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Multinational Financial Management Alan Shapiro 7 th Edition J.Wiley & Sons. Power Points by Joseph F. Greco, Ph.D. California State University, Fullerton. CHAPTER 1. Introduction: Multinational Enterprise and Multinational Financial Management. CHAPTER OVERVIEW:.
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Power Points by
Joseph F. Greco, Ph.D.
California State University, Fullerton
Introduction: Multinational Enterprise and Multinational Financial Management
I. The Rise of the Multinational Corporation
II. The Internationalization of Business and Finance
III. Multinational Financial Management: Theory and Practice
I. The MNC: Definition
a company with production and distribution facilities in more than one country.
A. Forces Changing Global Markets
Collapse of communism
Privatizations of state-owned industries
Revolution in information technology
Wave of M&A
Emergence of free market policies
Rise of Big Emerging Markets (BEMs)
B. Prime Transmitter of Competitive Forces in the Global Economy:
The MNC emphases group performance such as
Global coordinated allocation of resources
Market – entry strategy
Ownership of foreign operations
Production, marketing and financial activities
C. EVOLUTION OF THE MNC
Reasons to Go Global:
1. More raw materials
2. New markets
3. Minimize costs of production
RAW MATERIAL SEEKERS
exploit markets in other countries
historically first to appear
produce and sell in foreign markets
heavy foreign direct investors
seek lower-cost production abroad
motive: to remain cost competitive
D. THE MNC: A BEHAVIORAL VIEW
1. State of mind:
committed to producing,
undertaking investment and marketing, and financing globally.
E. THE GLOBAL MANAGER
1. Understands political and
2. Searches for most cost-
3. Evaluates changes on value of the firm.
A. Political and Labor Union Concerns
B. Consequences of Global Competition
Acceleration of the global economy
I. THE MULTINATIONAL FINANCIAL SYSTEM
A. Main Objective of MNC:
Maximize shareholder wealth
B. Other Objectives Reflect Ability to Link:
via affiliate transfer mechanisms
C. Mode of Transfer:
Reflects freedom to select a variety of financial channels.
D. Timing Flexibility:
Most MNC have some flexibility in timing of fund flows.
The ability to avoid national taxes has led to controversy.
II. FUNCTIONS OF FINANCIAL
A. Two Basic Functions:
B. Additional Factors Facing the MNC Executive
1. Political risk
2. Economic risk
III. THEORETICAL FOUNDATIONS
A. Useful Concepts from Financial Economics:
2. Market Efficiency
3. Capital Asset Pricing
B. Importance of Total Risk
1. Adverse Impact
lower sales and higher costs
2. Justifies hedging activities of MNC
3. Diversification reduces risk
IV. THE GLOBAL FINANCIAL MARKET PLACE
A. Inter-linkage by Computers
B. Market Acts as A Global
Currencies may rise or fall