1. 24-1 International Financial Management © 2001 Prentice-Hall, Inc. Fundamentals of Financial Management, 11/e Created by: Gregory A. Kuhlemeyer, Ph.D. Carroll College, Waukesha, WI

2. 24-2 What is a multinational corporation? u A corporation that operates in two or more countries. u Decision making within the corporation may be centralized in the home country, or may be decentralized across the countries the corporation does business in.

3. 24-3 Why do firms expand into other countries? u To seek new markets. u To seek new supplies of raw materials. u To gain new technologies. u To gain production efficiencies. u To avoid political and regulatory obstacles. u To reduce risk by diversification.

4. 24-4 What are the major factors that distinguish multinational from domestic financial management? u Currency differences u Economic and legal differences u Language differences u Cultural differences u Government roles u Political risk

5. 24-5 Part I The International Financial Environment

6. 24-6 Cash Flow of the Overall MNC

7. 24-7 Centralized Multinational Financial Management

8. 24-8 Decentralized Multinational Financial Management for an MNC with two subsidiaries, A and B

9. 24-9 Distribution of U.S. Exports across Countries (in billions of $)

10. 24-10 Distribution of U.S. Exports and Imports

11. 24-11

12. 24-12

13. 24-13 Perubahan GDP Dunia - 1998

14. 24-14 Perubahan GDP Dunia - 2000

15. 24-15 Perubahan GDP Dunia - 2008

16. 24-16

17. 24-17 International Capital Budgeting Example u A firm is considering an investment in Freedonia, and the initial cash outlay is 1.5 million marks. u The project has 4-year project life with cash flows given on the next slide. appropriate required return is 18% u The appropriate required return for repatriated U.S. dollars is 18%. expected exchange rates u The appropriate expected exchange rates are given on the next slide. International project details:

18. 24-18

19. 24-19

20. 24-20 International Capital Budgeting Example 1,500,000 2.50-600,000 -600,000 0 -1,500,000 2.50 -600,000 -600,000 500,0002.54196,850166,822 1 500,000 2.54 196,850166,822 800,0002.59308,880221,833 2 800,000 2.59 308,880221,833 700,0002.65264,151160,770 3 700,000 2.65 264,151160,770 600,0002.72220,588113,777 4 600,000 2.72 220,588113,777 Net Present Value = 63,202 End of YearExpected Cash Flow (marks)Expected Cash Flow (U.S. dollars) Present Value of Cash Flows at 18% Exchange Rate Rate (marks to U.S. dollar)

21. 24-21 Capital Budgeting Analysis: Spartan, Inc.

22. 24-22 Capital Budgeting Analysis: Spartan, Inc.

23. 24-23 SISTEM PENETAPAN KURS VALAS DAN FAKTOR-FAKTOR YANG MEMPENGARUHINYA

24. 24-24 u Arus modal yang besar dari USA ke Eropa ( Marshall Plan ) u Kebijakan polisi dunia USA u Meningkatnya impor USA dari Jepang dan Eropa u Pertumbuhan Petro Dollars

25. 24-25

26. 24-26 Faktor Yang Mempengaruhi Kurs Valas 1.Permintaan dan Penawaran Valas 2.Posisi Neraca Pembayaran Internasional 3.Tinkat Inflasi 4.Tingkat Pendapatan 5.Tingkat Bunga 6.Kebijakan dan Pengawasan Pemerintah 7.Ekspektasi/Spekulasi Masyarakat – Country Risk

27. 24-27 $ / satuan waktu Rp 10.000 $ Sfc Dfc

28. 24-28 Bila impor produk dan ekspor modal naik, sementara penawaran valas tetap maka mata uang domestik akan melemah. Dfc’ $ $ / satuan waktu Rp 10.000 Sfc Dfc 12.000

29. 24-29 Sebaliknya jika ekspor produk dan impor modal naik, sementara permintaan valas tetap maka mata uang domestik akan menguat $ / satuan waktu Rp 10.000 $ Sfc Dfc Sfc’ 8.000

30. 24-30

31. 24-31 4. Tingkat bungga

32. 24-32 Comparing Interest Rates Among Currencies Annualized Short-Term Interest Rates among Countries in 2001

33. 24-33 4. Tingkat Pendapatan

34. 24-34 5. Kebijakan dan Pengawasan Pemerintah Kebijakan lalu lintas devisa Peningkatan hambatan perdagangan Kebijkan suku bunga, dll. 6. Ekspektasi dan Spekulasi / Kondisi kestabilan politik / Isu / Rumor  Country Risk Adanya spekulasi terjadinya devaluasi Pemerintahan yang selalu berganti / tidak stabil Isu pergantian kepemimpinan nasional Isu sakitnya pimpinan nasional Isu dijualnya aset penting nasional

35. 24-35 Corruption Index Ratings for Selected Countries Maximum rating = 10. High ratings indicate low corruption.

36. 24-36

37. 24-37

38. 24-38

39. 24-39 Actual Country Risk Ratings Across Countries

40. 24-40 Cougar Co.: Determining the Overall Country Risk Rating

41. 24-41 Cougar Co.: Derivation of the Overall Country Risk Rating

42. 24-42 Types of Exchange-Rate Risk Exposure u Translation Exposure u Translation Exposure -- Relates to the change in accounting income and balance sheet statements caused by changes in exchange rates. u Transactions Exposure u Transactions Exposure -- Relates to settling a particular transaction at one exchange rate when the obligation was originally recorded at another. u Economic Exposure -- u Economic Exposure -- Involves changes in expected future cash flows, and hence economic value, caused by a change in exchange rates.

43. 24-43 Meskipun penerimaan subsidiary di UK meningkat 20% (dari GBP 5 ke 6 M) namun consolidated income statementnya mengalami penurunan sebesar $ 5,1 M.

44. 24-44

45. 24-45

46. 24-46

47. 24-47

48. 24-48

49. 24-49

50. 24-50

51. 24-51

52. 24-52 Original Impact of Exchange Rate Movements on Earnings: Madison, Inc. (In Millions)

53. 24-53