Introduction to international finance

Meaning of International Finance?What is International Finance?. A study of the institutions, policies, and practices that govern • global financial management and/or • financial aspect

Introduction to International Finance

International Finance (MB 74)

Why Companies go Global?

Modes of International BusinessCourse Sequence

Meaning of International Finance?

What is International Finance?

A study of the institutions, policies, and practices that govern

• global financial management and/or

• financial aspects of global business

Multinational Financial Management? Multinational/Transnational

Corporation

Why Study International

Finance?

Exchange Rate

Cross-border Barriers that include

Economic barriers Cultural barriers Political and Legal barriers Ethical Issues

Financing Opportunities in Global Market

Exchange Rate Risk

Changing value of U.S dollar

versus other currencies since 1973Declining dollar good for U.S

exporters, but bad for imports

Rising dollar good for U.S

imports/outsourcing, but bad for exports

Cultural Barriers

Language

Examples of Language Barriers

“Please leave your values at the desk” (France)

“The manager has personally passed all the water served here” (Mexico; to assure safety of drinking water at the hotel)

“You are invited to take advantage of the chambermaid” (Japan)

“Ladies are requested not to have children in the bar” (Norway)

“Because of the impropriety of entertaining guests of the

opposite sex in the bedroom, it is suggested that the lobby be used for this purpose” (Switzerland)

“We will execute customers in strict rotation.” (Greece)

Cultural Barriers Contd…

Hand Gestures

Religion

Hinduism Islam

Judaism Christianity Buddhism

Significance of Religion and Values Customs/Traditions

ULTRA CLEAN LAUNDRY USE SURF

DIRTY

LAUNDRY

N O AIRPORT

Who should study international

Why Firms go Global?

To maximize shareholder wealth through

maximization of market value bymaximizing the cash flows of the firm

Why companies go global?

To seek raw material

To seek new markets

To minimize cost

Overall Goal

Overall goal, shareholder wealth maximization

Separation of ownership from

management and Corporate

Governance

Corporate Governance

Meaning

Goal of Corporate Governance

Comparative Corporate Governance Corporate Governance and

Emerging Markets

Corporate Governance and

Multinational Financial Management

Corporate governance is about the

exercise of power over corporate entities Governance issues arise when a

corporate entity acquires a life of its own Whenever ownership of an enterprise is separated from its management

The relationship among stakeholders

used to determine and control the

strategic direction and performance of an organization is termed corporate

governance

Corporate governance is, in

essence, the method by which an organization establishes order

among the various stakeholders to ensure that decisions are made

and interests are represented in

line with the firm’s stated

objectives

Protect shareholders’ rights

Equitable treatment of all shareholders including minority and foreign shareholders

Recognize the rights of stakeholders as established

by law and encourage active cooperation between corporations and stakeholders in creating wealth and jobs and the sustainability of financially sound enterprises

Disclosure and transparency including financial

situation, performance, ownership, and governance Effective monitoring of management by the board, and the board’s accountability to the company and

to the shareholders

Market Based

Efficient equity markets; dispersed ownership

U.S., U.K., Canada, Australia

Family Based

Management & Ownership is combined

Family/majority and minority shareholders

Hong Kong, Indonesia, Malaysia, Singapore, Taiwan, France

Bank Based

Government influence in bank lending

Lack of transparency, family control

Korea, Germany

Government Affiliated

State ownership of enterprise

Lack of transparency, no minority influence

China and Russia

Modes of International Business

Focus of this Course

Foreign Exchange Markets and

Exchange Rate Determination

Theories of Exchange Rate

Determination

Exchange Rate Regimes

Foreign Exchange Rate Risk—

Measurement and Management

Capital Budgeting Analysis in a Global Environment