Submit Search
Upload
c2.pdf
•
0 likes
•
350 views
S
ssuser53ab6d
Follow
international financial management
Read less
Read more
Education
Report
Share
Report
Share
1 of 48
Download now
Download to read offline
Recommended
03 edited
03 edited
Abraish Georgeous
1588408638-ifm11e-ch02.pptx
1588408638-ifm11e-ch02.pptx
ssuserea8f08
Ch 1
Ch 1
Abraish Georgeous
Chapter9 International Finance Management
Chapter9 International Finance Management
Piyush Gaur
Ch04 Exchange rate determination
Ch04 Exchange rate determination
Abraish Georgeous
Managing Economic Exposure and Translation Exposure
Managing Economic Exposure and Translation Exposure
Dr. Hesniati S.E., M.M.
Chapter2 International Finance Management
Chapter2 International Finance Management
Piyush Gaur
Chapter5 International Finance Management
Chapter5 International Finance Management
Piyush Gaur
Recommended
03 edited
03 edited
Abraish Georgeous
1588408638-ifm11e-ch02.pptx
1588408638-ifm11e-ch02.pptx
ssuserea8f08
Ch 1
Ch 1
Abraish Georgeous
Chapter9 International Finance Management
Chapter9 International Finance Management
Piyush Gaur
Ch04 Exchange rate determination
Ch04 Exchange rate determination
Abraish Georgeous
Managing Economic Exposure and Translation Exposure
Managing Economic Exposure and Translation Exposure
Dr. Hesniati S.E., M.M.
Chapter2 International Finance Management
Chapter2 International Finance Management
Piyush Gaur
Chapter5 International Finance Management
Chapter5 International Finance Management
Piyush Gaur
Ch 01 Multinational Financial Management - An Over view.ppt
Ch 01 Multinational Financial Management - An Over view.ppt
shomudrokotha
International Portfolio Diversification
International Portfolio Diversification
hlewis11
Chapter 15
Chapter 15
Dr. Muath Asmar
BONDS, BOND VALUATION, AND INTEREST RATES
BONDS, BOND VALUATION, AND INTEREST RATES
Salah A. Skaik - MBA-PMP®
Currency Hedging Presentation
Currency Hedging Presentation
Paul Stafford
Chapter 06a
Chapter 06a
Arsl57
Bond valuation
Bond valuation
Badam Venkatareddy
Chapter (24).
Chapter (24).
Dr. Muath Asmar
Chapter 13_The Foreign Exchange Market
Chapter 13_The Foreign Exchange Market
Rusman Mukhlis
Chapter1 IFM
Chapter1 IFM
Piyush Gaur
Chapter 5
Chapter 5
Dr. Muath Asmar
Saunders 8e ppt_chapter16
Saunders 8e ppt_chapter16
Dr. Muath Asmar
8. Relationships among Inflation, Interest Rates and Exchange Rates.pptx
8. Relationships among Inflation, Interest Rates and Exchange Rates.pptx
challbhag
International financial-market-instruments
International financial-market-instruments
nileshsen
Chapter12 International Finance Management
Chapter12 International Finance Management
Piyush Gaur
Chapter14 International Finance Management
Chapter14 International Finance Management
Piyush Gaur
Measuring Exposure to Exchange Rate Fluctuations
Measuring Exposure to Exchange Rate Fluctuations
Dr. Hesniati S.E., M.M.
Relationship between Inflation, Interest Rates, and Exchange Rates
Relationship between Inflation, Interest Rates, and Exchange Rates
Dr. Hesniati S.E., M.M.
Chapter7 International Finance Management
Chapter7 International Finance Management
Piyush Gaur
Multinational cost and capital structure
Multinational cost and capital structure
StudsPlanet.com
PPT.pptx
PPT.pptx
GirishGarg20
E:\Notes Of M Com 2\Converted Pdf Notes\International Business
E:\Notes Of M Com 2\Converted Pdf Notes\International Business
guesta42743
More Related Content
What's hot
Ch 01 Multinational Financial Management - An Over view.ppt
Ch 01 Multinational Financial Management - An Over view.ppt
shomudrokotha
International Portfolio Diversification
International Portfolio Diversification
hlewis11
Chapter 15
Chapter 15
Dr. Muath Asmar
BONDS, BOND VALUATION, AND INTEREST RATES
BONDS, BOND VALUATION, AND INTEREST RATES
Salah A. Skaik - MBA-PMP®
Currency Hedging Presentation
Currency Hedging Presentation
Paul Stafford
Chapter 06a
Chapter 06a
Arsl57
Bond valuation
Bond valuation
Badam Venkatareddy
Chapter (24).
