This document provides an overview of international financial management and multinational corporations (MNCs). It discusses how MNCs expand business across borders to access resources. The international financial environment and foreign exchange markets enable trade, investment, and financing between countries. MNCs have objectives like expanding globally and lowering costs. India is an attractive location for MNCs due to its large market, low labor costs, and manufacturing potential. The document outlines the structure, advantages, and constraints of MNCs and their valuation considering international cash flows and exchange rate risk.

1. UNIVERSITY OF MYSORE
Presentation On International Financial Management

2. PRESENTED TO
Prof.B.Nagraju
Professor In Department Of
Studies In Commerce
Manasagangothri
Mysore

3. INTRODUCTION
 Every country is not gifted with all the
resources , so there is need of International
Business in order to export the resources or any
goods/service which is abundant in our country
& to import the resources which is not abundant
our country,

4. THE INTERNATIONAL FINANCIAL
ENVIRONMENT
Multinational Corporation (MNC)
Foreign Exchange Markets
Dividend
Remittance
Exporting & Financing Investing
& Importing & Financing
Product Markets Subsidiaries International
Financial
Markets

5. WHAT ARE MNC’S?
 MNC’s are huge industrial organizations which extend their
industrial and marketing operations through a network of their
branches or their Majority Owned Foreign Affiliates.
 MNC’s are also know as Transnational Corporation (TNC’s).

6. DEFINITION
 According to Franklin Root (1994), an MNC is a
parent company that:
 engages in foreign production through its affiliates
located in several countries,
 exercises direct control over the policies of its
affiliates,
 implements business strategies in production,
marketing, finance and staffing that transcend
national boundaries.

7. OBJECTIVES
 To expand the business beyond the
boundaries of the home country.
 Minimize cost of production, especially
labour cost.
 Avail of competitive advantage
internationally.
 Establish an international corporate image.

8. OBJECTIVES
 Achieve greater efficiency by producing in
local market and then exporting the products.
 Make best use of technological advantages
by setting up production facilities abroad.

9. MNC IN INDIA
 MNC in India are attracted to:
 India’s large market potential
 Labor competiveness
 FDI attractiveness

10. MNC IN INDIA(CONTD…)
 India’s vast population is
increasing its purchasing
power
 India is also emerging as the
manufacturing and sourcing
location of choice for various
industries

11. TRENDS OF MNC’S IN INDIA…
 First MNC in INDIA was DUTCH EAST INDIA Co.
in 1600.
 American companies accounts for around 37% of the
turnover of the top 20 firms operating in India.
 The scenario for 'MNC in India' has changed a lot in
recent years, since more and more firms from
European Union like Britain, Italy, France, Germany,
Netherlands, Finland, Belgium etc have outsourced
their work to India.
 Finnish mobile handset manufacturing giant Nokia is
the largest Multinational Corporation In India.

12. TRENDS OF MNC’S IN INDIA…
(CONTD..)
 A host of automobile companies like Fiat Motors,
from Italy have opened shop in India with R&D
wing attached.
 Oil companies, Infrastructure builders from
Middle East are also flocking in India to catch
the boom.
 South Korean electronics giants Samsung and
LG Electronics and small and mid-segment car
major Hyundai Motors are doing excellent
business and using India as a hub for global
delivery.

13. TRENDS OF MNC’S IN INDIA…(CONTD..)
 Also insurance companies like AIG and Max New York
Life Insurance doing business in India.

