Professional Documents
Culture Documents
1
Why Study International
Finance
In today's world finance cannot be
anything but international
Enormous growth in the volume of
international trade
Cross border capital flows and, in
particular, direct investment have also
grown enormously
2
Why Study International Finance
(contd.)
Real revolution has been taking place in
the money and capital markets around
the world
Liberalization, integration and
innovation have created a giant
international financial market which is
extremely dynamic and complex
3
Why Study International Finance
(contd.)
Multilateral negotiations regarding phased
removal of trade barriers have made
considerable progress and WTO had
emerged as a meaningful platform
Post war, World trade has grown faster
than World GDP
Almost all countries getting integrated with
the global economy
4
Why Study International Finance
(contd.)
Indian economy needs substantial
amounts of foreign capital to augment
domestic savings
Technology up-gradation in India will
require continuing import of foreign
technology, hardware and software
Indias increasing recourse to
commercial borrowings and direct and
portfolio investments by nonresidents
5
Why Study International Finance
(contd.)
The efforts of Indian companies to
diversify into exports of engineering
equipment and turnkey projects will
have to be supported by the ability to
offer long term financing to buyers
A number of companies particularly in
the Indian IT sector have begun
venturing abroad for strategic reasons
either as partners in joint ventures or by
establishing foreign subsidiaries
6
Why Study International Finance
(contd.)
India's growing dependence on
international financial markets
Debt
Equity
FII investment
Indian companies have also been
venturing abroad for setting up joint
ventures and wholly owned subsidiaries
7
Why Study International Finance
(contd.)
For those who are willing to master its
complexities the global financial market
provides endless opportunities for
creative financial management; for the
unwary, it is a minefield
Finance managers must come to grips
with the conceptual foundations and
practical issues of instruments and
markets 8
Why go for International Trade
Mercantile Theory
Theory of Absolute Advantage
Theory of Comparative Advantage
9
Theory of Comparative Advantage
12
PART 1 THE RISE OF THE
MULTINATIONAL CORPORATION
14
THE RISE OF THE MULTINATIONAL
CORPORATION
A single Barbie doll is made in 10
countries designed in California, with
parts and clothing from Japan, China,
Hong Kong, Malaysia, Indonesia, Korea,
Italy and Taiwan and assembled in
Mexico and sold in 144 countries
15
Total Recall
- A Hungarian born producer
- A Dutch director
- Starred an Austrian born leading man
- A Canadian Villain
- Shot in Mexico
- Distributed by a Hollywood studio owned
by a Japanese firm
16
THE RISE OF THE MULTINATIONAL
CORPORATION
A. Forces Changing Global Markets
Massive deregulation
Collapse of communism
Privatizations of state-owned industries
Revolution in information technology
Wave of M&A
Emergence of free market policies in Third
World Nations
Countless nations accepting the standards of
free market capitalism
17
THE RISE OF THE MULTINATIONAL
CORPORATION
The Rise of China as a Global
Competitor
the most dramatic change in the
international economy over the last decade
the number one destination for foreign
direct investment (FDI)
Note: FDI is the acquisition abroad of
companies, property, or physical assets
18
THE RISE OF THE MULTINATIONAL
CORPORATION
B. Who is the Prime Transmitter of
Competitive Forces in the Global
Economy: The MNC
emphasizes group performance such as
Global coordinated allocation of
resources
Market entry strategy
Ownership of foreign operations
Production, marketing and financial
activities
19
THE RISE OF THE MULTINATIONAL
CORPORATION
C. The MNCs Evolution
Reasons to Go Global:
1. More raw materials
2. New markets
3. Minimize costs of
production
20
THE RISE OF THE MULTINATIONAL
CORPORATION
RAW MATERIAL SEEKERS
exploit markets in other countries
historically first to appear
modern-day counterparts
British Petroleum
Exxon
21
THE RISE OF THE MULTINATIONAL
CORPORATION
MARKET SEEKERS
Produce and sell in foreign markets
Have heavy foreign direct investors
Represented today by firms such as:
IBM
MacDonalds
Nestle
Levi Strauss
22
THE RISE OF THE MULTINATIONAL
CORPORATION
COST MINIMIZERS
seek lower-cost of production abroad
Their motive: to remain cost competitive
Represented today by firms such as:
Texas Instruments
Intel
Seagate Technology
23
THE RISE OF THE MULTINATIONAL
CORPORATION
D. What is the MNC?
From a Behavioral View
its a state of mind committed to globally
producing,
undertaking investment,
marketing, and
financing.
24
THE RISE OF THE MULTINATIONAL
CORPORATION
E. THE GLOBAL MANAGER:
1. Understands political and
economic differences;
2. Searches for most cost-
effective suppliers;
3. Evaluates changes on value
of the firm.
25
Part II INTERNATIONALIZATION OF
BUSINESS AND FINANCE
I. Globalization
II. Political and Labour Union
Concerns
III. Consequences of Global
Competition:
The acceleration of the global
economy
26
PART III. MULTINATIONAL
FINANCIAL MANAGEMENT:
THEORY AND PRACTICE
27
MFM: 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.
E. Value
The ability to avoid national
taxes has led to controversy.
28
MFM: THEORY AND PRACTICE
29
MFM: THEORY AND PRACTICE
30
MFM: THEORY AND PRACTICE
31
MFM: THEORY AND PRACTICE
32
MFM: THEORY AND PRACTICE
34
The Finance Function
35
The Finance Function (contd.)
36
The Emerging Challenges
Five key categories of emerging challenges
can be identified
To keep up-to-date with significant
environmental changes and analyze their
implications for the firm
To understand and analyze the complex
interrelationships between relevant
environmental variables and corporate
responses - own and competitive - to the
changes in them
37
The Emerging Challenges (contd.)
38
Recent Challenges in Global
Financial Markets
The outstanding feature of the changes
during the eighties was integration
Both the potential borrower and the
potential investor have a wide range of
choice of markets
there has been a strong trend towards
functional unification across the various
types of financial institutions within
individual markets
39
Recent Challenges in Global
Financial Markets (contd.)
The driving forces behind this spatial and
functional integration were first,
liberalization of cross border financial
transactions and, second, deregulation
within the financial systems of the major
industrial nations
Assets denominated in various
currencies became more nearly
substitutable 40
Recent Challenges in Global
Financial Markets (contd.)
Deregulation involved action on two fronts
Eliminating the segmentation of the markets
for financial services
permitting foreign financial institutions to enter
the national markets and compete on an
equal footing with the domestic institutions
This is a part of the overall trend towards
securitisation and disintermediation
41
Recent Challenges in Global
Financial Markets (contd.)
The attainment of the Economic and
Monetary Union (EMU) and the birth of
Euro in the closing years of the decade of
1990's
There is a race on to come up with
increasingly complex and often esoteric
products which, it is sometimes said, the
bankers themselves do not fully
understand
42
Recent Challenges in Global
Financial Markets (contd.)
The explosive pace of deregulation and
innovation has given rise to serious
concerns about the viability and stability
of the system
Disturbances following a local financial
crisis tend to spread throughout the
global system at the "speed of thought"
making the policy makers' task extremely
difficult
43
Summary
The finance manager of the new century
cannot afford to remain ignorant about
international financial markets and
instruments and their relevance for the
treasury function
The job of the finance manager will
increasingly become more challenging,
demanding and exciting
44