foreign exchange management 1. i. the mnc: definition a company with production and distribution...
TRANSCRIPT
Foreign Exchange Management
1
I. The MNC: Definitiona company with production and distribution facilities in more than one country.
2
THE RISE OF THE MULTINATIONAL CORPORATION
THE RISE OF THE MULTINATIONAL CORPORATION
A. Forces Changing Global MarketsMassive deregulationCollapse of communismPrivatizations of state-owned industriesRevolution in information technologyWave of M&AEmergence of free market policiesRise of Big Emerging Markets (BEMs)
3
THE RISE OF THE MULTINATIONAL CORPORATION
B. Prime Transmitter of Competitive Forces in the Global Economy:
The MNC emphases group performance such asGlobal coordinated allocation of resources Market – entry strategyOwnership of foreign operationsProduction, marketing and financial activities
4
THE RISE OF THE MULTINATIONAL CORPORATION
C. EVOLUTION OF THE MNCReasons to Go Global:
1. More raw materials2. New markets3. Minimize costs of production
5
THE RISE OF THE MULTINATIONAL CORPORATION
RAW MATERIAL SEEKERSexploit markets in other countrieshistorically first to appearmodern-day counterparts
British PetroleumExxon
6
THE RISE OF THE MULTINATIONAL CORPORATION
MARKET SEEKERSproduce and sell in foreign marketsheavy foreign direct investorsrepresentative firms:
IBMMacDonald’sNestle
7
THE RISE OF THE MULTINATIONAL CORPORATION
COST MINIMIZERSseek lower-cost production abroadmotive: to remain cost competitive
Texas InstrumentsIntelSeagate Technology
8
THE RISE OF THE MULTINATIONAL CORPORATION
D. THE MNC: A BEHAVIORAL VIEW1. State of mind: committed to
a) producing, b) undertaking investment c) marketing, and d) financing globally.
9
THE RISE OF THE MULTINATIONAL CORPORATION
E. THE GLOBAL MANAGER• Understands political and economic
differences;
• Searches for most cost-effective Suppliers;• Evaluates changes on value of the firm.
10
The Internationalization of Business and Finance
I. GlobalizationA. Political and Labor Union Concerns
11
B. Consequences of Global Competition
Acceleration of the global economy
12
The Internationalization of Business and Finance
MULTINATIONAL FINANCIAL MANAGEMENT: THEORY AND PRACTICE
I. THE MULTINATIONAL FINANCIAL SYSTEM1. Main Objective of MNC: Maximize shareholder
wealth2. Other Objectives Reflect
1. Ability to Link via affiliate transfer mechanisms
13
THEORY AND PRACTICE
C. Mode of Transfer:Reflects freedom to select a variety of financial channels.D. Timing Flexibility:Most MNC have some flexibility in timing of fund flows.
14
THEORY AND PRACTICE
E. ValueThe ability to avoid national taxes has led to controversy.
15
THEORY AND PRACTICE
II. FUNCTIONS OF FINANCIALMANAGEMENT
A. Two Basic Functions:1. Financing2. Investing
16
THEORY AND PRACTICE
B. Additional Factors Facing the MNCExecutive1. Political risk2. Economic risk
17
THEORY AND PRACTICE
III. THEORETICAL FOUNDATIONSA. Useful Concepts from Financial
Economics:1. Arbitrage2. Market Efficiency3. Capital Asset Pricing
18
THEORY AND PRACTICE
B. Importance of Total Risk1. Adverse Impact lower sales
and higher costs2. Justifies hedging activities
of MNC3. Diversification reduces risk
19
THEORY AND PRACTICE
IV. THE GLOBAL FINANCIAL MARKET PLACE
A.Inter-linkage by ComputersB.Market Acts as A Global Referendum
Process:Currencies may rise or fall
20