We think you have liked this presentation. If you wish to download it, please recommend it to your friends in any social system. Share buttons are a little bit lower. Thank you!
Presentation is loading. Please wait.
Published byOswaldo Imber
Modified about 1 year ago
Chapter 1 Current Multinational Challenges and the Global Economy
© 2012 Pearson Education, Inc. All rights reserved.1-2 Current Multinational Financial Challenges and the Global Economy: Learning Objectives Examine the requirements for the creation of value Consider the basic theory, comparative advantage, and its requirements for the explanation and justification for international trade and commerce Discover what is different about international financial management
© 2012 Pearson Education, Inc. All rights reserved.1-3 Current Multinational Financial Challenges and the Global Economy: Learning Objectives Detail which market imperfections give rise to the multinational enterprise Consider how globalization process moves a business from domestic focus to financial relationships and composition global in scope Examine possible causes to the limitations to globalization in finance
© 2012 Pearson Education, Inc. All rights reserved.1-4 Creating Firm Value in Global Markets Multinational firms (MNEs) are those with operations in more than one country MNEs include for profit, non-profit firms, and NGOs Today, MNEs rely on emerging markets for raw materials, cheaper labor, and outsourced manufacturing MNEs also rely on emerging markets for sales and profits BRICs – the new world markets of Brazil, Russia, India, and China
© 2012 Pearson Education, Inc. All rights reserved.1-5 Global Finance in Practice 1.1 Global Capital Markets: Entering a New Era Global capital markets expanded from 1980 – 2007 to quadruple the size of global GDP The 2008 financial crises reduced the value of global financial assets by $16 trillion Looking ahead financial assets are expected to grow more inline with GDP, government debt will increase, and GDP will rise faster in emerging market countries
© 2012 Pearson Education, Inc. All rights reserved.1-6 Exhibit 1.1 Global Capital Markets
© 2012 Pearson Education, Inc. All rights reserved.1-7 The Global Financial Marketplace We may characterize the market place as links among three items –Assets – at the heart of the financial asset markets are government issued debt securities. Several financial assets derive their value from these underlying financial instruments. The financial markets depend upon the health of these government securities
© 2012 Pearson Education, Inc. All rights reserved.1-8 The Global Financial Marketplace –Institutions Central banks which control each country’s money supply Commercial banks which take deposits and make loans Other financial institutions created to develop, market, and trade securities and derivatives –Linkages – the interbank networks that provide the actual medium for exchange e.g. LIBOR
© 2012 Pearson Education, Inc. All rights reserved.1-9 The Market for Currencies Rates quoted in exhibit 1.2 are currency “mid- rates” because they are midway between the average bid and offer rates among currency traders Most currency quotes follow a convention asz a result of some history or tradition –E.g., euros per dollar and dollars per pound
© 2012 Pearson Education, Inc. All rights reserved.1-10 Exhibit 1.2 Global Currency Exchange Rates
© 2012 Pearson Education, Inc. All rights reserved.1-11 Exhibit 1.2 Global Currency Exchange Rates (cont.)
© 2012 Pearson Education, Inc. All rights reserved.1-12 Eurocurrencies and LIBOR Eurocurrencies –Eurocurrencies are domestic currencies of one country on deposit in a second country –Any convertible (exchangeable) currency can exist in “Euro-” form (do not confuse this term with the European Euro) –Eurocurrency markets serve two valuable purposes These deposits are an efficient and convenient money market device for holding excess corporate liquidity This market is a major source of short-term bank loans to finance corporate working capital needs
© 2012 Pearson Education, Inc. All rights reserved.1-13 Eurocurrencies and LIBOR –The modern eurocurrency market was born shortly after World War II –Eastern European holders of dollars, including state trading banks in the Soviet Union, were afraid to deposit their dollar holdings in the United States because they felt claims could be made against these deposits by U.S. residents –These currency holders then decided to deposit their dollars in Western Europe –While economic efficiencies helped spurn the growth of this market, institutional events were also important
© 2012 Pearson Education, Inc. All rights reserved.1-14 Eurocurrencies and LIBOR Eurocurrency Interest Rates: LIBOR –In the eurocurrency market the reference rate of interest is LIBOR- The London Interbank Offered Rate –LIBOR is now the most widely accepted rate of interest used in standardized quotations, loan agreements or financial derivatives valuations –LIBOR is officially defined by the British Bankers Association –For example, the U.S. dollar LIBOR is the mean of 16 multinational banks inter bank offered rates as sampled at 11am London time in London –Yen LIBOR, EURO LIBOR and all other LIBOR rates are calculated the same way
