International Managerial Finance. Prepared by Keldon Bauer. The MNC and its Environment. In recent years, international finance has become an increasingly important element in the management of MNCs.
PowerPoint Slideshow about ' International Managerial Finance' - malloren-rasmussen
An Image/Link below is provided (as is) to download presentation
Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.
One major difference however, is that it is often essential to enter into joint-ventures with private investors or with government-based agencies in the host country.
Such joint-venture laws can result in a substantial degree of management control by host countries and may result in disagreements among the partners as to the distribution of profits, the portions to be allocated for reinvestment, and the remittance of profits.
During the past two decades the Euromarket—which provides for borrowing and lending currencies outside their country of origin—has grown rapidly and provides MNCs with an external opportunity to borrow or lend funds with little government regulation.
One aspect of the Euromarket is offshore centers, which is composed of cities or states (including London, Singapore, Nassau, and Hong Kong) that have achieved prominence as major centers for Euromarket business.
In addition, a variety of new financial instruments – including currency and interest rate swaps, forward contracts, options contracts, and international commercial paper – have been created to facilitate international trade and finance.
The Euromarket is still dominated by the U.S. dollar.
However, other currencies such as the Euro, Swiss Franc, Japanese Yen, and British Pound have increased in importance.
The forward exchange rate is the rate of exchange between two currencies at some specific future date.
These rates and their relationships can be described as shown in Figure 18.2 on the following slide.
Although a number of factors can influence exchange rate movements, by far the most important influence is differing inflation rates between two currencies, where the currency with the higher rate of inflation will decline relative to the country with the lower rate.
The Eurocurrency market is the portion of the Euromarket that provides short-term, foreign-currency financing to subsidiaries of MNCs.
Unlike borrowing in domestic markets, where only one currency and a nominal interest rate is involved, financing in the Euromarket may involve several currencies and both nominal and effective interest rates.
Effective interest rates in the international context, is the rate equal to the nominal rate plus (or minus) any forecast appreciation (or depreciation) of a foreign currency relative to the currency of the MNC parent.
Because MNCs compete for the same global markets, it is essential that they offer attractive credit terms to potential customers.
With respect to inventory management, MNCs must consider a number of factors related to both economics and politics, including exchange rate fluctuations, tariff and non-tariff barriers, and varying laws and regulations.