14. MNC IN INDIA…
 MNC in India represent a diversified portfolio of companies
representing different nations.

15. THE INDIAN MNCS
………………
 Paints – Asian Paints
 Auto & Components – Tata Motors,
Bharat Forge
 Chemicals – Tata Chemicals, United
Phosphorus
 Metals – Sterlite Industries, TISCO
 Packaging – Essel
 Pharmaceuticals – Ranbaxy, Wockhardt,
Sun, DRL
 Oil & Gas – ONGC

16. MULTINATIONAL CORPORATE
STRUCTURE
 Horizontally integrated multinational corporations
manage production establishments located in different
countries to produce the same or similar products.
(example: McDonald's)
 Vertically integrated multinational corporations
manage production establishment in certain
country/countries to produce products that serve as input
to its production establishments in other country/countries.
(example: Adidas)
 Diversified multinational corporations manage
production establishments located in different countries
that are neither horizontally nor vertically. (example:
Microsoft or Siemens )

17. ADVANTAGES OF MNC’S
 MNC’s have become vehicles of technology to the developing
countries
 Greater employment and career opportunities are provided by
these MNC’s.
 MNC’s make commendable contribution to inventions and
innovations in the host country.
 Practice of MNC’s bring to the host country, the latest
technique in the field of management.
 Varity of goods and services produced for local customers.

18. DISADVANTAGES OF
MNC’S
 MNC’s create monopolies in the market and eliminate local
competitors.
 MNC’s may create depletion of resources due to its continues use
by these overseas companies.
 MNC’s generally carry out their R&D in their home country and
supply to the host country.
 Slow down in the growth of employment in the home country
.

19. CONSTRAINTS
INTERFERING WITH THE MNC’S
GOAL
 As MNC managers attempt to maximize their
firm’s value, they may be confronted with various
constraints.
 Environmental constraints.
 Regulatory constraints.
 Ethical constraints.

20. THEORIES OF
INTERNATIONAL BUSINESS
Why are firms motivated to expand
their business internationally?
 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.

21. INTERNATIONAL
BUSINESS METHODS
There are several methods by which firms can
conduct international business.
 International trade is a relatively conservative approach
involving exporting and/or importing.
 The internet facilitates international trade by enabling
firms to advertise and manage orders through their
websites.
 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 the franchise in exchange for periodic fees.

22. INTERNATIONAL
BUSINESS METHODS
 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.
 Firms can also penetrate foreign markets by establishing
new foreign subsidiaries.
 In general, any method of conducting business that
requires a direct investment in foreign operations is
referred to as a direct foreign investment (DFI).
 The optimal international business method may depend on
the characteristics of the MNC.

23. VALUATION MODEL FOR AN MNC
 An MNC’s financial decisions include how much
business to conduct in each country and how
much financing to obtain in each currency.
 Its financial decisions determine its exposure to
the international environment.

24. VALUATION MODEL FOR AN
MNC
Domestic Model
n
E ( CF$, t )
Value = ∑
t =1 (1 + k ) t
E (CF$,t ) = expected cash flows to
be received at the end of period t
n = the number of periods into the
future in which cash flows are received
k = the required rate of return by
investors

25. VALUATION MODEL FOR AN
MNC
 Valuing International Cash Flows
m 
n ∑
[E (CFj , t ) ×E (ER j , t )] 
 
Value = ∑ j =1 
t =1  (1 + k ) t


 

E (CFj,t ) = expected cash flows
denominated in currency j to be received by the U.S.
parent at the end of period t
E (ERj,t ) = expected exchange rate at
which currency j can be converted to dollars at the
end of period t

26. EXPOSURE TO INTERNATIONAL
RISK
International business usually
increases an MNC’s exposure to:
 exchange rate movements
 Exchange rate fluctuations affect cash flows and
foreign demand.
 foreign economies
 Economic conditions affect demand.
 political risk
 Political actions affect cash flows.

27. VALUATION MODEL FOR AN
MNC
Impact of New International Opportunities
on an MNC’s Value
Exposure to
Foreign Exchange Rate
Economies Risk
m 
n ∑
[E ( CFj , t ) × E (ER j , t ) ] 
 j =1 
Value = ∑  
t =1  (1 + k ) t


 

Political Risk

28. CONCLUSION
 MNCs are beneficial for India and its also
give disadvantages to India.
 They give us employment, growth,
development etc. but they also creates
monopoly in market thus small sectors
which exists in market getting closed.

29. THANK YOU
FROM
Raghunath.D
4thSemester
M.F.A.M
Manasagangothri
Mysore