© 2012 Pearson Education, Inc. All rights reserved.1-15 Exhibit 1.3 U.S. Dollar-Denominated Interest Rates
© 2012 Pearson Education, Inc. All rights reserved.1-16 The Theory of Comparative Advantage The theory of competitive advantage provides a basis for explaining and justifying international trade in a model assumed to enjoy –Free trade –Perfect competition –No uncertainty –Costless information –No government interference
© 2012 Pearson Education, Inc. All rights reserved.1-17 The Theory of Comparative Advantage The features of the theory are as follows; –Exporters in Country A sell goods or services to unrelated importers in Country B –Firms in Country A specialize in making products that can be produced relatively efficiently, given Country A’s endowment of factors of production (land, labor, capital, and technology) –Country B does the same with different products (based on different factors of production)
© 2012 Pearson Education, Inc. All rights reserved.1-18 The Theory of Comparative Advantage –Because the factors of production cannot be transported, the benefits of specialization are realized through international trade –The terms of trade, the ratio at which quantities of goods are exchanged, shows the benefits of excess production –Neither Country A nor Country B is worse off than before trade, and typically both are better off (albeit perhaps unequally)
© 2012 Pearson Education, Inc. All rights reserved.1-19 The Theory of Comparative Advantage For and example of the benefits of free trade based on comparative advantage, assume Thailand is more efficient than Brazil at producing both sports shoes and stereo equipment With one unit of production (a mix of land, labor, capital, and technology), efficient Thailand can produce either 12 shipping containers of shoes or 6 shipping containers of stereo equipment Brazil, being less efficient in both, can produce only 10 containers of shoes or 2 containers of stereo equipment with one unit of input
© 2012 Pearson Education, Inc. All rights reserved.1-20 The Theory of Comparative Advantage A production unit in Thailand has an absolute advantage over a production unit in Brazil in both shoes and stereo equipment Thailand has a larger relative advantage over Brazil in producing stereo equipment (6 to 2) than shoes (12 to 10) As long as these ratios are unequal, comparative advantage exists The following exhibit illustrates total world (in this example) production and consumption if there was no trade and if each country completely specialized in one product
© 2012 Pearson Education, Inc. All rights reserved.1-21 The Theory of Comparative Advantage Clearly the world in total is better off because there are now 10,000 containers of shoes (instead of just 6,000), as well as 6,000 containers of stereo equipment (instead of just 5,600) However, the goods are not distributed across international boundaries!
© 2012 Pearson Education, Inc. All rights reserved.1-22 The Theory of Comparative Advantage Trade can resolve that distribution problem While total production of goods has increased with the specialization process, international trade at a certain range of prices (containers of shoes for a container of stereo equipment) can be distributed between the countries This exchange ratio will determine how the larger output is distributed
© 2012 Pearson Education, Inc. All rights reserved.1-23 The Theory of Comparative Advantage: Limitations Although international trade might have approached the comparative advantage model during the nineteenth century, it certainly does not today; –Countries do not appear to specialize only in those products that could be most efficiently produced by that country’s particular factors of production –At least two of the factors of production (capital and technology) now flow easily between countries (rather than only indirectly through traded goods and services) –Modern factors of production are more numerous than this simple model –Comparative advantage shifts over time
© 2012 Pearson Education, Inc. All rights reserved.1-24 The Theory of Comparative Advantage Comparative advantage is still, however, a relevant theory to explain why particular countries are most suitable for exports of goods and services that support the global supply chain of both MNEs and domestic firms The comparative advantage of the 21st century, however, is one which is based more on services, and their cross border facilitation by telecommunications and the Internet
© 2012 Pearson Education, Inc. All rights reserved.1-25 Exhibit 1.4 Global Outsourcing of Comparative Advantage
© 2012 Pearson Education, Inc. All rights reserved.1-26 Exhibit 1.5 What is Different About International Financial Management?
