Multinational Financial Management Alan Shapiro 7th Edition J.Wiley

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Multinational Financial Management Alan
Shapiro7th Edition J.Wiley Sons

• Power Points by
• Joseph F. Greco and J.D. Han

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CHAPTER 1

• Introduction Multinational Enterprise and
  Multinational Financial Management

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CHAPTER OVERVIEW

• 1.1 The Rise of the Multinational
  Corporation
• 1.2 The Internationalization of Business and
  Finance
• 1.3 Multinational Financial Management
  Theory and Practice

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1.1 THE RISE OF THE MULTINATIONAL CORPORATION

• A. The MNC Definition
• a company with production and distribution
  facilities in more than one country.

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THE RISE OF THE MULTINATIONAL CORPORATION

• B. Forces Changing Global Markets such as
• Massive deregulation
• Collapse of communism
• Privatizations of state-owned industries
• Revolution in information technology
• Wave of MA
• Emergence of free market policies
• Rise of Big Emerging Markets (BEMs)
• have Ushered in Global Competition

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THE RISE OF THE MULTINATIONAL CORPORATION

• Prime Transmitter of Competition in the Global
  Economy is the MNC
• The MNC emphases group performance such as global
  coordinated allocation of resources by a single
  centralized management

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THE RISE OF THE MULTINATIONAL CORPORATION

• C. EVOLUTION OF MNC as global manager
• Reasons to Go Global
• 1. More raw materials
• 2. New markets
• 3. Minimize costs of production

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THE RISE OF THE MULTINATIONAL CORPORATION

• RAW MATERIAL SEEKERS
• exploit markets in other countries
• historically first to appear
• modern-day counterparts
• British Petroleum
• Exxon

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THE RISE OF THE MULTINATIONAL CORPORATION

• MARKET SEEKERS
• produce and sell in foreign markets
• heavy foreign direct investors
• representative firms
• IBM
• MacDonalds
• Nestle
• Levi Strauss

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THE RISE OF THE MULTINATIONAL CORPORATION

• COST MINIMIZERS
• seek lower-cost production abroad
• motive to remain cost competitive
• Texas Instruments
• Intel
• Seagate Technology

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THE RISE OF THE MULTINATIONAL CORPORATION

• D. THE MNC A BEHAVIORAL VIEW
• Integration of worldwide operation, such as
  globally producing,
• financing, undertaking investment
  and marketing requires
• flexibility, adaptability, speed to changing
  environment and risk,
• as well as focus on strength area(s).

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THE RISE OF THE MULTINATIONAL CORPORATION

• E. What does the Global Manager do?
• 1. Understand political and
• economic risk
• 2. Search for most cost-
• effective suppliers
• 3. Evaluate changes on value of the
  firm.

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1.3 MULTINATIONAL FINANCIAL MANAGEMENT THEORY
AND PRACTICE

• A. THE MULTINATIONAL FINANCIAL
  SYSTEM
• Main Objective of MNC
• Maximize shareholder wealth
• Reduction of Risks facing MNC

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• B. Challenges facing the MNC Executive
• 1. Political risk
• expropriation
• regulatory control
• 2. Economic risk
• FOREX Risk
• Inflation Risk
• 3. International Differences in Tax Rates
  and Multiple Financial Markets

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THEORY AND PRACTICE

• C. FUNCTIONS OF FINANCIAL MANAGEMENT
• Two Basic Functions
• 1. Financing Minimizing the Cost of
  Capital through
• Optimal Capital Structure
• 2. Investing Maximizing Return
• Capital Budgeting
• 3. Minimizing Risk This is uniquely
  important for MNC.
• International diversification
• Hedging.

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• D. Instruments for Financial Management
• Useful Concepts from Financial Economics
• What is Financial Economics?
• use of economic analysis to understand the basic
  workings of financial markets, particularly to
  evaluate risks and to hedge again them.
• Cf. Accounting approach Traditional Approach
  Market Fundamental Approach

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• Three Key Principles of Financial Economics
• 1. Arbitrage
• 2. (Financial) Market Efficiency
• 3. Capital Asset Pricing Model

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• Arbitrage
• Capital Market Imperfection exists
• Structural/Informational Imperfect creates a
  room for profitable Arbitrage.
• Arbitrage multiple simultaneous transactions
  for a higher return and a lower risk

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• Financial Market is Information Efficient
  (Market Efficiency)
• The financial market is efficient in processing
  and reflecting relevant information
• Market Acts as A Global Referendum Process
• Attempt to increase the value of a firm by
  purely financial measures or accounting
  manipulation are unlikely to succeed unless there
  are capital market imperfection or asymmetries in
  tax regulations.

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• Capital Asset Pricing
• -Total Market Risk diversifiable risk
  non-diversifiable risk
• -There is no risk premium for diversifiable
  risk
• Risk Managements or Hedging efforts are
  important.