Chapter (24).
Dr. Muath Asmar
Chapter 13_The Foreign Exchange Market
Chapter 13_The Foreign Exchange Market
Rusman Mukhlis
Chapter1 IFM
Chapter1 IFM
Piyush Gaur
Chapter 5
Chapter 5
Dr. Muath Asmar
Saunders 8e ppt_chapter16
Saunders 8e ppt_chapter16
Dr. Muath Asmar
8. Relationships among Inflation, Interest Rates and Exchange Rates.pptx
8. Relationships among Inflation, Interest Rates and Exchange Rates.pptx
challbhag
International financial-market-instruments
International financial-market-instruments
nileshsen
Chapter12 International Finance Management
Chapter12 International Finance Management
Piyush Gaur
Chapter14 International Finance Management
Chapter14 International Finance Management
Piyush Gaur
Measuring Exposure to Exchange Rate Fluctuations
Measuring Exposure to Exchange Rate Fluctuations
Dr. Hesniati S.E., M.M.
Relationship between Inflation, Interest Rates, and Exchange Rates
Relationship between Inflation, Interest Rates, and Exchange Rates
Dr. Hesniati S.E., M.M.
Chapter7 International Finance Management
Chapter7 International Finance Management
Piyush Gaur
Multinational cost and capital structure
Multinational cost and capital structure
StudsPlanet.com
What's hot
(20)
Ch 01 Multinational Financial Management - An Over view.ppt
Ch 01 Multinational Financial Management - An Over view.ppt
International Portfolio Diversification
International Portfolio Diversification
Chapter 15
Chapter 15
BONDS, BOND VALUATION, AND INTEREST RATES
BONDS, BOND VALUATION, AND INTEREST RATES
Currency Hedging Presentation
Currency Hedging Presentation
Chapter 06a
Chapter 06a
Bond valuation
Bond valuation
Chapter (24).
Chapter (24).
Chapter 13_The Foreign Exchange Market
Chapter 13_The Foreign Exchange Market
Chapter1 IFM
Chapter1 IFM
Chapter 5
Chapter 5
Saunders 8e ppt_chapter16
Saunders 8e ppt_chapter16
8. Relationships among Inflation, Interest Rates and Exchange Rates.pptx
8. Relationships among Inflation, Interest Rates and Exchange Rates.pptx
International financial-market-instruments
International financial-market-instruments
Chapter12 International Finance Management
Chapter12 International Finance Management
Chapter14 International Finance Management
Chapter14 International Finance Management
Measuring Exposure to Exchange Rate Fluctuations
Measuring Exposure to Exchange Rate Fluctuations
Relationship between Inflation, Interest Rates, and Exchange Rates
Relationship between Inflation, Interest Rates, and Exchange Rates
Chapter7 International Finance Management
Chapter7 International Finance Management
Multinational cost and capital structure
Multinational cost and capital structure
Similar to c2.pdf
PPT.pptx
PPT.pptx
GirishGarg20
E:\Notes Of M Com 2\Converted Pdf Notes\International Business
E:\Notes Of M Com 2\Converted Pdf Notes\International Business
guesta42743
Enhanced01
Enhanced01
Nila Vata
Financial-management-Part-3-updated.pptx
Financial-management-Part-3-updated.pptx
MaryGraceTan12
IFE.pptx
IFE.pptx
AhutiMishra3
Chapter 2 PowerPoint
Chapter 2 PowerPoint
rogergomes14
PPT for IFM Assignment.pdf
PPT for IFM Assignment.pdf
aarjasethi1
Pcc mktg 26 intl. mktg chapter 4
Pcc mktg 26 intl. mktg chapter 4
Mark Jason Garingarao
International business mumbai university solved paper 2008
International business mumbai university solved paper 2008
shrund
International Flow of Fund
International Flow of Fund
MuhammadFaizan798011
basic02international financialManagement.ppt
basic02international financialManagement.ppt
MuhammadUsmanYusuf1
Deepak ib solved paper
Deepak ib solved paper
Deepak R Gorad
International trade
International trade
IRFAN BASHIR
Multinational Financial Management: An Overview
Multinational Financial Management: An Overview
Dr. Hesniati S.E., M.M.
