ifm- chapter 1

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International Financial

ManagementCourse Code:B242

Term-IV

1


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Introduction

Unit-I

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IFM Vs FM

Foreign Exchange

Political risk and

Expanded Opportunity set

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MNC

An enterprise that owns and controlsproduction or service facilitiesoutside the country in which it is

based.

MNC Groups

4

Ethnocentric

Polycentric

Geocentric


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MNC s

Ethnocentric: Home-market oriented

Distinction between Domestic andglobal operations

Polycentric : Host-market oriented

Caters to the demand of the host

country Geocentric : Balance between home

market and host market

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MNC Vs TNCMulti

NationalCompany

Decision Making :Normally decentralized

Activities of the Firm:

Not strongly co-ordinated

Transnational

Company

Centralized

Perfectly controlledand co-ordinated to

achieve globalcompetitiveness.

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No. of MNCs in the world

889,416 multinational companies(MNCs) around the world

82,053 parent corporations and807,363 affiliates.

(WIR-2009)

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8

Overview

Why Firms Pursue International Business

How Firms Engage in InternationalBusiness


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Managing the MNC

Management and Agency Problems

a. Parent Control

b. Corporate ControlHow Sarbanes-Oxley

(SOX-2002)Improved MNCs

Corporate Governance


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Why Firms Pursue InternationalBusiness

1. Theory of Comparative Advantage

2. Imperfect Markets Theory

3. Product Cycle Theory


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Comparative Advantage

Technological advantage-US andJapan-large Producers of computercomponents

Ex: Oracle , IBM , Intel

Cost of basic labour- advantageJamaica ,Mexico and South Korea-Agricultural and Handmade goods

Comparative Advantage allows firmsto penetrate foreign markets

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Imperfect Markets Theory

Perfect Markets-no internationaltrade

Imperfect trade-allows Internationaltrade

Ex:Nike

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13

Insert chart page 7 Exhibit 1.2

International Product Life Cycles


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How Firms Engage in International

Business

1. International Trade(Exporting)

2. Licensing

3. Franchising4. Joint Ventures

5. Acquisition of Existing Operations

6. Establishing New Foreign Subsidiaries


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How Firms Engage in InternationalBusiness

Summary of Methods by Risk

Degrees of Risk to MNC

FDIFranchising

andJoint Ventures

ForeignAcquisitions

NewForeignSubsidiaries

MOSTRISK

LEASTRISK


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Web links

www.unctad.org/wir/

UNCTAD: United Nations Conferenceon Trade and Development

Provides a broad coverage of crossborder investment activities byMNCs.

World Investment Report-2011

(WIR-2011)(WIR-2012)

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http://www.unctad.org/wir/http://www.unctad.org/wir/


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Assignment-I Worlds Biggest 10 Companies-

2012,2011,2010,2009 Total no. of MNCs in the world

Top 10 most profitable companies in

the world

Top 10 fastest growers

Top 10 biggest employers

Top 20 of the largest MNCs rankedby the size of foreign assets

Best countries to invest17


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Internet Exercise

Visit the corporate website ofNokia, one of the most popularMNC in the world.

From the annual report study thegeographical diversification of itssales and revenues, no. of

subsidiaries, no. of countriesexporting to, imports of thatcompany, Head quarters etc.

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Case Study

Decision to expand internationally:

Blades ,Inc

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Research

Destination Bangladesh:

Arvind Mills

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Assignment-II

Select a country and analyze thatcountrys balance of payments for 8to 12 years, subject to the

availability of data. The analysismust include BOP Summary(Statistical data on Current account

balance, Capital account balance ,Official Reserve account balance andOverall Balance of Payments in US

Dollars).21


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The report should also focus on thefollowing issues :

Identify the relationship between Current

account balance and the exchange rate ofthe selected country(same period-8-12yrs)

Financial position of the selected countryin the IMF

Currency composition of the Worldsforeign exchange reserves and countrys

per cent of total for the current year22

ifm- chapter 1

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