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Multinational Finance by Kirt C. Butler

Everything should be madeas simple as possible,but not simpler.Albert Einstein. Learning objectives?Corporate governance and the goals of the multinational corporation ?The challenges of multinational operations

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Multinational Finance by Kirt C. Butler

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    2. Everything should be made as simple as possible, but not simpler. Albert Einstein

    4. Multinational financial management is financial management conducted in more than one cultural, social, economic, or political environment We’ll develop a framework for evaluating the opportunities, costs and risks of operating in the world’s markets for goods, services, and financial assets and liabilities A starting point

    5. Governance of the MNC

    6. Claims on corporate revenues VREVENUES = VEXPENSES + VGOVT + VOTHER + VDEBT + VEQUITY

    7. Challenges facing the multinational manager The gentle reader will never, never know what a consummate ass he can become, until he goes abroad. Mark Twain

    8. The MNC’s additional risks Country risk - the risk that the business environment in a host country will unexpectedly change Political risk - the risk that the business environment in a host country will change unexpectedly due to political events Financial risk - the risk of unexpected change in the financial or economic environment of a host country

    9. Risk versus risk exposure Risk exists whenever actual outcomes can differ from expectations A company has an exposure to risk when its value can change with unexpected changes in business conditions

    10. Value = St [E[CFt] / (1+it)t] Multinational investment policy Higher returns from existing investments New investment opportunities Multinational financial policy Reduced capital costs through access to international capital markets The MNC’s opportunities

    11. The optimal capital budget

    12. The value of multinationality

    13. Perfect financial market assumptions Financial opportunities often involve a violation of one of these assumptions Frictionless markets No government intervention or taxes No transactions, agency, or bankruptcy costs Rational investors Equal access to costless information Equal access to market prices

    14. Frictionless markets are operationally efficient Rational investors with equal access to markets and information ensure informational efficiency, in which prices reflect all relevant information Together, operational and informational efficiency promote allocational efficiency Market efficiency

    15. Vivé la difference Cross-border differences can affect all areas of business, particularly through differences in - Language & culture - Human resource management - Accounting - Marketing - Distribution - Logistics - Financial markets - Corporate governance - Other business conventions (legal, accounting, taxation, regulation, etc.)

    16. Multinational financial management Multinational finance is interdisciplinary within the field of finance Multinational financial managers must be familiar with Foreign exchange and Eurocurrency markets Derivatives (e.g., futures, options, & swaps) International financial markets (debt & equity) International markets for real assets (e.g., land or labor) International portfolio investment

    17. …where the art resides The notes I handle no better than many pianists, but the pauses between the notes – ah, that is where the art resides. Arthur Schnabel

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