1. Introduction to International Finance
International Finance (MB 74)

2. Introduction to International Finance
Meaning of International Finance
Multinational Firm
International Finance versus Domestic Finance
Why Companies go Global?
Modes of International Business
Course Sequence

3. 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

4. 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

5. Exchange Rate Risk
Changing value of U.S. dollar versus other currencies since 1973
Declining dollar good for U.S. exporters, but bad for imports
Rising dollar good for U.S. imports/outsourcing, but bad for exports

6. Economic Barriers Tariffs, Import Duties, Quota Restrictions
Restrictions on remittance of profits and repatriation of capital
Restrictions on foreign equity participation
Trading blocks

7. 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)

8. Cultural Barriers Contd…
Hand Gestures
Religion
Hinduism
Islam
Judaism
Christianity
Buddhism
Significance of Religion and Values
Customs/Traditions

9. USE SURF
ULTRA CLEAN
LAUNDRY
DIRTY
LAUNDRY

10. N O AIRPORT

11. Political/Legal Barriers
Political Ideology
Opinions of Political Leadership
Civil disorder
External relations
Attitude towards foreign capital
Legal System

12. Ethical Barriers
Definition of “Ethics” in your country versus definition of “Ethics” in a foreign country
Ethics and the society
Firm’s role in education
Firm’s role in health care
Ethics and the environment

13. Who should study international finance?
A company that engages in global business
A pure domestic company

14. Why Firms go Global? To maximize shareholder wealth through
maximization of market value by
maximizing the cash flows of the firm

15. Why companies go global?
To seek raw material
To seek new markets
To minimize cost

16. Overall Goal Overall goal, shareholder wealth maximization
Separation of ownership from management and Corporate Governance

17. Corporate Governance Meaning Goal of Corporate Governance
Comparative Corporate Governance
Corporate Governance and Emerging Markets
Corporate Governance and Multinational Financial Management

18. Meaning
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

19. Goal
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

20. 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

21. Comparative Corporation Governance
Origins of the need for corporate governance
Separation of ownership from management
Varying views by culture of who the stakeholders are
Corporate governance practices differ across culture

22. Government Affiliated
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

23. Modes of International Business
International Trade
Licensing
Franchising
Joint Ventures
Direct Foreign Investment

24. 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