This document contains the presentation slides from a group project on multinational financial management. It includes chapters on topics like the goals of multinational corporations, international capital flows, foreign exchange markets, and methods for analyzing country risk. Each chapter section is presented by a different member of the group, whose name and student ID are listed. The document provides an overview of key concepts in multinational finance.

1. WELCOM
E
TO OUR PRESENTATION

2. MEMBERS
OF GROUP
NAME OF THE MEMBERS ID
MARUF AHMED WUB 01/11/33/1785
SAIMA AMBIA TOMA WUB 01/11/33/1753
FATEMA AKTER WUB 01/11/33/1755
SHARNA YESMIN WUB 01/11/33/1760
TAHIRA JAHAN LAMIA WUB 01/11/33/1763
ALAMGIR HOSSAIN WUB 01/11/33/1771
AFRIN AHMED WUB 01/11/33/1773
ALI AHMMED EMON WUB 01/11/33/1777
NAZMUL ALAM WUB 01/11/33/1782

3. CHAPTER
ONE
MULTINATIONAL FINANCIAL MANAGEMENT:
AN OVERVIEW
PRESENTING – MARUF AHMED
WUB 01/11/33/1785

4. MNC and MNC’s Goal
• A corporation that has its facilities and other
assets in at least one country other than its
home country is called multinational
company. Example: nestle
• The commonly accepted goal of an MNC is to
maximize shareholder wealth.

5. Conflicts with the MNC Goal
• Conflict of goals between a firm’s managers
and shareholders is often referred to as the
agency problem—the agency problem.
• Agency costs are normally larger for MNCs
than for purely domestic firms, due to:
• the difficulty in monitoring distant managers,
• the different cultures of foreign managers,
• the sheer size of the larger MNCs, and
• the tendency to downplay short-term effects.
• Subsidiary managers may be tempted to make
decisions that maximize the values of their
respective subsidiaries.

6. Theories of International
Business
Theory of Comparative Advantage
• Specialization by countries can increase
production efficiency.
Imperfect Markets Theory
• The markets for the various resources used in
production are “imperfect.”
Product Cycle Theory
• As a firm matures, it may recognize
additional opportunities outside its home
country.

7. The International Product Cycle
 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

8. CHAPTER
ONE
MULTINATIONAL FINANCIAL MANAGEMENT:
AN OVERVIEW
PRESENTING – SHARNA YESMIN
WUB 01/11/33/1760

9. International Business Methods
International trade involves exporting
and/or importing.
Licensing allows a firm to provide its
technology in exchange for fees or some
other benefits.
Franchising obligates a firm to provide a
specialized sales or service strategy,
support assistance, and possibly an initial
investment, in exchange for periodic fees.

10. International Business Methods
Continued….
Firms may also penetrate foreign markets
by engaging in a joint venture (joint
ownership and operation) with firms that
reside in those markets.
Acquisitions of existing operations in
foreign countries allow firms to quickly
gain control over foreign operations as
well as a share of the foreign market.
Establishing new foreign subsidiaries

11. Exposure to International Risk
• International business usually increases an
MNC’s exposure to:
 exchange rate movements
 foreign economies
 political risk

12. CHAPTER
TWO
INTERNATIONAL FLOW OF FUNDS
PRESENTING – FAETMA AKTER
WUB 01/11/33/1755

13. The balance of payments
The balance of payments is a summary of
transactions between domestic & foreign
residents for a specific country over a
specified period of time.
Components of balance of payments
• Current Account
• Capital Account

14. Current Account
Summary of the flow of funds between one
specified country & all other countries due to
purchases of goods or services
• Balance of trade Which is simply the difference between
exports & imports.
• Factor income which represents income received by
investors on foreign investments in financial assets.
• Transfer Payments which represent aid, grants & gifts from
one country to another.

15. Capital Account
Summary of the flow of funds resulting from the
sale of assets between one specified country & all
other countries over a specified period of time.
• Direct foreign investment represents the investment in fixed
assets in foreign countries that can be used to conduct
business operations.
• Portfolio Investment represents transactions involving long
term financial assets between countries that do not affect
the transfer of control.
• Capital Investment which represents transactions involving
short-term financial assets between countries.

16. Factors Affecting
International Trade Flows
• Inflation
• A relative increase in a country’s inflation rate
will decrease its current account, as imports
increase and exports decrease.
• National Income
• A relative increase in a country’s income level
will decrease its current account, as imports
increase.

