CF
E
1
,
,
$,
Derive an expected dollar cash flow value for each currency
Combine the cash flows among currencies within a given period
42. • Dollar Cash Flows of an MNC that uses multiple currencies
• Process is the same as the last equation used for two currencies
1-4 VALUATION MODEL FOR AN MNC
B. MULTINATIONAL VALUATION MODEL
43. • Valuation of an MNC’s Cash Flows Over Multiple Periods
• Use the single period equation to all future periods to have estimated dollar cash
flows
• Discount the estimated dollar cash flows for each period using WACC
• Add these cash flows to estimate the VALUE of the MNC
• Caution – To avoid double counting, any expected cash flow received by a foreign
subsidiaries should not be counted in the valuation model unless they are remitted
to the parents
1-4 VALUATION MODEL FOR AN MNC
B. MULTINATIONAL VALUATION MODEL
44. • MNC’s future cash flows are subject to both the domestic and international
issues:
• Economic condition
• Political condition
• Exchange rate risk
• Exposure to International Economic Conditions
• Cash flow from a foreign country depends on the consumer demand
• Consumer demand is influenced by national income
• Better economic condition increases national income and more employment, which
in turn impact consumer demand
• Conversely, declining international economic condition can negatively affect MNC’s
1-4 VALUATION MODEL FOR AN MNC
C. UNCERTAINTY SURROUNDING AN MNC’S CASH FLOWS
45. 1-4 VALUATION MODEL FOR AN MNC
C. UNCERTAINTY SURROUNDING AN MNC’S CASH FLOWS
Exposure to
international economic
Condition
46. • Exposure to International Political Risk
• A foreign government may increase taxes or impose barriers on the MNC’s
subsidiary
• A foreign country may boycott the MNC and vice versa due to various frictions
• Frictions: governmental organization, policies (tax rules), financial condition
1-4 VALUATION MODEL FOR AN MNC
C. UNCERTAINTY SURROUNDING AN MNC’S CASH FLOWS
47. • Exposure to Exchange Rate Risk
• If foreign currency weakens against USD, MNC will receive a lower dollar cash flow
1-4 VALUATION MODEL FOR AN MNC
C. UNCERTAINTY SURROUNDING AN MNC’S CASH FLOWS
48. 1-4 VALUATION MODEL FOR AN MNC
C. UNCERTAINTY SURROUNDING AN MNC’S CASH FLOWS
49. • More uncertainty related to an MNC’s future cash flows leads to a higher
expected rate of return
• It increase the MNC’s cost of obtaining capital and lowers its valuation
1-4 VALUATION MODEL FOR AN MNC
D. HOW UNCERTAINTY AFFECTS THE MNC’S COST OF CAPITAL
50. • 17 – International Joint Venture
• 19 – Valuation of an MNC (licensing, acquisition, export, discontinuation)
• 20 – Assessing motives for international business (theory of competitive
advantage, imperfect market theory, product cycle theory, exchange rate risk,
political risk)
• 22 – Impact of international business on cash flow and risk
• 29 – Exposure of MNCs to exchange rate movements
• 32 – MNC cash flow and exchange rate risk
• 33 – Estimating an MNCs cash flow
• 34 – Uncertainty surrounding an MNC’s cash flow
• 36 – Impact of Uncertainty on MNC’s valuation
• 37 – Exposure of MNC’s cash flow
• Case: Blade Inc.
EXERCISE/PROBLEM GUIDE