PPT-IFM.pdf
PPT-IFM.pdf
Reddy sarveswara Reddy
PPT-IFM.pdf
PPT-IFM.pdf
GarimaPaliwal7
PPT-IFM.pdf
PPT-IFM.pdf
GarimaPaliwal7
Multinational Financial Management: An Overview
Multinational Financial Management: An Overview
Gagan bhati
Daniels19 im
Daniels19 im
Keerthi Ram
Chap. 4. international finance & marketing
Chap. 4. international finance & marketing
Scarlett Voughn
Similar to c2.pdf
(20)
PPT.pptx
PPT.pptx
E:\Notes Of M Com 2\Converted Pdf Notes\International Business
E:\Notes Of M Com 2\Converted Pdf Notes\International Business
Enhanced01
Enhanced01
Financial-management-Part-3-updated.pptx
Financial-management-Part-3-updated.pptx
IFE.pptx
IFE.pptx
Chapter 2 PowerPoint
Chapter 2 PowerPoint
PPT for IFM Assignment.pdf
PPT for IFM Assignment.pdf
Pcc mktg 26 intl. mktg chapter 4
Pcc mktg 26 intl. mktg chapter 4
International business mumbai university solved paper 2008
International business mumbai university solved paper 2008
International Flow of Fund
International Flow of Fund
basic02international financialManagement.ppt
basic02international financialManagement.ppt
Deepak ib solved paper
Deepak ib solved paper
International trade
International trade
Multinational Financial Management: An Overview
Multinational Financial Management: An Overview
PPT-IFM.pdf
PPT-IFM.pdf
PPT-IFM.pdf
PPT-IFM.pdf
PPT-IFM.pdf
PPT-IFM.pdf
Multinational Financial Management: An Overview
Multinational Financial Management: An Overview
Daniels19 im
Daniels19 im
Chap. 4. international finance & marketing
Chap. 4. international finance & marketing
Recently uploaded
“Oh GOSH! Reflecting on Hackteria's Collaborative Practices in a Global Do-It...
“Oh GOSH! Reflecting on Hackteria's Collaborative Practices in a Global Do-It...
Marc Dusseiller Dusjagr
Earth Day Presentation wow hello nice great
Earth Day Presentation wow hello nice great
YousafMalik24
CELL CYCLE Division Science 8 quarter IV.pptx
CELL CYCLE Division Science 8 quarter IV.pptx
JiesonDelaCerna
Interactive Powerpoint_How to Master effective communication
Interactive Powerpoint_How to Master effective communication
nomboosow
Roles & Responsibilities in Pharmacovigilance
Roles & Responsibilities in Pharmacovigilance
SamikshaHamane
Historical philosophical, theoretical, and legal foundations of special and i...
Historical philosophical, theoretical, and legal foundations of special and i...
jaredbarbolino94
Introduction to ArtificiaI Intelligence in Higher Education
Introduction to ArtificiaI Intelligence in Higher Education
pboyjonauth
KSHARA STURA .pptx---KSHARA KARMA THERAPY (CAUSTIC THERAPY)————IMP.OF KSHARA ...
KSHARA STURA .pptx---KSHARA KARMA THERAPY (CAUSTIC THERAPY)————IMP.OF KSHARA ...
M56BOOKSTORE PRODUCT/SERVICE
DATA STRUCTURE AND ALGORITHM for beginners
DATA STRUCTURE AND ALGORITHM for beginners
Sabitha Banu
TataKelola dan KamSiber Kecerdasan Buatan v022.pdf
TataKelola dan KamSiber Kecerdasan Buatan v022.pdf
Sarwono Sutikno, Dr.Eng.,CISA,CISSP,CISM,CSX-F
Hierarchy of management that covers different levels of management
Hierarchy of management that covers different levels of management
mkooblal
OS-operating systems- ch04 (Threads) ...
OS-operating systems- ch04 (Threads) ...
