Chapter 1: Introduction to Finance and Globalization In this chapter, we delve into the fundamental concepts of finance and explore the crucial role of globalization in shaping the modern financial landscape. The chapter serves as a comprehensive introduction, providing readers with a solid foundation to understand the core principles and key drivers of international finance and investment. The chapter begins by defining finance and highlighting its significance in the global economy. It explores how finance encompasses the management of money, investments, and financial instruments, both at the individual and organizational levels. The importance of effective financial management for businesses, governments, and individuals is emphasized, as it enables efficient allocation of resources, risk management, and wealth creation. Moving further, the chapter examines the concept of globalization and its impact on finance. It explains how globalization has led to increased interconnectedness and integration of financial markets worldwide. The advent of technology, transportation advancements, and liberalization of trade and capital flows have facilitated the seamless movement of goods, services, capital, and information across borders. The chapter explores the benefits and challenges of financial globalization. It discusses how globalization has opened up new opportunities for businesses to access larger markets, diversify investments, and tap into global sources of financing. However, it also highlights the risks associated with global financial integration, such as financial volatility, contagion, and increased interdependence among economies. Furthermore, the chapter introduces key participants in international finance, including multinational corporations, financial institutions, central banks, and regulatory bodies. It explains their roles and interactions within the global financial system. Throughout the chapter, relevant examples, case studies, and historical perspectives are woven in to illustrate the concepts and provide real-world context. This helps readers to grasp the practical applications and implications of finance in a globalized world. By the end of the chapter, readers will have gained a solid understanding of the fundamentals of finance, the impact of globalization on financial markets, and the key players involved in international finance. This knowledge forms a solid foundation for further exploration of topics related to international finance and investment.

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Hello

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Getting to know you
• Name?
• Why is your major?
• What does IF mean?

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Syllabus
4-Schedule of Assessment Tasks for Students During the Semester:
No Assessment Method Week Due Mark
Proportion of
Final
Assessment
Aligned Course
Learning
Outcomes(CILOs symbols)
1 Attendance , Quizzes and participation 10 10% A-B-C-D
2 Mid-term written exam 6th 20 20% A-B-C-D
3 Projects reports & Presentation 11– 12 10 10% A-B-C-D
4 Final Exam (theoretical) 60 60% A-B-C-D
Total 100 100%
• Mid-Exam is going to be on 18/1/2023

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Projects reports
• The FIVE student in each group as maximum.
• The reports will be for following topics (BRICs - IMF
- WTO – EU - OECD – BIS)
• It is NOT allowed two groups to choose the same
company.
• Next week, you should submit the list of the name’s
students’ name, and topics.
• AT least 20 pages, and NOT Excuse for projects
reports.

6. CHAPTER 1
Globalization and
the Multinational
Corporation

7. 1.1 Globalization and the Multinational
Corporation
Globalization is the word used to describe the growing
interdependence of the world's economies, and
populations, brought about by cross-border trade in goods
and services, technology, and flows of investment, people,
and information.
A multinational corporation (MNC) produces and sells
goods or services in more than one nation.
What is an example of good globalization?
The link between a large European company and a large
company from an emerging economy is no coincidence.
Recent years have seen strong growth in BRICs.

8. 1.1 Globalization and the Multinational
Corporation
Today, the BRICs account for 15% of the world’s gross
domestic product (GDP) and more than 50% of the GDP of
all emerging countries.

9. 1.2 Globalization and the Growth of
International Trade and Capital Flows
A. The Growth of International Trade
1. Trade liberalization is the removal or reduction of
restrictions or barriers on the free exchange of goods
between nations.
.If each nation specializes in the production of those goods
in which it has a comparative advantage . So, the
comparative advantage is where a nation is able to produce
products at a lower opportunity cost.
What is the different between comparative advantage &
absolute advantage ?

10. 1.2 Globalization and the Growth of
International Trade and Capital Flows
Example
If China produce 100 wheat, and 200 potatoes, and India
produce 80 wheat, and 100 potatoes

11. 1.2 Globalization and the Growth of
International Trade and Capital Flows
A. The Growth of International Trade
2. International Efforts to Promote Free Trade
A free trade agreement reduces barriers to imports and exports
between countries by eliminating all or most tariffs, quotas,
subsidies, and prohibitions.
Types of trade agreement:
1. The General Agreement on Tariffs and Trade (GATT)
GATT was designed to encourage free trade between member
states by regulating and reducing tariffs on traded goods and by
providing a common mechanism for resolving trade disputes.
2. World Trade Organization (WTO)
The World Trade Organization is to dealing with the rules of trade
between nations, and to help producers of goods and services,
exporters, and importers conduct their business.
3. European Union (EU)
4. North America Free Trade Agreement (NAFTA)
5. Association of Southeast Asian Nations (ASEAN)