17. Factors Affecting
International Trade Flows
• Government Restrictions
• A government may reduce its country’s
imports by imposing tariffs on imported goods,
or by enforcing a quota.
• Exchange Rates
• If a country’s currency begins to rise in value,
its current account balance will decrease as
imports increase and exports decrease.

18. Factors Affecting DFI
• Changes in Restrictions
• New opportunities may arise from the removal
of government barriers.
• Privatization
• DFI has also been stimulated by the selling of
government operations.
• Potential Economic Growth
• Countries with higher potential economic
growth are more likely to attract DFI.

19. Factors Affecting DFI
• Tax Rates
• Countries that impose relatively low tax rates
on corporate earnings are more likely to
attract DFI.
• Exchange Rates
• Firms will typically prefer to invest their funds in
a country when that country’s currency is
expected to strengthen.

20. CHAPTER
THREE
INTERNATIONAL FINANCIAL MARKETS
PRESENTING – SAIMA AMBIA TOMA
WUB 01/11/33/1753

21. Motives for Using International
Financial Markets
• The markets for real or financial assets are
prevented from complete integration by barriers
such as tax differentials, tariffs, quotas, labor
immobility, communication costs, cultural
differences, and financial reporting differences.
• These barriers can also create unique
opportunities for specific geographic markets that
will attract foreign investors and creditors.

22. Motives for Investing in Foreign
Markets
Investors invest in foreign markets following
motives:
• Investors invest in foreign markets:
• to take advantage of favorable economic
conditions;
• when they expect foreign currencies to
appreciate against their own; and
• to reap the benefits of international
diversification.

23. Motives for Providing credit in
Foreign Markets
• Creditors provide credit in foreign markets:
• to capitalize on higher foreign interest rates;
• when they expect foreign currencies to
appreciate against their own; and
• to reap the benefits of international
diversification.

24. Motives for Borrowing in Foreign
Markets
• Borrowers borrow in foreign markets:
• to capitalize on lower foreign interest rates; and
• when they expect foreign currencies to
depreciate against their own.

25. Foreign Exchange Market
• The foreign exchange market allows
currencies to be exchanged in order to
facilitate international trade or financial
transactions.
• The system for establishing exchange rates
has evolved over time.
• From 1876 to 1913, each currency was
convertible into gold at a specified rate, as
dictated by the gold standard.

26. Foreign Exchange Transactions
Two types of foreign exchange transactions:
• There is no specific building or location where traders
exchange currencies. Trading also occurs around the clock.
• The market for immediate exchange is known as the spot
market.
• The forward market enables an MNC to lock in the exchange
rate at which it will buy or sell a certain quantity of currency on
a specified future date.
• The bid/ask spread is normally larger for those currencies that
are less frequently traded.

27. Interpreting Foreign Exchange
Quotations
Two types of foreign exchange quotations:
i. Direct quotations: Direct quotations represent value
of local currency against one unit of foreign
currency.
퐷푖푟푒푐푡 푞푢표푡푎푡푖표푛 =
1
퐼푛푑푖푟푒푐푡 푞푢표푡푎푡푖표푛
ii. Indirect quotations: Indirect quotations represent
value of foreign currency against one unit of
home currency.
Indirect quotation=
1
퐷푖푟푒푐푡 푞푢표푡푎푡푖표푛
.

28. CHAPTER
THREE
INTERNATIONAL FINANCIAL MARKETS
PRESENTING – ALI AHMMED EMON
WUB 01/11/33/1777

29. Interpreting Foreign Exchange
Quotations
• A cross exchange rate reflects the amount of
one foreign currency per unit of another
foreign currency.
• Value of 1 unit of currency A in units of
currency B
=value of currency A in $
value of currency B in $

30. Currency Futures and Options
Market
• A currency futures contract specifies a standard
volume of a particular currency to be
exchanged on a specific settlement date.
• Currency options contracts give the right to buy
or sell a specific currency at a specific price
within a specific period of time. They are sold on
exchanges too.

31. Currency Futures and Options
Market
• currency option contract
• Currency call option
• Currency put option

32. International Money Market
• Eurodollar
• Eurocurrency market
• Asian money market
• Eurobonds are bonds that are sold in
countries other than the currency
denominating the bonds.

33. Why Corporation use in
International Money Market
• Corporation may need to borrow funds
to pay.
• Corporation also issue money market
securities.
• Corporation or Government may
consider borrowing in a currency.