Dr. Mazin Mohamed alkathiri
9953330565 Low Rate Call Girls In Rohini Delhi NCR
9953330565 Low Rate Call Girls In Rohini Delhi NCR
9953056974 Low Rate Call Girls In Saket, Delhi NCR
Types of Journalistic Writing Grade 8.pptx
Types of Journalistic Writing Grade 8.pptx
Eyham Joco
Incoming and Outgoing Shipments in 1 STEP Using Odoo 17
Incoming and Outgoing Shipments in 1 STEP Using Odoo 17
Celine George
Biting mechanism of poisonous snakes.pdf
Biting mechanism of poisonous snakes.pdf
adityarao40181
call girls in Kamla Market (DELHI) 🔝 >༒9953330565🔝 genuine Escort Service 🔝✔️✔️
call girls in Kamla Market (DELHI) 🔝 >༒9953330565🔝 genuine Escort Service 🔝✔️✔️
9953056974 Low Rate Call Girls In Saket, Delhi NCR
Software Engineering Methodologies (overview)
Software Engineering Methodologies (overview)
eniolaolutunde
Painted Grey Ware.pptx, PGW Culture of India
Painted Grey Ware.pptx, PGW Culture of India
Virag Sontakke
ECONOMIC CONTEXT - PAPER 1 Q3: NEWSPAPERS.pptx
ECONOMIC CONTEXT - PAPER 1 Q3: NEWSPAPERS.pptx
iammrhaywood
Recently uploaded
(20)
“Oh GOSH! Reflecting on Hackteria's Collaborative Practices in a Global Do-It...
“Oh GOSH! Reflecting on Hackteria's Collaborative Practices in a Global Do-It...
Earth Day Presentation wow hello nice great
Earth Day Presentation wow hello nice great
CELL CYCLE Division Science 8 quarter IV.pptx
CELL CYCLE Division Science 8 quarter IV.pptx
Interactive Powerpoint_How to Master effective communication
Interactive Powerpoint_How to Master effective communication
Roles & Responsibilities in Pharmacovigilance
Roles & Responsibilities in Pharmacovigilance
Historical philosophical, theoretical, and legal foundations of special and i...
Historical philosophical, theoretical, and legal foundations of special and i...
Introduction to ArtificiaI Intelligence in Higher Education
Introduction to ArtificiaI Intelligence in Higher Education
KSHARA STURA .pptx---KSHARA KARMA THERAPY (CAUSTIC THERAPY)————IMP.OF KSHARA ...
KSHARA STURA .pptx---KSHARA KARMA THERAPY (CAUSTIC THERAPY)————IMP.OF KSHARA ...
DATA STRUCTURE AND ALGORITHM for beginners
DATA STRUCTURE AND ALGORITHM for beginners
TataKelola dan KamSiber Kecerdasan Buatan v022.pdf
TataKelola dan KamSiber Kecerdasan Buatan v022.pdf
Hierarchy of management that covers different levels of management
Hierarchy of management that covers different levels of management
OS-operating systems- ch04 (Threads) ...
OS-operating systems- ch04 (Threads) ...
9953330565 Low Rate Call Girls In Rohini Delhi NCR
9953330565 Low Rate Call Girls In Rohini Delhi NCR
Types of Journalistic Writing Grade 8.pptx
Types of Journalistic Writing Grade 8.pptx
Incoming and Outgoing Shipments in 1 STEP Using Odoo 17
Incoming and Outgoing Shipments in 1 STEP Using Odoo 17
Biting mechanism of poisonous snakes.pdf
Biting mechanism of poisonous snakes.pdf
call girls in Kamla Market (DELHI) 🔝 >༒9953330565🔝 genuine Escort Service 🔝✔️✔️
call girls in Kamla Market (DELHI) 🔝 >༒9953330565🔝 genuine Escort Service 🔝✔️✔️
Software Engineering Methodologies (overview)
Software Engineering Methodologies (overview)
Painted Grey Ware.pptx, PGW Culture of India
Painted Grey Ware.pptx, PGW Culture of India
ECONOMIC CONTEXT - PAPER 1 Q3: NEWSPAPERS.pptx
ECONOMIC CONTEXT - PAPER 1 Q3: NEWSPAPERS.pptx
c2.pdf
1.