© 2012 Pearson Education, Inc. All rights reserved.1-27 Market Imperfections: A Rationale for the MNE Firms become multinational for one or several of the following reasons: –Market seekers – produce in foreign markets either to satisfy local demand or export to markets other than their own –Raw material seekers – search for cheaper or more raw materials outside their own market –Production efficiency seekers – produce in countries where one or more of the factors of production are cheaper –Knowledge seekers – gain access to new technologies or managerial expertise –Political safety seekers – establish operations in countries considered unlikely to expropriate or interfere with private enterprise
© 2012 Pearson Education, Inc. All rights reserved.1-28 Exhibit 1.6 Trident Corp: Initiation of the Globalization Process
© 2012 Pearson Education, Inc. All rights reserved.1-29 The Globalization Process The globalization process is the structural and managerial changes and challenges experienced by a firm as it moves from domestic to global in operations We will examine the case of Trident, a young firm that manufactures and distributes an array of telecommunication devices –Trident’s initial strategy is to develop a sustainable competitive advantage in the U.S. market –Trident is currently constrained by its small size, other competitors, and lack of access to cheap capital
© 2012 Pearson Education, Inc. All rights reserved.1-30 The Globalization Process In Phase One, Trident is not itself international or global in its operations However, some of its competitors, suppliers or buyers may be This is one of the key drivers pushing Trident into Phase Two, the first transition of the globalization process This is the Global Transition I: The Domestic Phase to The International Trade Phase
© 2012 Pearson Education, Inc. All rights reserved.1-31 The Globalization Process In the International Trade Phase, Trident responds to globalization factors by importing inputs from Mexican suppliers and making exports sales to Canadian buyers Exporting and importing products and services increases the demands of financial management over and above the traditional requirements of the domestic-only business
© 2012 Pearson Education, Inc. All rights reserved.1-32 The Globalization Process First, direct foreign exchange risks are now borne by the firm –Pricing and payments may be in different currencies –The value of these foreign currency receipts and payments can change, creating a new source of risk Second, the evaluation of the credit quality of foreign buyers and sellers is now more important than ever; this is known as credit risk management –Potential for non-payment of exports and non-delivery of imports –Differences in business and legal systems and practices
© 2012 Pearson Education, Inc. All rights reserved.1-33 The Globalization Process If Trident is successful in its international trade activities, it will soon need to establish foreign sales and service affiliates This step is often followed by establishing manufacturing operations abroad or by licensing foreign firms to produce and service Trident’s products This is the Global Transition II: The International Trade Phase to The Multinational Phase
© 2012 Pearson Education, Inc. All rights reserved.1-34 The Globalization Process Trident’s continued globalization will require it to identify the sources of it competitive advantages This variety of strategic alternatives available to Trident is called the foreign direct investment sequence which include the creation of foreign sales offices, licensing agreements, manufacturing, etc. Once Trident owns assets and enterprises in foreign countries it has entered the multinational phase of globalization
© 2012 Pearson Education, Inc. All rights reserved.1-35 Exhibit 1.7 Trident’s Foreign Direct Investment Sequence
© 2012 Pearson Education, Inc. All rights reserved.1-36 The Limits to Financial Globalization The growth in the influence and self-enrichment of corporate insiders The next exhibit illustrates the agency problems
© 2012 Pearson Education, Inc. All rights reserved.1-37 Exhibit 1.8 The Potential Limits of Financial Globalization
© 2012 Pearson Education, Inc. All rights reserved.1-38 Summary of Learning Objectives Financial management is an integral part of a firm’s strategy. This course analyzes how a firm’s financial management tasks evolve as it pursues global strategic opportunities and new constraints unfold The evolution of firms from domestic to multinational is called the globalization process. A firm may enter into international trade transactions, then international contractual arrangements and ultimately the acquisition of foreign subsidiaries. This final stage is when a firm truly becomes a multinational
© 2012 Pearson Education, Inc. All rights reserved.1-39 Summary of Learning Objectives This globalization process results in a firm becoming increasingly influenced by exchange rate movements and other global political and economic forces in general The decision whether or not to invest abroad may require the MNE to enter into global licensing agreements, joint ventures, acquisitions or Greenfield investments
© 2012 Pearson Education, Inc. All rights reserved.1-40 Summary of Learning Objectives The theory of competitive advantage is based on one country possessing a relative advantage in the production of goods compared to another country Imperfections in national markets for products, factors of production and financial assets translate into market opportunities for MNEs Strategic motives drive the decision to invest abroad and become an MNE. Firms could be seeking new markets, raw materials, production efficiencies, access to technology or political safety
Globalization and the Multinational Enterprise 1-1.
Chapter 1 Globalization and the Multinational Enterprise.
Copyright © 2009 Pearson Prentice Hall. All rights reserved. Chapter 1 Globalization and the Multinational Enterprise.
Chapter 1 Current Multinational Challenges and the Global Economy.
Copyright © 2010 Pearson Prentice Hall. All rights reserved. 1-1 The Multinational Enterprise (MNE) A multinational enterprise (MNE) is defined as one.
Copyright © 2010 Pearson Prentice Hall. All rights reserved. Chapter 1 Globalization and the Multinational Enterprise.