12. 1.2 Globalization and the Growth of
International Trade and Capital Flows
A. The Growth of International Trade
3. The Growth in Trade
The evolution of trade openness dramatically increased trade flows
between countries. One measure of trade openness is the sum of exports
and imports in a given year divided by a measure of output, such as GDP.
Trade openness =
𝑬𝒙𝒑𝒐𝒓𝒕 −𝑰𝒎𝒑𝒐𝒓𝒕
𝑮𝑫𝑷
X 100
4. How Multinational Corporations Are Affecting Trade
In MNCs, capital, labor, management skills, and technology are all
transferred to other countries to produce abroad rather than
export from a domestic factory. Example
Sometimes, the components of different goods are produced in
different countries, depending on their relative advantages in terms of
costs and technological ability.

13. 1.2 Globalization and the Growth of
International Trade and Capital Flows
B. The Globalization of Financial Markets
1. Trends in Financial Openness
A country is financially open if it allows foreigners to invest in its capital
markets and allows its citizens to invest abroad.
One way to assess how open countries are to capital flows is to examine
their foreign assets and liabilities.
The ratio of foreign assets plus foreign liabilities to GDP has
grown rapidly for industrial countries. EXAMPLE
2. The New Financial Landscape
A derivative security is an investment whose payoff over time is derived
from the performance of underlying assets (such as commodities, equities,
or bonds), interest rates, exchange rates, or indices (such as a stock market
index, a consumer price index, or an index of weather conditions).
Why is there New Financial Landscape?
What a good example for?

14. 1.2 Globalization and the Growth of
International Trade and Capital Flows
B. The Globalization of Financial Markets
3. A Global Financial Crisis

15. 1.3 MULTINATIONAL CORPORATIONS
Transnational corporations share many qualities with
multinational corporations, with the subtle difference
being that multinational corporations consist of a
centralized management structure, whereas
transnational corporations generally are decentralized.

16. 1.3 MULTINATIONAL CORPORATIONS
How Multinational Corporations Enter Foreign Markets?
There are 6 different modes of entry:
1. Indirect Exporting: use domestically based agents who
operate on a commission basis without taking title to goods,
or merchants who sell the products of the company in
international markets.
2. Direct Exporting: refer to an agent may agree to handle the
company’s product exclusively, or may handle products of
other companies too.

17. 1.3 MULTINATIONAL CORPORATIONS
3. Joint Ventures: a company that is
jointly owned and operated by two
or more firms.
4. Franchising: the firm provides a
specialized sales or service strategy,
offers support at various levels, and
may even initially invest in the
franchise in exchange for periodic
fees.
5. Foreign direct investment
(FDI):means the company has
control and a significant stake in its
operations in other countries.

18. 1.4 OTHER IMPORTANT INTERNATIONAL
PLAYERS
A. International Banks
Major banks operate internationally
to service their MNC clients. The
globalization of business is well
expressed in the banking sector.
B. International Institutions
1. The International Monetary Fund (IMF)
The main goals of the IMF are to ensure the stability of
the international monetary and financial system (the
system of international payments and exchange rates
among national currencies that enables trade to take
place between countries), to help resolve crises when
they occur, and to promote growth.

19. 1.4 OTHER IMPORTANT INTERNATIONAL
PLAYERS
B. International Institutions
1. The International Monetary Fund (IMF)
The main goals of the IMF are to ensure the stability of
the international monetary and financial system (the
system of international payments and exchange rates
among national currencies that enables trade to take
place between countries),
to help resolve crises when they occur, and to promote growth.
Economic crises often occur when countries
borrow excessively from foreign lenders and
then face experience difficulties in financing
their balance of payments.

20. 1.4 OTHER IMPORTANT INTERNATIONAL
PLAYERS
2. World Bank
also provides advisory services to developing countries and
is actively involved with efforts to reduce and cancel the
international debt of the poorest countries.
They provide low-interest loans, interest-free credits, an grants to
developing countries for investments in education, health,
infrastructure, communications, and other activities.
3. Multilateral Development Banks (MDBs)
These institutions provide financial support and
professional advice for economic and social development
activities in developing countries.
These banks have a broad membership that includes both developing
countries (borrowers) and developed countries (donors).

21. 1.4 OTHER IMPORTANT INTERNATIONAL
PLAYERS
4. The World Trade Organization (WTO)
5. The Organization for Economic Cooperation and
Development (OECD)
The OECD operates from Paris, It provides a setting to examine, devise,
and coordinate policies that foster sustainable economic growth and
employment, rising standards of living, and financial stability.
6. The Bank for International Settlements (BIS)
It fosters international monetary and financial cooperation to promote
stability and serves as a bank for central banks.
7. The European Union (EU)
The member states of the EU seek to create a common market in which
goods, services, people, and capital can move around freely and to
achieve economic and political integration.

22. END