Chapter 2 International Flow
of Funds Jeff Madura, International Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
2.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter Objectives • Explain the key components of the balance of payments. • Explain the growth in international trade activity over time. • Explain how international trade flows are influenced by economic and other factors. • Explain how international capital flows are influenced by country characteristics. • Introduce the agencies that facilitate the international flow of funds. 2
3.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Balance of Payments (1 of 6) Definition: Summary of transactions between domestic and foreign residents for a specific country over a specified period of time. 3
4.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Balance of Payments (2 of 6) Components of the Balance of Payments Statement: • Current Account: summary of flow of funds due to purchases of goods or services or the provision of income on financial assets. • Capital Account: summary of flow of funds resulting from the sale of assets between one specified country and all other countries over a specified period of time. • Financial Account: refers to special types of investment, including DFI and portfolio investment. 4
5.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Balance of Payments (3 of 6) Current Account • Payments for Goods and Services o Merchandise exports and imports represent tangible products that are transported between countries. Service exports and imports represent tourism and other services. The difference between total exports and imports is referred to as the balance of trade. • Primary Income Payments o Represents income earned by MNCs on their direct foreign investment as well as income earned by investors on their portfolio investments. • Secondary Income o Represents aid, grants, and gifts from one country to another. 5
6.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Balance of Payments (4 of 6) Current Account (continued) • Examples of payment entries o Exhibit 2.1. shows several examples of transactions that would be reflected in the current account. • Actual U.S. current account balance o The U.S. current account balance has been consistently negative since 1992. Since 2011, the quarterly current account balance for the United States has typically exceeded $40 billion per month, which is primarily due to the U.S. balance-of-trade deficit. 6
7.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 2.1 Examples of Current Account Transactions (1 of 3) International Trade Transaction U.S. Cash Flow Position Entry On U.S. Balance- Of-Payments Account Walmart purchases clothing produced in Indonesia that it will sell in its U.S. retail stores. U.S. cash outflow Debit Individuals in the United States purchase leather goods over the Internet from a firm based in Italy. U.S. cash outflow Debit The Mexican government pays a U.S. consulting firm for consulting services provided by the firm. U.S. cash inflow Credit The Home Depot headquarters in the United States purchases lumber from Canada that it uses in assembling kitchen cabinets. U.S. cash outflow Debit A university bookstore in Ireland purchases textbooks produced by a U.S. publishing company. U.S. cash inflow Credit 7
8.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 2.1 Examples of Current Account Transactions (2 of 3) International Primary Income Transaction U.S. Cash Flow Position Entry On U.S. Balance- Of-Payments Account A U.S. investor receives a dividend payment from a French firm in which she purchased stock. U.S. cash inflow Credit The U.S. Treasury sends an interest payment to a German insurance company that purchased U.S. Treasury bonds one year ago. U.S. cash outflow Debit Apple's foreign subsidiaries remit earnings to their U.S. parent. U.S. cash inflow Credit U.S.-based Mercedes-Benz subsidiaries remit earnings to their parent (Daimler AG) in Germany. U.S. cash outflow Debit 8
9.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 2.1 Examples of Current Account Transactions (3 of 3) International Secondary Income Transaction U.S. Cash Flow Position Entry On U.S. Balance- Of-Payments Account The United States provides aid to Costa Rica in response to a flood in Costa Rica. U.S. cash inflow Debit Switzerland provides a grant to U.S. scientists to work on cancer research. U.S. cash inflow Credit 9
10.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Balance of Payments (5 of 6) Financial Account • Direct foreign investment o Summarizes the new direct foreign investment over a given period. • Portfolio investment o Summarizes the new portfolio investment (investment in financial assets such as stocks or bonds) over a given period. • Other capital investment o Transactions involving short-term financial assets (such as money market securities) between countries. 10
11.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Balance of Payments (6 of 6) Capital Account • Summarizes the flow of funds between one country and all other countries due to financial assets transferred across country borders by people who move to a different country, or due to sales of patents and trademarks. 11
12.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Growth in International Trade (1 of 6) Events That Increased Trade Volume • Removal of the Berlin Wall: Led to reductions in trade barriers in Eastern Europe. • Single European Act of 1987: Improved access to supplies from firms in other European countries. • North American Free Trade Agreement (NAFTA): Allowed U.S. firms to penetrate product and labor markets that previously had not been accessible. • General Agreement on Tariffs and Trade (GATT): Called for the reduction or elimination of trade restrictions on specified imported goods over a 10- year period across 117 countries. 12
