1. MNEs need access to capital Finance and Treasury Functions in the Internalization Process Chief Financial Officer (CFO)—vice president of finance Multinational Finance Function

2. Location of Treasury Function in the Corporate Organizational Structure

3. Acquiring Financial Resources Borrowing Funds Back-to-BackLoansEurobondsForeignBonds

4. Acquiring Financial Resources AmericanDepositoryReceiptsVentureCapitalStockMarket Issuing Equity

5. Internal Sources of Funds Funds—working capital Sources of funds—MNEs have more complex arrangements due to the number of subsidiaries and the diverse environments in which they operate

6. Internal Sources of Funds (cont.) Global cash management Generates and invests cash through dealings with financial institutions

7. Internal Sources of Funds (cont.) Multilateral netting—company establishes one center to handle all internal cash, funds, and financial transactions Advantages include:

8. Foreign-Exchange Risk Management Translation exposure Transaction exposure Economic exposure (operating exposure)—potential for change in expected cash flows that arise from:

9. Exposure-Management Strategy Defining and measuring exposure MNE must forecast the degree of exposure in each major currency in which it operates Reporting system—substantial participation from foreign operations combined with central control Foreign input important to ensure forecasting effectiveness

10. Exposure-Management Strategy (cont.) Centralized policy—top management should determine hedging policy Formulating hedging strategies—safest position has exposed assets equal to exposed liabilities Operational strategies

11. Exposure-Management Strategy (cont.) Formulating hedging strategies (cont.) Contractual arrangements

12. Capital Budgeting Decision in an International Context Parent company needs to compare the net present value or internal rate of return of a foreign project with that of its other projects and with that of others available Unique aspects of capital budgeting for foreign projects Parent cash flows must be distinguished from project cash flows Remittance of funds to the parent affected by differing tax systems, and legal and political constraints on movement of funds