Presentation on theme: "WELCOME TO OUR PRESENTATION. MEMBERS OF GROUP NAME OF THE MEMBERSID MARUF AHMEDWUB 01/11/33/1785 SAIMA AMBIA TOMAWUB 01/11/33/1753 FATEMA AKTERWUB 01/11/33/1755."— Presentation transcript:
MEMBERS OF GROUP NAME OF THE MEMBERSID MARUF AHMEDWUB 01/11/33/1785 SAIMA AMBIA TOMAWUB 01/11/33/1753 FATEMA AKTERWUB 01/11/33/1755 SHARNA YESMINWUB 01/11/33/1760 TAHIRA JAHAN LAMIAWUB 01/11/33/1763 ALAMGIR HOSSAINWUB 01/11/33/1771 AFRIN AHMEDWUB 01/11/33/1773 ALI AHMMED EMONWUB 01/11/33/1777 NAZMUL ALAMWUB 01/11/33/1782
ONE CHAPTER PRESENTING – MARUF AHMED WUB 01/11/33/1785 MULTINATIONAL FINANCIAL MANAGEMENT: AN OVERVIEW
A corporation that has its facilities and other assets in at least one country other than its home country is called multinational company. Example: nestle The commonly accepted goal of an MNC is to maximize shareholder wealth. MNC and MNC’s Goal
Conflict of goals between a firm’s managers and shareholders is often referred to as the agency problem—the agency problem. Agency costs are normally larger for MNCs than for purely domestic firms, due to: the difficulty in monitoring distant managers, the different cultures of foreign managers, the sheer size of the larger MNCs, and the tendency to downplay short-term effects. Subsidiary managers may be tempted to make decisions that maximize the values of their respective subsidiaries. Conflicts with the MNC Goal
Theories of International Business Theory of Comparative Advantage Specialization by countries can increase production efficiency. Imperfect Markets Theory The markets for the various resources used in production are “imperfect.” Product Cycle Theory As a firm matures, it may recognize additional opportunities outside its home country.
The International Product Cycle Firm exports product to accommodate foreign demand Firm creates product to accommodate local demand Firm establishes foreign subsidiary to establish presence in foreign country and possibly to reduce costs a. Firm differentiates product from competitors and/or expands product line in foreign country b. Firm’s foreign business declines as its competitive advantages are eliminated or
ONE CHAPTER PRESENTING – SHARNA YESMIN WUB 01/11/33/1760 MULTINATIONAL FINANCIAL MANAGEMENT: AN OVERVIEW
International Business Methods International trade involves exporting and/or importing. Licensing allows a firm to provide its technology in exchange for fees or some other benefits. Franchising obligates a firm to provide a specialized sales or service strategy, support assistance, and possibly an initial investment, in exchange for periodic fees.
Firms may also penetrate foreign markets by engaging in a joint venture (joint ownership and operation) with firms that reside in those markets. Acquisitions of existing operations in foreign countries allow firms to quickly gain control over foreign operations as well as a share of the foreign market. Establishing new foreign subsidiaries International Business Methods Continued….
Exposure to International Risk International business usually increases an MNC’s exposure to: exchange rate movements foreign economies political risk
TWO CHAPTER PRESENTING – FAETMA AKTER WUB 01/11/33/1755 INTERNATIONAL FLOW OF FUNDS
The balance of payments is a summary of transactions between domestic & foreign residents for a specific country over a specified period of time. Components of balance of payments Current Account Capital Account The balance of payments
Summary of the flow of funds between one specified country & all other countries due to purchases of goods or services Balance of trade Which is simply the difference between exports & imports. Factor income which represents income received by investors on foreign investments in financial assets. Transfer Payments which represent aid, grants & gifts from one country to another. Current Account
Summary of the flow of funds resulting from the sale of assets between one specified country & all other countries over a specified period of time. Direct foreign investment represents the investment in fixed assets in foreign countries that can be used to conduct business operations. Portfolio Investment represents transactions involving long term financial assets between countries that do not affect the transfer of control. Capital Investment which represents transactions involving short-term financial assets between countries. Capital Account
Factors Affecting International Trade Flows Inflation A relative increase in a country’s inflation rate will decrease its current account, as imports increase and exports decrease. National Income A relative increase in a country’s income level will decrease its current account, as imports increase.
Government Restrictions A government may reduce its country’s imports by imposing tariffs on imported goods, or by enforcing a quota. Factors Affecting International Trade Flows Exchange Rates If a country’s currency begins to rise in value, its current account balance will decrease as imports increase and exports decrease.