34. Why Corporation and Investors invest
in international money market
• Foreign interest rates are higher than local
money market.
• Foreign currency will appreciate against
home currency.

35. Why Corporation in Issue Stock in
international stock market
• More easily digested rate when it issue in
several market.
• It enhance the firms image and name
recognition in a foreign country.
• The location of an MNCs operations can
influence the deceision.

36. CHAPTER
FOUR
EXCHANGE RATE DETERMINATION
PRESENTING – NAZMUL ALAM
WUB 01/11/33/1782

37. Measuring Exchange Rate Movements :
• An exchange rate measures the value of one currency in units
to another currency.
• A decline in a currency value is often referred to as
depreciation.
• The increase in a currency value is often referred to as
appreciation.
• The percentage change (% D) in the value of a foreign
currency is computed as
St – St−1
St−1
where St denotes the spot rate at time t.

38. Exchange rate Equilibrium
• At any point in time, a currency should
exhibit the price at which the demand for
that currency is equal to supply, & this
represents the equilibrium exchange rate.

39. Demand for a Currency for Sale
Quantity of $
$1.60
$1.55
$1.50
Value of $

40. Supply of a Currency for Sale
Quantity of $
$1.60
$1.55
$1.50
s
Value of $

41. Equilibrium
Quantity of $
$1.60
$1.55
$1.50
S
D
Value of $

42. CHAPTER
FOUR
EXCHANGE RATE DETERMINATION
PRESENTING – AFRIN AKTER
WUB 01/11/33/1782

43. Factors that Influence Exchange Rates
 Factors Influence exchange rates three
types, they are:
1) Relative Inflation Rates
2) Relative Interest Rates
3) Relative Income Levels

44. Relative Inflation Rates
$1.60
$1.55
$1.50
S
$1.57
D
푆2
퐷2
Quantity of $
Value of $

45. Relative Interest Rates
$1.60
$1.55
$1.50
푆2
D
S
퐷2
Quantity of $
Value of $

46. Relative Income Levels
$1.60
$1.55
$1.50
S
퐷2
D
Quantity of $
Value of $

47. CHAPTER
FIVE
CURRENCY DERIVATIVES
PRESENTING – ALAMGIR HOSSAIN
WUB 01/11/33/1771

48. Forward Contract &
Currency futures contracts
Forward Contract
To exchange a specified amount of currency
At a specified exchange rate called the
forward rate On a specified date in the future
Currency futures contracts specify a standard
volume of a particular currency to be
exchanged on a specific settlement date,

49. Comparison of Currency Futures
& Forward Contracts
Forward Markets Futures Markets
Contract size Customized. Standardized.
Delivery date Customized. Standardized.
Participants Banks, brokers, Banks, brokers,
MNCs. Public MNCs. Qualified
speculation not public speculation
encouraged. encouraged.
Security Compensating Small security
deposit bank balances or deposit required.
credit lines needed.

50. Currency Options Market
currency options market the right to purchase
or sell currencies at a specified price.
Types of currency option :
1) Currency Call option
2) Currency Put option

51. Currency Options Market
A Currency Call Option said to be:
• In the money
• At the money
• Out of the money

52. Currency Options Market
A Currency Put Option said to be:
• In the money
• At the money
• Out of the money

53. CHAPTER
SIXTEEN
COUNTRY RISK ANALYSIS
PRESENTING – TAHIRA JAHAN LAMIA
WUB 01/11/33/1763

54. Country Risk and Political Risk
 Country Risk Analysis is assessment of
potential risks and rewards from doing
business in country.
 Political Risk is the potential adverse
impact of a country’s environment on an
MNC’s cash flows

55. Political Risk Factors
 Attitude of Consumers in the Host Country
consumers may be very loyal to homemade
products.
 Attitude of Host Government
exchange rate movements The host government
may impose special requirements or taxes, restrict
fund transfers, subsidize local firms, or fail to
enforce copyright laws.
 Blockage of Fund Transfers
Funds that are blocked may not be optimally used.

56. Political Risk Factors
Continued….
 Currency Inconvertibility
The MNC parent may need to exchange earnings
for goods.
 War
Internal and external battles, or even the threat of
war, can have devastating effects.
 Bureaucracy
Bureaucracy can complicate businesses.
 Corruption
Corruption can increase the cost of conducting
business or reduce revenue.

57. Financial Risk Factors
Interest Rates
High or low
Exchange Rates
Affect import vs export, and thus income
Inflation
Affect purchasing power and demand