Multinational Business Finance David K. Eiteman, Arthur I. Stonehill and Michael H. Moffett "Multinational Business Finance" ed. 12. Linköping Universitet,
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 1: Expanding Abroad Motivations, Means, and Mentalities.
Corporate Finance MLI28C060 Lecture 7 Tuesday 18 October 2016 Capital budgeting: Introduction to project evaluation techniques.
Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Part 1 Business in a Global Environment.
Outline Introduction to the international capital market The players of the ICM Growth of the ICM Offshore banking and offshore currency trading Growth.
Corporate Finance MLI28C060 Lecture 7 Tuesday 20 October 2015.
Competing in Global Markets Chapter 4. Chapter Objectives 1. Explain the importance of international business and the main reasons nations trade. 2. Discuss.
Chapter 12 The Global Cost and Availability of Capital.
Multinational Corporation (MNC)Foreign Exchange MarketsProduct MarketsSubsidiaries International Financial Markets Dividend Remittance & Financing Exporting.
©2009 McGraw-Hill Ryerson Limited 1 of International Financial Management Prepared by: Michel Paquet SAIT Polytechnic ©2009 McGraw-Hill Ryerson Limited.
Chapter 6 The Eurocurrency Market and International Banking.
1 CHAPTER IX INTERNATIONAL FINANCIAL MARKETS The International Financial System INTERNATIONAL BUSINESS.
Copyright © 2003 Pearson Education, Inc.Slide 15-1 Prepared by Shafiq Jadallah To Accompany Fundamentals of Multinational Finance Michael H. Moffett, Arthur.
Copyright © The McGraw-Hill Companies, Inc. Permission required for reproduction or display Power Point Presentation Materials Transnational Management.
Chapter 8 The Eurocurrency Market and International Banking.
BUSINESS IN GLOBAL MARKETS Chapter Define global business. 2. Understand the importance of global trade. 3. Discuss the roles of comparative and.
15-1 CHAPTER 15 INTERNATIONAL BANKING American International Banking l International banking dates back to the rise of international trade. l Great.
Chapter 16 International Business Finance. Copyright ©2014 Pearson Education, Inc. All rights reserved.16-1 Learning Objectives 1.Discuss the internationalization.
Global Edition Chapter Nineteen The Global Marketplace Copyright ©2014 by Pearson Education.
Fourth Edition International Business. CHAPTER 11 The Global Capital Market.
Chapter 7 Foreign Direct Investment McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Foreign.
6-1 The Foreign Exchange Market. Introduction: It is very important for managers to understand the working of the foreign exchange market and the potential.
International Banking. Description Cross border cross country facet of banking business May not necessarily own or hold a physical presence offshore Traditional.
Multinational Financial Management: An Overview 1 1 Chapter South-Western/Thomson Learning © 2003.
Part Two The Global Environment and Social and Ethical Responsibilities 5 Global Markets and International Marketing.
Money, Banking & Finance Lecture 1 The Nature of Financial Intermediation K Matthews.
Copyright© 2003 John Wiley and Sons, Inc. Power Point Slides for: Financial Institutions, Markets, and Money, 8 th Edition Authors: Kidwell, Blackwell,
©2009 The McGraw-Hill Companies, All Rights Reserved ©2009 The McGraw-Hill Companies, All Rights Reserved Chapter 6 International Business McGraw-Hill/Irwin.
The Foreign Exchange Market & The Global Capital Market.
Chapter 1 Globalization of markets and competition.
McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 21: Exchange Rates, International Trade, and Capital.
EXCHANGE RATES, INTERNATIONAL TRADE, & CAPITAL FLOWS Chapter 14.
Chapter 13 The Multinational Corporation and Globalization.
© 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license.
Chapter 15 Foreign Direct Investment Theory and Strategy.
1 Multinational Corporation (MNC)Foreign Exchange MarketsProduct MarketsSubsidiaries International Financial Markets Dividend Remittance & Financing Exporting.
1 An Overview of International Business BFMA 6043 MBA PHMSB KOTA KINABALU.
Chapter 2 – Economic Systems Resources are scarce everywhere, thus: Every country must answer three economic questions What goods and services should be.
Multinational Financial Management: An Overview 1 1 Chapter South-Western/Thomson Learning © 2006.
Intro To Business Chapter 10. Learning Targets Explain why the world has become a global economy Explain why people and countries specialize in.
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Copyright © 2003 Pearson Education, Inc.Slide 12-1 Prepared by Shafiq Jadallah To Accompany Fundamentals of Multinational Finance Michael H. Moffett, Arthur.
© 2017 SlidePlayer.com Inc. All rights reserved.