Financial Management in the International Corporation Exchange Rates and International Parity Condit - PowerPoint PPT Presentation

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Financial Management in the International Corporation Exchange Rates and International Parity Condit

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Title: Financial Management in the International Corporation Exchange Rates and International Parity Condit


1
1. International Finance
2
?
3
Course Information
Instructor Art DurnevOffice hours Tuesdays
and Wednesdays, 4 -5 pm
4
Course Load
  • Participation 5
  • Two Homeworks (5 each)
  • group, not more than 4 students
  • good practice for the midterms
  • 2 Cases (group, up to 5 people) 15 each
  • 2 Midterms (20 each, closed-books)
  • Final group presentation 15

5
Policies
Course materials lecture notes handouts
text book articles in-class practice
problems
6
Policies
Cell Phones OFF!!Tardiness NO!!Attendance
mandatoryMissing or late work noClass
participation yes!!
7
Cross-border transactions
Production GlobalizationMultinational
Corporations go where cost is lower and profit is
higher. IBM Korean keyboards Taiwanese
monitors US chips Malaysian
assembly
Indian preinstalled software.Financial Markets
IntegrationUS, Japanese investors poured money
into overseas markets.Cross-listing of IBM,
Daimler-Benz, Sony, Gazprom
8
Recent Trends
Financial Markets Deregulation 1980 Japan
deregulated its FEX. London Stock Exchange began
admitting foreign firms as full members in
1986. Competition in Financial Services new
instruments, currency futures and options,
multicurrency bonds, international mutual funds.
Advances in computer and telecom industry
better information. Cross-listing facilitates
international investment.
9
International Finance is different because...
Foreign exchange risk exchange rates are very
volatile. Political risks governments change the
rules of the game. Market Imperfections legal
restrictions, transaction costs, discriminatory
taxation.
10
The Changing Financial Landscape
Some changes have been gradual. The smaller role
played by the United States and the U.S.
dollar. The growing importance of new financial
products, new financial institutions, and
emerging markets around the world. Other
changes were more abrupt. The collapse of the
pegged exchange rate system in the early 1970s
(Bretton Woods) and in the latter half of the
1990s (Mexico, Thailand, Korea, etc.).
11
Goals of Management
Two different points of view on the goal of
management.The Anglo-American markets believe
that a firms objective should be to maximize
shareholder wealth.The Continental European and
Japanese markets believe that a firms objective
should be to maximize corporate wealth.These
countries include the EU, Japan and Latin
American countries.Definition of corporate
wealth is broader than Anglo-American viewpoint
that wealth is strictly financial.A
corporations role in wealth maximization
includes the firms technical, market and human
resources.
12
This course is about...
Environment in which managers operateWhy does
capital flow?How are prices determined in
international setting?Why do countries
trade?International Parity Conditions Linking
spot exchange rates to forward rates and interest
rates Exchange rate determinationWhat is
exchange rate?What are exchange rate
regimes?How are currencies traded?
13
This course is about...
International Portfolio Diversification Why do
they diversify internationally? How to hedge
international portfolios? What problems do you
face if you invest into emerging
markets? Financial Crises Did we have them
before?Are they all alike?What causes
them?What is contagion?
14
Accidents along the International Financial
Superhighway
15
Accidents along the International Financial
Superhighway
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Accidents along the International Financial
Superhighway
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Disclaimer
Please note that this course is centered around
international financial institutions and markets
and is the first necessary step to understanding
all problems related to international finance. A
managerial perspective of the problems faced by
global corporations and more detailed analysis of
portfolio investment strategies at the global
level are covered in other classes.
18
Key Points
1. International Finance is important because we
are now living in a highly globalized and
integrated world economy. 2. There are three
major dimensions that distinguish international
finance from domestic finance foreign exchange,
political risks, and market imperfections.
19
Political Risk Example
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