13.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Growth in International Trade (2 of 6) Events That Increased Trade Volume (continued) • The European Union: Free movement of products, services, and capital among member countries. • Inception of Euro: Avoid exposure to exchange rate risk. • Other Trade Agreements: The United States has established trade agreements with many other countries. 13
14.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Growth in International Trade (3 of 6) Impact of Outsourcing on Trade • Definition of Outsourcing: The process of subcontracting to a third party in another country to provide supplies or services that were previously produced internally. • Impact of outsourcing: o Increased international trade activity because MNCs now purchase products or services from another country. o Lower cost of operations and job creation in countries with low wages. • Criticism of outsourcing: o Outsourcing may reduce jobs in the United States. 14
15.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Growth in International Trade (4 of 6) Impact of Outsourcing on Trade (continued) • Managerial decisions about outsourcing o Managers of a U.S.-based MNC may argue that they create jobs for U.S. workers. o Shareholders may suggest that the managers are not maximizing the MNC’s value as a result of their commitment to creating U.S. jobs. o Managers should consider the potential savings that could occur as a result of outsourcing. o Managers must also consider the possible bad publicity or bad morale that could occur among the U.S. workers. 15
16.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Growth in International Trade (5 of 6) Trade Volume Among Countries • The annual international trade volume of the United States is between 10 and 20% of its annual GDP. • Trade volume between the United States and Other Countries: o About 20% of all U.S. exports are to Canada, while 13% are to Mexico. (Exhibits 2.2 and 2.3) o Canada, China, Mexico, and Japan are the key exporters to the United States. Together, they are responsible for more than half of the value of all U.S. imports. 16
17.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 2.3 Distributions of U.S. Exports by Country (2015, billions of $) Source: U.S. Census Bureau, 2018 17
18.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 2.4 Distribution of U.S. Exports and Imports by Country (2018) Source: U.S. Census Bureau, 2018 18
19.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Growth in International Trade (6 of 6) Trend in U.S. Balance of Trade (Exhibit 2.5) • During the last decade, the United States has experienced large balance-of- trade deficits, due to strong U.S. demand for imported products that are produced at a lower cost than similar products can be produced in the United States. • Exhibit 2.4 shows the monthly trend in the U.S. balance of trade. • The U.S monthly trade deficit has been $40 billion or more per month since 2011. • Much of the U.S. trade deficit is due to a trade imbalance with just two countries: China and Japan. 19
20.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 2.5 U.S. Balance of Trade Over Time (Quarterly) Source: U.S. Department of Commerce, Bureau of Economic Analysis, Federal Reserve. 20
21.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Factors Affecting International Trade Flows (1 of 11) Since international trade can significantly affect a country’s economy, it is important to identify and monitor the factors that influence it. The following factors are the most influential: • Cost of labor • Inflation • National income • Credit conditions • Government policies • Exchange rates 21
22.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Factors Affecting International Trade Flows (2 of 11) Cost of Labor: • The cost of labor varies substantially among countries. • Firms in countries where labor costs are low commonly have an advantage when competing globally, especially in labor intensive industries. Inflation: • Current account decreases if inflation increases relative to trade partners. National Income: • Current account decreases if national income increases relative to other countries. 22
23.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Factors Affecting International Trade Flows (3 of 11) Credit Conditions: • When credit conditions become more restrictive, MNCs may reduce their corporate spending and reduce their demand for imported supplies. 23
24.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Factors Affecting International Trade Flows (4 of 11) Government Policies: can increase imports through: • Restrictions on imports • Subsidies for exporters • Restrictions on piracy • Environmental restrictions • Labor laws • Business laws • Tax breaks • Country trade requirements • Government ownership or subsidies • Country security laws • Policies to punish country governments 24
25.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Factors Affecting International Trade Flows (5 of 11) Impact of Government Policies (continued) • Restrictions on Imports: Taxes (tariffs) on imported goods increase prices and limit consumption. Quotas limit the volume of imports. • Subsidies for Exporters: Government subsidies help firms produce at a lower cost than their global competitors. • Restrictions on Piracy: A government can affect international trade flows by its lack of restrictions on piracy. • Environmental Restrictions: Environmental restrictions impose higher costs on local firms, placing them at a global disadvantage compared to firms in other countries that are not subject to the same restrictions. 25