Factors Affecting DFI Changes in Restrictions New opportunities may arise from the removal of government barriers. Privatization DFI has also been stimulated by the selling of government operations. Potential Economic Growth Countries with higher potential economic growth are more likely to attract DFI.
Tax Rates Countries that impose relatively low tax rates on corporate earnings are more likely to attract DFI. Exchange Rates Firms will typically prefer to invest their funds in a country when that country’s currency is expected to strengthen. Factors Affecting DFI
THREE CHAPTER PRESENTING – SAIMA AMBIA TOMA WUB 01/11/33/1753 INTERNATIONAL FINANCIAL MARKETS
The markets for real or financial assets are prevented from complete integration by barriers such as tax differentials, tariffs, quotas, labor immobility, communication costs, cultural differences, and financial reporting differences. These barriers can also create unique opportunities for specific geographic markets that will attract foreign investors and creditors. Motives for Using International Financial Markets
Investors invest in foreign markets following motives: Investors invest in foreign markets: to take advantage of favorable economic conditions; when they expect foreign currencies to appreciate against their own; and to reap the benefits of international diversification. Motives for Investing in Foreign Markets
Creditors provide credit in foreign markets: to capitalize on higher foreign interest rates; when they expect foreign currencies to appreciate against their own; and to reap the benefits of international diversification. Motives for Providing credit in Foreign Markets
Borrowers borrow in foreign markets: to capitalize on lower foreign interest rates; and when they expect foreign currencies to depreciate against their own. Motives for Borrowing in Foreign Markets
The foreign exchange market allows currencies to be exchanged in order to facilitate international trade or financial transactions. The system for establishing exchange rates has evolved over time. From 1876 to 1913, each currency was convertible into gold at a specified rate, as dictated by the gold standard. Foreign Exchange Market
Two types of foreign exchange transactions: There is no specific building or location where traders exchange currencies. Trading also occurs around the clock. The market for immediate exchange is known as the spot market. The forward market enables an MNC to lock in the exchange rate at which it will buy or sell a certain quantity of currency on a specified future date. The bid/ask spread is normally larger for those currencies that are less frequently traded. Foreign Exchange Transactions
THREE CHAPTER PRESENTING – ALI AHMMED EMON WUB 01/11/33/1777 INTERNATIONAL FINANCIAL MARKETS
A cross exchange rate reflects the amount of one foreign currency per unit of another foreign currency. Value of 1 unit of currency A in units of currency B =value of currency A in $ value of currency B in $ Interpreting Foreign Exchange Quotations
Currency Futures and Options Market A currency futures contract specifies a standard volume of a particular currency to be exchanged on a specific settlement date. Currency options contracts give the right to buy or sell a specific currency at a specific price within a specific period of time. They are sold on exchanges too.
Currency Futures and Options Market currency option contract Currency call option Currency put option
Eurodollar Eurocurrency market Asian money market Eurobonds are bonds that are sold in countries other than the currency denominating the bonds. International Money Market
Why Corporation use in International Money Market Corporation may need to borrow funds to pay. Corporation also issue money market securities. Corporation or Government may consider borrowing in a currency.
Why Corporation and Investors invest in international money market Foreign interest rates are higher than local money market. Foreign currency will appreciate against home currency.
Why Corporation in Issue Stock in international stock market More easily digested rate when it issue in several market. It enhance the firms image and name recognition in a foreign country. The location of an MNCs operations can influence the deceision.
FOUR CHAPTER PRESENTING – NAZMUL ALAM WUB 01/11/33/1782 EXCHANGE RATE DETERMINATION
To exchange a specified amount of currency At a specified exchange rate called the forward rate On a specified date in the future Forward Contract & Currency futures contracts Currency futures contracts specify a standard volume of a particular currency to be exchanged on a specific settlement date, Forward Contract
Country Risk Analysis is assessment of potential risks and rewards from doing business in country. Political Risk is the potential adverse impact of a country’s environment on an MNC’s cash flows Country Risk and Political Risk
Political Risk Factors Attitude of Consumers in the Host Country consumers may be very loyal to homemade products. Attitude of Host Government exchange rate movements The host government may impose special requirements or taxes, restrict fund transfers, subsidize local firms, or fail to enforce copyright laws. Blockage of Fund Transfers Funds that are blocked may not be optimally used.
Currency Inconvertibility The MNC parent may need to exchange earnings for goods. War Internal and external battles, or even the threat of war, can have devastating effects. Bureaucracy Bureaucracy can complicate businesses. Corruption Corruption can increase the cost of conducting business or reduce revenue. Political Risk Factors Continued….
Financial Risk Factors Interest Rates High or low Exchange Rates Affect import vs export, and thus income Inflation Affect purchasing power and demand