26.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Factors Affecting International Trade Flows (6 of 11) Impact of Government Policies (continued) • Labor Laws: Countries with more restrictive laws will incur higher expenses for labor, other factors being equal. • Business Laws: Firms in countries with more restrictive bribery laws may not be able to compete globally in some situations. • Tax Breaks: Though not necessarily a subsidy, still a form of government financial support that might benefit many firms that export products. • Country Trade Requirements: Requiring various forms or obtaining licenses before countries can export to the country (Bureaucracy) is a strong trade barrier. 26
27.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Factors Affecting International Trade Flows (7 of 11) Impact of Government Policies (continued) • Government Ownership or Subsidies: Some governments maintain ownership in firms that are major exporters. • Country Security Laws: Governments may impose certain restrictions when national security is a concern, which can affect on trade. • Policies to Punish Country Governments: Many expect countries to restrict imports from countries that: o Fail to enforce environmental laws and child labor laws. o Initiate war against another country. o Are unwilling to participate in a war. 27
28.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Factors Affecting International Trade Flows (8 of 11) Impact of Government Policies (continued) • Summary of Government Policies: o Every government implements some policies. o No formula ensures a completely fair contest for market share. 28
29.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Factors Affecting International Trade Flows (9 of 11) Exchange Rates: Current account decreases if currency appreciates relative to other currencies. • How exchange rates may correct a balance of trade deficit: When a home currency is exchanged for a foreign currency to buy foreign goods, then the home currency faces downward pressure, leading to increased foreign demand for the country’s products. • Why exchange rates may not correct a balance of trade deficit: Exchange rates will not automatically correct any international trade balances when other forces are at work. 29
30.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Factors Affecting International Trade Flows (10 of 11) Exchange Rates (continued) • Limitations of a Weak Home Currency Solution o Competition: Foreign companies may lower their prices to remain competitive. o Impact of other currencies: A country that has balance of trade deficit with many countries is not likely to solve all deficits simultaneously. o Prearranged international trade transactions: International transactions cannot be adjusted immediately. The lag is estimated to be 18 months or longer, leading to a J-curve effect. (Exhibit 2.6) o Intracompany trade: Many firms purchase products that are produced by their subsidiaries. These transactions are not necessarily affected by currency fluctuations. 30
31.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 2.6 J-Curve Effect 31
32.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Factors Affecting International Trade Flows (11 of 11) Exchange Rates (continued) • Exchange Rates and International Friction o All governments cannot weaken their home currencies simultaneously. o Actions by one government to weaken its currency causes another country’s currency to strengthen. o Government attempts to influence exchange rates can lead to international disputes. 32
33.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. International Capital Flows (1 of 4) Factors Affecting Direct Foreign Investment • Changes in Restrictions o New opportunities have arisen from the removal of government barriers. • Privatization o Privatization policy allows for expansion of international business because foreign firms can acquire operations sold by national governments. o The primary reason that the market value of a firm may increase in response to privatization is the anticipated improvement in managerial efficiency. o The trend toward privatization will undoubtedly create a more competitive global marketplace. 33
34.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. International Capital Flows (2 of 4) Factors Affecting Direct Foreign Investment (Continued) • Potential Economic Growth o Countries with greater potential for economic growth are more likely to attract DFI. • Tax Rates o Countries that impose relatively low tax rates on corporate earnings are more likely to attract DFI. • Exchange Rates o Firms typically prefer to pursue DFI in countries where the local currency is expected to strengthen against their own. 34
35.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. International Capital Flows (3 of 4) Factors Affecting International Portfolio Investment • Tax Rates on Interest or Dividends o Investors normally prefer to invest in a country where taxes are relatively low. • Interest Rates o Money tends to flow to countries with high interest rates, as long as the local currencies are not expected to weaken. • Exchange Rates o Investors are attracted to a currency that is expected to strengthen. 35
36.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. International Capital Flows (4 of 4) Impact of International Capital Flows (Exhibit 2.7) • The United States relies heavily on foreign investment in: o U.S. manufacturing plants, offices, and other buildings. o Debt securities issued by U.S. firms. o U.S. Treasury debt securities. • Foreign investors are especially attracted to the U.S. financial markets when the interest rate in their home country is substantially lower than that in the United States. • U.S. reliance on foreign funds: In general, access to international funding has allowed more growth in the U.S. economy over time but has also made the U.S. more reliant on foreign investors. 36
37.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 2.7 Impact of the International Flow of Funds on U.S. Interest Rates and Business Investment 37
38.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Agencies that Facilitate International Flows (1 of 7) International Monetary Fund • Major Objectives of the IMF o promote cooperation among countries on international monetary issues, o promote stability in exchange rates, o provide temporary funds to member countries attempting to correct imbalances of international payments, o promote free mobility of capital funds across countries, o promote free trade. It is clear from these objectives that the IMF’s goals encourage increased internationalization of business. • Its compensatory financing facility (CFF) attempts to reduce the impact of export instability on countries. • Financing is measured in special drawing rights (SDRs) 38
39.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Agencies that Facilitate International Flows (2 of 7) World Bank — (International Bank for Reconstruction and Development) • Major Objective — Make loans to countries to enhance economic development. • Structural Adjustment Loans (SALs) are intended to enhance a country’s long-term economic growth. • Funds are distributed through cofinancing agreements: o Official aid agencies o Export credit agencies o Commercial banks 39
40.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Agencies that Facilitate International Flows (3 of 7) World Trade Organization (WTO) • Major Objective — Provide a forum for multilateral trade negotiations and to settle trade disputes related to the GATT accord. • Member countries are given voting rights that are used to make judgments about trade disputes and other issues. 40
41.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Agencies that Facilitate International Flows (4 of 7) International Finance Corporation (IFC) • Major Objective — promote private enterprise within countries. • Provides loans to corporations and purchases stock • It traditionally has obtained financing from the World Bank but can borrow in the international financial markets. International Development Association (IDA) • Major Objectives — extends loans at low interest rates to poor nations that cannot qualify for loans from the World Bank. 41
42.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Agencies that Facilitate International Flows (5 of 7) Bank for International Settlements (BIS) • Major Objectives — facilitate cooperation among countries with regard to international transactions. • Provides assistance to countries experiencing a financial crisis. • Sometimes referred to as the “central banks’ central bank” or the “lender of last resort.” 42
43.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Agencies that Facilitate International Flows (6 of 7) OECD — Organization for Economic Cooperation and Development • Major Objective — Facilitate governance in governments and corporations of countries with market economics. • It has 30 member countries and has relationships with numerous countries. • Promotes international country relationships that lead to globalization. 43
44.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Agencies that Facilitate International Flows (7 of 7) Regional Development Agencies • Inter-American Development Bank: focusing on the needs of Latin America • Asian Development Bank: established to enhance social and economic development in Asia • African Development Bank: focusing on development in African countries • European Bank for Reconstruction and Development: created in 1990 to help the Eastern European countries adjust from communism to capitalism. 44
45.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Summary (1 of 4) • The key components of the balance of payments are the current account and the capital account. The current account is a broad measure of the country’s international trade balance. The capital account measures the value of financial and nonfinancial assets transferred across country borders. The financial account consists mainly of payments for direct foreign investment and investment in securities (portfolio investment). 45
46.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Summary (2 of 4) • International trade activity has grown over time in response to several government agreements to remove cross-border restrictions. In addition, MNCs have commonly used outsourcing in recent years, subcontracting with a third party in a foreign country for supplies or services they previously produced themselves. Thus, outsourcing is another reason for the increase in international trade activity. 46
47.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Summary (3 of 4) • A country’s international trade flows are affected by inflation, national income, government restrictions, and exchange rates. High labor costs, high inflation, a high national income, low or no restrictions on imports, and a strong local currency tend to result in a strong demand for imports and a current account deficit. Although some countries attempt to correct current account deficits by reducing the value of their currencies, this strategy is not always successful. 47
48.
Jeff Madura, International
Financial Management, 14th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Summary (4 of 4) • A country’s international capital flows are affected by any factors that influence direct foreign investment or portfolio investment. DFI tends to occur in those countries that have no restrictions and much potential for economic growth. Portfolio investment tends to occur in those countries where taxes are not excessive, where interest rates are high, and where the local currencies are not expected to weaken. • Several agencies facilitate the international flow of funds by promoting international trade and finance, providing loans to enhance global economic development, settling trade disputes between countries, and promoting global business relationships between countries. 48
Download now